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Rethinking the Real Estate Sales Process: Getting More May Mean Asking Less

Published on May 7, 2024

In the world of real estate investment sales, it is rare for the broker to suggest ownership ask less than the market value. But maybe more of us should. In an industry of low probabilities at every turn, it would take brass to suggest such an approach. So few do it even if it maximizes price and yields better outcomes. A few reasons to reconsider:  

1. Asking Whatever is Foolish: Many believe asking for the moon will land at sky-high pricing. It won’t; instead it keeps otherwise interested groups at bay.  Asking $7 million for a $5 million property won’t get you $6 million…only a stale listing.

2. NYC is a Sophisticated Market: Investors may and often do overpay for the “right” asset but not by nearly as much owners often think. And a good broker matches the owner’s property with the “right” investors—that’s the skill. Groups willing to overpay will quickly move on from a supremely overpriced listing and overpay elsewhere.

3. Price Maximization Requires Competition: It’s true that broad exposure invites competition but it isn’t sufficient. You can spread the gospel far and wide but if the message reeks, few will follow. Pricing matters…a lot. If too high, groups will move along and focus on better opportunities. Why make your property easy to dismiss?

4. Get ‘Em Half Pregnant: Asking less than market invites an abundance of interest. A well-priced asset has legs and spreads faster than a salacious high school rumor. It also invites investors to dig into the due diligence and inspect the property. An active investor with time and resources allocated to a property is one step closer to consummation.

5. Sending the Right Signal to the Market: Overpriced listings or marketing materials riddled with phrases like “ownership seeking proposals” is a sure pass for any serious and well capitalized group. The message (realized or not) is clear: pay me a stupid premium and I’ll sell. If you are a seller, be a seller!

To be clear, the ask price should not be foolishly low—consider a 5% discount to market (but be sure your broker knows the market). A pool of rowdy and eager buyers chomping on the bit to buy beats the alternative. I have several anecdotal stories where we employed the above with phenomenal success achieving, in each instance, above the ask price.

Owners: let your brokers disrupt the old model. It works, is more fun and gets you to your goal of selling sooner for more.

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Rent-Stabilized Properties Remain Untouchable

Published on April 26, 2024

The white paper put out by Maverick Real Estate Partners raises serious, and perhaps even grave, concerns for both owners and lenders of rent stabilized properties in NYC.

Healthy banks will adjust their exposure to this asset class and live to see another day while regional banks may not.

Smaller owners of these assets will face a similar fate of the regional banks. With lower valuations and higher interest rates, landlords will have to “ante” up in the form of more equity if they want to stay in the game and see “fourth street” or the “river” and many owners don’t have the financial wherewithal to do that.

How this unfolds: many mom-and-pop owners will lose their assets in foreclosure, title will revert to the lenders who will then aggregate these buildings in large portfolio sales to institutional investors at sizeable discounts.

The irony: hundreds of rent stabilized buildings (and perhaps more) end up in the hands of a few institutional owners (i.e., the proverbial small guy is wiped out).

Leadership matters!

Sources:
Rent Stabilization in New York City – Maverick Insights. (n.d.). https://insights.maverickrep.com/rent-stabilization-in-new-york-city/
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Good Cause Eviction: Fundamentally Flawed

Published on April 22, 2024

Over the weekend, legislators passed the NY state budget and Governor Hochul will soon approve it. Despite the high praise politicians involved are heaping on one another, the budget passed nearly three weeks after the deadline. Hochul suggested that a good deal is better than a fast one. True, but New Yorkers got neither. Let’s examine good cause eviction (GCE) and, later in the week, Individual Apartment Improvements (IAIs) and 485-x, which replaces 421-a.

Good Cause Eviction

Lacking any creativity, NY legislators adopted a version of GCE very similar to California’s (perhaps a pre-emptive move to overcome any constitutional legal challenges). Specifically, free market rental increases are capped at the lesser of: (i) 10% and (ii) 5% plus inflation. NYC must apply GCE (with certain exemptions) while other localities can choose whether to opt in. Tenants who fail to pay rent or are a nuisance can be evicted (which shouldn’t need clarification but in this environment landlords can take nothing for granted). 

Exemptions to GCE

GCE passed with certain exemptions and one in particular that seems misguided (discussed below). Any new project (built in 2009 or later) is exempt from GCE for 30 years from completion, and expensive units (those affordable to folks making 245% of the area median income) are also exempt from GCE. Owners of small portfolios comprising 10 apartments or fewer are exempt from GCE.

Takeaways and Open Issues

  • Defining Ownership: What does it mean to own 10 units? Sounds simple, but most commercial properties are owned through an LLC (to minimize personal liability and contain issues with troubled assets from infecting an entire portfolio) and how will the state or city pierce the corporate veil and ascertain ownership? Furthermore, LLCs are very flexible structures often having multiple membership interests with different ownership stakes complicating matters. What if you own a 20% membership interest in a 40-unit property? Do you own 8 or 40 units? To me, the answer isn’t clear but one thing is: the future holds more paperwork/filings and, as a result, more costs for landlords.
  • 10 Units or Fewer Exemption Defies Logic: In an attempt to lessen the bite GCE may have on smaller landlords, Albany enacted the 10-units or fewer exemption. Accordingly, a free market tenant “unlucky” enough to find herself living in a unit of a mom-and-pop owner will not have any protections afforded by GCE. To illustrate, her rent of $2,500 could be increased to $5,000 upon lease renewal. But isn’t this the exact “price gouging” the new rules are meant to protect against? Some may suggest this scenario is unlikely as the market wouldn’t support a doubling of rents. Ok, but then why have GCE at all? It’s clear that legislators want their cake and to eat it too by simultaneously protecting tenants and also smaller landlords. However, protecting the latter hurts certain members of the former.  
  • Price Ceilings Have Unintended Consequences: Rent stabilization and now GCE are forms of price ceilings—a concept that isn’t new.  Cities such as Stockholm, Berlin, San Francisco and Mumbai, among others, have implemented some form of rent control. And it’s true that regulating rents provides short-term relief for certain tenants but it can lead to issues with housing supply, building maintenance and quality over the longer term. Time will reveal what unintended consequences come to pass from GCE in NYC.

So, the dirty little secret is that Albany has been tinkering with supply and demand economics with adverse consequences for some time now. Through rent stabilization, nearly one million apartments have been effectively removed from the supply side of the equation putting undue rental pressure on the remaining free market units. The supply issue was exacerbated when legislators allowed 421-a to sunset nearly two years ago. Few new rental projects were built and the price of free market apartments unsurprisingly increased dramatically as demand for NYC living remained robust.

To ameliorate their missteps, Albany is now asking landlords—through the adoption of GCE—to cap the foreseeable and inevitable rent spikes resulting from bad policy. Politicians have merely shifted the increase in housing costs and risk onto landlords: the perennial punching bag.

Sources:
Rebong, K. (2024, April 21). Housing deal finally passes; here are the details. The Real Deal. https://therealdeal.com/new-york/2024/04/20/housing-deal-finally-passes-here-are-the-key-details/
Smith, R. H. (2024, April 22). How ‘Good Cause’ Could Give Some Tenants New Leases and Lower Rent. THE CITY - NYC News. https://www.thecity.nyc/2024/04/22/tenant-eviction-good-cause-rent-limits/
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Nobody Understands NYC Property Taxes and You May Not Need To

Published on April 16, 2024

A lot has been said of taxes over the years and, generally speaking, none of it good. Take the greatest mind of all time, Albert Einstein, who had less trouble with theoretical physics and quantum mechanics suggesting the “hardest thing in the world to understand is income tax.” Mark Twain was less perplexed by taxes but derided them nonetheless when he asked what’s “the difference between a taxidermist and a tax collector? The taxidermist takes only your skin.”

Lack of Transparency in Property Tax Calculation

For far too long, New York City officials have been doling out tax bills across all property types with seemingly no rhyme and reason and little transparency in the calculation. Sure, they first estimate a home’s market value and then determine an “assessed value” to which they apply a tax rate. Sounds simple enough but what goes into the market value and assessed value calculations? Hard to know for sure but the resulting tax bills can be rage inducing and, for some, discriminatory. 

Inequities in Taxation

A few examples highlight the inequitable outcome of the current system. The owner of a brownstone in Park Slope valued by the city at nearly $6.5 million receives an annual tax bill of $15,000, or 0.2% of the value. Another townhouse in the same neighborhood valued at $5.4 million pays $12,000 in taxes annually (again 0.2% of the value). In the Bronx where lower-income folks reside, a home valued at $780,000 has a $7,500 tax bill, or just under 1% of the home’s value.

Peculiarities of Condo and Co-Op Taxation

Condo and co-ops can have appalling low tax bills as well. Take the sale of a $115 million penthouse  condo at Central Park Tower which was valued by the city at a mere $10 million.  In fact, the entire 179-unit building was valued at $308 million. So, what’s going on? Taxes on co-ops and condos value the buildings as if they were rentals and take into account rent stabilized buildings when making those calculations. The result: obscenely low values for tax purposes and very happy residents. The irony, of course, is that politicians in Albany often cry foul that the rich aren’t paying their fair share.

Legislative Constraints

To further complicate the byzantine property tax system, state law caps the increases year-to-year and over a five-year period on certain smaller properties with few units. According to one study, these smaller homes are responsible for 15% of the total property tax revenue but make up nearly 47% of the market value in NYC.

Disproportionate Burden on Multi-family and Mixed-use Properties

The lion’s share of property taxes are paid by owners of multi-family and mixed use properties. They contribute an outsized percentage of the $32 billion in property taxes collected annually by NYC. But this too can be befuddling as two properties with the same number of apartments and similar net operating incomes can have wildly different tax bills depending on what neighborhoods they are located.

Acknowledgement of Inequities

Many acknowledge that the property tax system is inequitable and opaque and politicians, in the past, have tried and failed to overhaul the system. But change may be afoot. In 2017 a group of property owners, renters, and other advocacy groups formed Tax Equity Now New York (TENNY) and filed a lawsuit claiming homes with equivalent values are currently assessed and taxed at different rates depending on where they are located often disproportionately affecting racial minorities. Last month, the lawsuit was cleared by NY’s highest court to proceed.

The Role of City and State Lawmakers

This suit may have legs and rather than fight the lawsuit, city and state lawmakers should take the opportunity to revamp and streamline the very messy property tax system abhorred by many. A tall order for sure and perhaps beyond the competency of our representatives.

Sources:
Zaveri, M., & Baker, C. (2024, April 2). His brownstone is worth $5.4 million. why is his tax bill so low?. The New York Times. https://www.nytimes.com/2024/04/02/nyregion/nyc-property-tax.html
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The Best Baseball Player of All Time: Shohei “Showtime” Ohtani Involved in Another Scandal

Published on April 15, 2024

You may have read about what is perhaps the second largest gambling scandal in baseball involving Shohei Ohtani and his translator to the tune of $4.5 million (the most well known being Pete Rose and it cost him entry into the Hall of Fame despite holding the most hits in baseball).

This post is not about that; instead, something more infuriating took place on Wednesday night April 3 when Ohtani hit his first home run as a Dodger after signing a $700 million deal in the offseason. This is no small thing as this specific home run and the ball in question was off the bat of arguably both the greatest hitter and pitcher of all time embodied in one human being. Reports put the ball at an estimated value of $100,000. The longtime Dodgers fan who received the ball, however, walked away with two signed hats and a signed bat and ball. Nice for sure but certainly not a fair exchange.

The story gets worse: the fan was strong armed into accepting this relative pittance of a payout as the team refused to authenticate the ball (making it worthless) if she refused the terms. The translator for Ohtani (a new one as the previous one is in deep shit for his shenanigans) said that Ohtani “talked to” and “met” with the fan. The problem is that didn’t happen (and it makes you ponder both the quality of the translating or perhaps Ohtani’s tendencies for prevarication). It’s also worth noting that the Dodgers organization is worth an estimated $5.45 billion and Ohtani too isn’t hurting for cash.

Every fan who attends any baseball game agrees often unbeknownst to them an “adhesion” contract. Specifically, somewhere on the back of every ticket there is fine print that says “the ticketholder assumes all risk, danger and injury incidental to the game of baseball” such as foul ball or broken bat. And that’s fine and fans should and most know that but, at the same time, a ticketholder of a baseball game is purchasing a number of entitlements as well (namely, the right to sit at an assigned seat, to watch the game without interference and the to keep balls hit into the stands). This last right is an implicit part of the contract stemming from a longstanding practice in baseball dating back to the 1920s. And this isn’t true in all sports—you ever see a fan hold onto a basketball at a professional game?

Sure, this ball is a keepsake for Ohtani and certainly the fan could have kept the ball and deprived him of memorabilia marking the milestone but she did the “right” thing assuming no doubt that there would be a fair exchange. There was not. And for that, shame on the Dodgers and shame on Ohtani!

Sources:
MSN. (n.d.). https://www.msn.com/en-us/sports/mlb/chris-russo-blasts-dodgers-and-shohei-ohtani-for-treatment-of-fan-who-caught-home-run-ball/ar-BB1l9pQV

Fan who caught Shohei Ohtani’s first Dodgers home run says she didn’t even get to meet superstar - CBSSports.com. (2024, April 5). CBSSports.com. https://www.cbssports.com/mlb/news/fan-who-caught-shohei-ohtanis-first-dodgers-home-run-says-she-didnt-even-get-to-meet-superstar/

(2023, October 12). Who is Liable if I am Hit by a Foul Ball at a Major League Baseball Game? Rand Spear the Accident Lawyer. 
https://www.randspear.com/blog/who-is-liable-if-i-am-hit-by-a-foul-ball-at-a-major-league-baseball-game/#The%20Baseball%20Rule%20&%20Liability
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Good Cause Eviction May Be Coming to NYC – What Does That Mean?

Published on April 10, 2024

The NY state budget deadline is upon us and there are whispers and leaks that lawmakers are close on passing good cause eviction—a euphemism for regulating rent increases for free market apartments. If it does pass, what does it mean for the real estate community and housing market? A few of my thoughts below:

  • Cap on free market rents: Increases to rents for free market apartments are likely to be capped at the lesser of: i) 10% per year and ii) 5% plus CPI. This mirrors the law in California which is more onerous on landlords than NJ where “unconscionable” increases are prohibited. The meaning of that isn’t entirely unclear but it’s certainly more favorable to landlords than what is currently being proposed.  
  • The return of 421-a: A version of 421-a is likely to pass as well as it would be incredulous to think that more moderate lawmakers would accept good cause eviction without 421-a. This may be a Pyrrhic victory for developers and tantamount to a defeat as good cause eviction may take more than 421-a gives.
  • Unrenovated apartments trapped: Landlords with free market units that are below market rate (i.e., undermanaged, unrenovated) may be trapped at rents well below fair market value. The unrenovated four bedroom apartment worth $4,000, if renovated, but only charging $2,000 may be stuck with annual increases off the $2,000. You snooze (on renovations), you lose so says Albany.
  • The new rental caps may be optional: A recent NY Post article suggests landlords would “not technically be barred from raising rents” above the level described above, but they could be dragged into court if they do. That’s like saying you can rob a bank and steal from the blind, but you may be dragged into court if you do. Ok, maybe not quite but it’s either legal to increase above these levels or it isn’t.  Or are these caps merely suggested guidelines owners should abide by and if you don’t you are being naughty.
  • Arrival of universal rent control: NYC landlords would have to abide by both the rent stabilization rules for those units that are rent stabilized (DHCR filings and annual rental increases determined by the Rent Guidelines Board), as well as this new regime for free market apartments (i.e., the lesser of 10% and 5% plus CPI). Will this require more paperwork for landlords similar to DHCR filings, penalties if you overcharge, etc.?
  • Tying 421-a with good cause eviction may have unintended consequences: 421-a tethered to good cause eviction may not satisfy developers nor prompt new housing developments as legislators are intending. You can fool the voters with linguistic dexterity but not bulge bracket banks that will see good cause eviction for what it is: universal rent control. In other words, any new project would be 100% regulated albeit under separate legislative regimes and this will no doubt impact borrowers’ cost of capital for new construction projects.
  • Lawsuits anyone: No doubt lawyers for landlord groups will call this an unconstitutional “taking” and take their cases through the judicial system and perhaps all the way to the Supreme Court.  But California already has a similar good cause eviction law and I imagine landlords would ultimately be on the losing side of this battle.

I love an experiment as much as the next guy but this would be a bold new frontier for New York City that is likely to have implications far and wide: some foreseeable and others less so. Buckle up as this could be one hell of a ride for NYC’s housing market and no stakeholder will be spared.   

Source:
Golden, V. (2024, April 8). Kathy Hochul gets on board with key parts of NY “Good Cause” rent-control bill as state budget housing deal nears. New York Post. https://nypost.com/2024/04/08/us-news/kathy-hochul-gets-on-board-with-key-parts-of-ny-good-cause-rent-control-bill-as-state-budget-housing-deal-nears/
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When a Commercial Real Estate Icon like Stephen Siegel Speaks, Best to Listen

Published on March 27, 2024

Two weeks ago, I had the good fortune of attending NYU’s “the Icons of the Industry” event featuring Bob Knakal and CBRE’s Global Chairman of Brokerage, Stephen Siegel, and I figured I would share a few takeaways from the evening. 

The always stellar and dapper Bob Knakal impressed with an overview of NYC’s commercial real estate market and, with usual fluency, he reported on key metrics relating to sales volume. In short, the numbers are comparatively bad and well off the peak and the best that could be mustered was that we all “stay alive until ‘25” and pray that we aren’t “taking our licks until ’26.” It’s always cause for concern when one of the best in the industry has taken to peppering his presentations with poems and partial haikus on the state of the market.

Conspicuously missing from Knakal’s name tag was a brokerage affiliation and the evening lacked any great big reveal on his part. Turns out Bob Knakal remains unaffiliated (at least publicly) with any new brokerage he is calling home. I have some thoughts on that but will save it for another post.

In times like these, Knakal highlighted two asset classes he pays particularly close attention to: hotels and development sites as they give you both a real time read on current and future market sentiment. And this is true as hotel room rates are essentially one-day leases that fluctuate in real time reflecting market demand while development sites provide insight into developer outlook on the rental and condo market two to three years out.

JLL’s Jillian Mariutti provided a similar overview of the debt markets and was equally impressive as the other titans in the room. No doubt we will be hearing much more of Jillian in the years ahead and her pivot from derivatives trading—as Knakal described her previous work experience—to arranging and structuring real estate capital for some of the biggest owners, investors and developers in the market is a gift to the CRE industry.

The remainder of the evening involved Stephen Siegel waxing nostalgic about his rise from humble beginnings to the highest echelons of NYC’s commercial real estate industry. The conversation included a trip down memory lane (involving his run-ins with one of the great actors of all time Paul Newman who, it turns out, stood a mere 5’ 8” and had baby blues as impressive as Frank Sinatra and Siegel’s father as the icon retells it) and references to the offices he opened, the companies he acquired and his favorite deals, which, among others, included his involvement in the purchase and sale of 1290 Avenue of the Americas (twice).

Siegel also noted that the rapid rise in interest rates over the last two years will no doubt create winners and losers. The intergenerational families who fully own their assets (or enjoy a very low basis) are largely safe with capable offspring well positioned to extend their dynasties decades into the future. Less fortunate with questionable longevity are those relative newcomers who deployed capital at a time when interest rates were at historical lows and are now or soon will be required to re-finance at much higher rates while being burdened with lower valuations.

Perhaps the most memorable takeaway was Siegel’s response to a question about what asset class he would be buying in today’s market—the equivalent of a stock tip from Warren Buffet. The answer: Class B office space for $300-$400 per SF but not for conversion to residential as many may have expected but to keep as office space. This asset class, as Siegel notes, is trading at less than half of what it was before the pandemic. And Siegel believes that more tenants will return to the office over time, rents will increase and that these newly upgraded spaces will serve as viable alternatives at a 30% discount to Class A space. I tend to agree with his thesis and contrarian view but such acquisitions are capital intensive and not for the faint of heart.

 

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The Looming April 1 Budget Deadline Sets the Stage for an Albany-Hochul Showdown

Published on March 20, 2024

Few New Yorkers pay attention to the inner workings of the legislature in Albany but they probably should as it impacts everything from housing, school budgets, Medicaid and whether prisons will remain open. And there are billions of dollars at play.

Last month, Governor Hochul proposed a $233 billion budget for 2024 and both the Senate and Assembly countered with plans of their own to the tune of $246 billion. For a breakdown of the Governor, Senate and Assembly’s budget proposal, click here. Between now and April 1 (the budget deadline), lawmakers will negotiate—largely in secret and with little to no transparency—how the state’s billions will be spent. 

A few takeaways from the Senate budget regarding important housing issues include:

  • A willingness on the part of the Senate to remain “open to further discussing” a new tax exemption for multifamily construction, which would replace the expired 421-a abatement. Not much can be made of this language as it suggests a perfunctory commitment in line with something as mundane as upgrading the bathrooms at the Capitol Building. Unfortunately, there is much more at stake.
  • The plan to replace 421-a would involve stricter income requirements for those affordable units and tie developer incentives to, among other things, a housing package that includes the core principles of good cause eviction. Good cause eviction, however, is likely a deal breaker for more moderate lawmakers as it effectively creates caps on rental increases for free market apartments. And that is downright un-American.
  • Localities would be allowed to legalize basement apartments to generate additional housing.  A step in the right direction albeit a small measure that doesn’t move the needle much.
  • The bill includes a $40 million fund to rehabilitate vacant rent stabilized apartments and an increase on the $15,000 cap for individual apartment improvements (IAI) but it was not clear by how much that cap would increase. The $40 million sum is laughable and here’s why: assuming an average renovation cost of $50,000 per apartment (a very conservative estimate as the costs can easily exceed $100,000), the fund would provide funding for approximately 800 units. Recent estimates put the number of vacant rent stabilized apartments in NYC in the tens of thousands. Both of these proposals, like the 421-a replacement, are tied to the implementation of a housing package that includes some sort of good cause eviction. 
Website Source:
Jones, S. (2024, March 12). New York Senate Includes 421-a Replacement, Good Cause In Budget Proposal. Bisnow. https://www.bisnow.com/new-york/news/affordable-housing/421a-senate-proposal-2024-123286#:~:text=The%20New%20York%20Senate%20revealed,new%20housing%20in%20the%20state.
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Renowned Developer Gary Barnett in Cross Hairs of Tenant Advocacy Group and Non-Profit

Published on February 6, 2024

Gary Barnett is no stranger to controversy, and it will take a lot more than a litigious tenant backed by sympathetic advocacy groups to beat this guy in a proverbial street fight.

The Backstory Leading to Litigation

The facts are relatively straightforward: starting in 2014, Barnett assembled several properties on the UES with the aim of building a 22-story, 459-unit mixed-use tower. Greg Marshall—a holdout rent stabilized tenant in one of the buildings—refused to leave arguing he is entitled to an automatic lease renewal. Barnett countered that he could remove tenants when demolishing a building.  And he’s correct: the rent laws allow landlords to deny lease renewals to stabilized tenants if they have legitimate plans to raze a building. In 2022, the Appellate Division unanimously agreed.

Barnett Victory at a Cost

Nonetheless, Barnett has a bit of a public relations nightmare on his hands. Groups supporting Marhsall have launched a $200,000 campaign against him, including the launch of a website at www.blamegaryforit.com that labels Barnett “the architect of the housing crisis.” A bold and misdirected claim that is patently farcical. The cause of NYC’s housing failure is institutional and systemic, goes back decades and cannot be accredited to any one person.

One of these group’s leaders claimed Barnett “harassed and did everything he could to get every other tenant out of that building.” A dubious remark at best and defamatory at worst. Harassment claims are taken seriously by DHCR and perhaps more so when the alleged perpetrator is none other than Gary Barnett—a NYC developer with more than 25 million sq. ft. of past and future development projects under his belt, including the iconic supertall tower One57 (a reference to the 57th Street Billionaire’s Row where it stands).

Going Forward, Will Developers Employ Barnett’s Strategy

One possible outcome of this kerfuffle could be more attempts by developers to vacate rent stabilized buildings by filing permits and plans to demolish existing buildings. But is that such a bad thing if the new projects result in NYC having more total and affordable units? According to The Real Deal, housing attorney, Sherwin Belkin, said he has seen “some increased interest” by developers in employing Barnett’s strategy. Another outcome of course is more legislation from Albany making it more challenging for developers to clear out tenants. In fact, one state Senator Liz Krueger already has already proposed legislation making it tougher to remove tenants.

Will Legislators Step Up on Housing Reform or Punish Developers and NYC Residents

The son of a Talmudic scholar and self-described “poor boy from the Lower East Side,” Barnett couldn’t be more right on this issue. He followed the letter of the law and has a court case ruling to prove it. The real culprit behind NYC’s housing crisis is decades of ill-conceived and failed policies emanating from Albany. Villainizing developers is easy, legislating is difficult but failing to do so is unforgiveable. How about legislation that creates much needed housing without punishing the developers who build it?

Website Source:
Cifuentes, K. (2024, January 30). “Blame Gary”: Holdout tenant targets Extell’s Barnett with $200K campaign. The Real Deal. https://therealdeal.com/new-york/2024/01/30/gary-barnetts-holdout-will-not-fold/

Clarke, & Taylor. (2019, January 17). The Man Behind Billionaires’ Row Battles to Sell the World’s Tallest Condo. The Wall Street Journal. Retrieved February 6, 2024, from https://www.wsj.com/articles/the-man-behind-billionaires-row-battles-to-sell-the-worlds-tallest-condo-11547739897

DHCR Fact Sheet Link:
https://hcr.ny.gov/system/files/documents/2023/11/fact-sheet-11-11-2023.pdf
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Are Double Digit Cap Rates on the Horizon in NYC for Rent Stabilized Owners Choosing to Sell?

Published on January 29, 2024

It finally happened—a nearly double digit capitalization rate on a recent multi-family trade in NYC. Two contiguous Upper Manhattan properties recently traded for $5.8 million (or $8.3 million less than the $14.1 million purchase price in 2017) representing a 9% cap rate, according to press reports. The other metrics are equally astonishing: $120 price per sq. ft., 5.7x gross rent multiple and approximately $95,000 per unit.

The reason for the heavy discount is clear to anyone following the space as the June 2019 rent laws (a.k.a. HSTPA) radically turned valuations both upside-down and inside-out for rent stabilized properties. Still, these metrics are disconcerting and potentially signal more trouble ahead for rent stabilized property owners. Don’t blame it on poor management either: ownership was no neophyte. The seller is a third generation owner/operator with a career that spans more than 30 years and includes the purchase, development and management of more than 150 properties in NYC, New Jersey and Florida, according to his website.

Of course, there could be more to the story that neither press reports nor public records are picking up, but what are your thoughts, do you expect cap rates to continue to climb for this asset class? What about the location of the assets, how much would it have mattered from a cap rate perspective if the buildings were south of 96th Street in Manhattan or in a lesser Bronx location?   

Website Source:
Wexcor Capital pays $5.8M to Barberry Rose for two walkups in Washington Heights. (2024, January 11). PincusCo. https://www.pincusco.com/wexcor-capital-pays-5-8m-to-barberry-rose-for-two-walkups-in-washington-heights/

Wexcor Capital Purchases Washington Heights Apartment Building For $5.8M – Mann Report. (2024, January 3). https://www.mannpublications.com/mannreport/2024/01/03/wexcor-capital-purchases-washington-heights-apartment-building-for-5-8m/
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