It’s A Bis-Y Time for Multi Family Housing
The Bisnow Express hit the Hilton in New York City earlier this week.
The topic was multi-family housing; the moderator: Ron Kaplan, a partner in CohnReznick’s Commercial Real Estate Industry Practice.
First up was Jonathan Rose; founder of Jonathan Rose Companies LLC; a leading green solutions provider. Rose stated that the Bloomberg administration is beginning to run out of money. “The tools we use, such as the low-income housing tax credits, are also at risk because of the sequester of the federal budget,” he explained. “And if tax reform happens, those tax credits might be eliminated. There is an emerging source of financing for affordable housing; called social impact bonds. For example, we have evidence that building green affordable housing reduces the cost of Medicare and Medicaid and hospital emergency visits. Can we take the reduction of health care costs out the budget and use it to fund housing? This means the relationship between affordable housing capital budgets and other parts of the (Federal) budget are now tied together in a more holistic way.”
For Ofer Yardeni, CEO of Stonehenge Partners, a company that owns 27 buildings in New York, the real estate market has been an eye-opener. “I have never experienced a market like we are seeing today. We have a building in Manhattan with no amenities and we are getting$85 per square foot; meaning $5,000 for a one-bedroom and $3500 for a studio. And we are fully occupied. 15% of the tenants are students and the parents pay the rent. Six percent are trust fund kids and the parents again pay the rent. The rest are investment bankers and others across the board. We have an apartment vacant for a day and have multiple applications. In the next three years, I expect prices for rentals will increase due in part to lack of construction due to lack of 421 tax abatements.[pullquote]I have never experienced a market like we are seeing today. We have a building in Manhattan with no amenities and we are getting $85 per square foot; meaning $5,000 for a one-bedroom and $3,500 for a studio. And we are fully occupied.[/pullquote]
The Cheshire Group specializes in New York metro-area multifamily properties and started by working with distressed properties and restructuring underlying mortgages when sponsors had defaulted. Said partner Jenifer Steig, “We did one property in Manhattan right after the Lehman collapse but our team was able to put together the right product and we were successful. We recently began slowly on a building on the East Side of Manhattan but the condo market in Manhattan has been booming. We had some challenges because it was an existing building and some of the residents didn’t want the conversion. But since January, we have sold one to two apartments a week and will be plan-effective in 45 days.”
“Two or three years ago, nobody thought the market was going to rebound,” said Ken Horn, President of Alchemy Properties Inc. “Everyone thought the condo market was dead in New York. We thought the opposite. And in 2009 and 2010, we began to buy. The projects we bought included Carroll Gardens in Brooklyn and the Woolworth Building in Manhattan. Back in 2008, and 2009, building permits in New York City had receded by 35%. As a result, we tried to select the best available properties to purchase. One project we are working on is called Sackett-Union: formerly called 340 Court Street. We opened the project for sales this past Labor Day. Within nine days, we sold nine apartments in a building that will not be completed until August. We’ve now sold it out. That has included two price increases. We hit pricing, in terms of pure dollars, that had never been hit before. We averaged $1.8 million. Part of that project includes 11 townhouses which won’t be on the market until April. Based just on floor plans, we’ve sold one-half of the units. There is a dearth of product in the marketplace. The fear is that people are overzealous. Is $2000 psf the new norm in New York City? I’m not sure if that is sustainable. But the dialogue between developers and brokers is that the market will continue to go up.”[pullquote]One project we are working on is called Sackett-Union: formerly called 340 Court Street. We opened the project for sales this past Labor Day. Within nine days, we sold nine apartments in a building that will not be completed until August. We’ve now sold it out.[/pullquote]
“The situation we had at Phillip House was that since the building exists, purchasers were not as willing to buy from the floor plans,” explained Jenifer Steig. “They wanted to go into the apartments and get a feeling for the space. Maybe as the demand continues, people will buy off of floor plans but we had some stumbling blocks when faced with that situation.”
As for the outer boroughs, Yardeni likes to walk to his properties. “I’m not interested in the boroughs,” he said. “The type of properties I buy are rent-stabilized and my average rent is $1,000 per unit. When I’m able to vacate the unit, I go to $3,500-$4,000. In the boroughs, I can go from $800 to $1,100 on a vacated unit. The other advantage I have in Manhattan is that my tenants work all day and come home at midnight to sleep. They don’t use my water (which I pay for) and the maintenance of the apartments in minimal. In the boroughs, there are three or four people to an apartment. They a have washer-dryer; they cook and so the maintenance is higher. And the reason I’m not converting to condos is that cap rates are so low and rents are so high. If I want to sell a property, I can sell it to a REIT.”
Amenities are now a buzz word. Explained Rose: “We recently completed a project in the Bronx that was a combination of rental housing and middle-income co-ops. Even though the project is affordable, it’s amenity rich. It has community space; a theater and an on-site medical office. And we are also building multi-family in the suburbs near mass transit. Towns include South Orange, Stamford and White Plains. These are urban settings in the suburbs.”
Finally, the changing of the guard in City Hall after Mayor Bloomberg leaves office was on the minds of the attendees. The administration has allowed much rezoning for apartment towers in all of the boroughs; with much of in Manhattan, Brooklyn and parts of Queens. Ofer Yardeni said he was concerned but when asked he would run for Mayor, declined. “I’d rather be a Senator” he joked. Something about a less workload.
Next: Bis-y times in Northern New Jersey
Steve Viuker is a Brooklyn, New York business journalist.
He has covered real estate, small business and banking for numerous national online and print media.