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RE Deal Discussions
 

chrisjr's picture
RE
 
Points)
 on 1/10/13 at 10:11pm

I found this deal to be really interesting because it is the size of deal, one day, I hope to be able to put together personally. Finding off-market and opportune deals such as this are essential to succeeding as a entrepreneurial RE investor.

"The best real estate acquisitions in the city often get done under the radar. Just ask the Naftali Group, a real estate investment firm that recently paid $37 million for 245-259 W. 25th St., a six-story rental apartment building in Chelsea, in an off-market deal with the Haruvi family.
The price works out to just under $500 per square foot for the 75,000-square-foot building, far below the level that apartments typically trade at in Chelsea.
"We think $500 a foot is a very attractive price per pound," said Victor Sigoura, a Naftali Group executive. "Condos trade in the area for $2,000 a foot."
Mr. Sigoura said the firm often trolls neighborhoods where it is interested in investing and approaches landlords with unsolicited offers in the hope of quietly striking a deal without the usual escalating bids of an open auction.

Read more: http://www.crainsnewyork.com/article/20130104/REAL_ESTATE/130109960#ixzz2HdMXmO7b"

Let's use this thread to post RE deals we find interesting and are worthy of discussion.

Tags:
brandon st randy's picture

What makes you find this deal

PE
(Gorilla, 705
 
Points)
 on 1/10/13 at 10:48pm

What makes you find this deal so interesting?
It is an old pre-war walkup building with around a third of tenants being rent stabilized. I wonder how far below market rates are those RS folks paying. The building itself likely requires extensive renovation as well. So the new owner will just have to try squeezing as much value out of the market rate tenants as possible and maybe think of creative ways to kick out the RS people.

...well, he's no use to us if Detroit is his idea of a small town!

thisguy22's picture

i would say you could do a

O
(Baboon, 167
 
Points)
 on 1/11/13 at 2:53pm

i would say you could do a ton of renovation with that sort of low basis and still kill it

chrisjr's picture

step one: generate positive

RE
 
Points)
 on 1/15/13 at 8:55am

step one: generate positive cash flows for investors
step two: generate capital gains upon disposition or refinancing
It is definitely a deal with hair on it, but facing those challenges is one of my favourite part of re investing.

Interesting to see them say they're only doing $1mm of renovations.

Here's a new deal to discuss: http://business.financialpost.com/category/news/pr...
OMERS has been very active in the US (Hudson Yards 50% JV) and looks like they are trying to lighten their portfolio in Canada - i don't blame them, valuations are insane here right now.

sdb5057's picture

I can throw a rock and hit 10

 
Points)
 on 1/16/13 at 12:33pm

I can throw a rock and hit 10 $500/foot or less properties like this in Manhattan. I was working on a beautiful elevator pre-war on west 72nd street that was asking $450/foot in an area generating upwards of $2000/foot as well. The rent regulated apartments really kill the value fast. You can condo the building, but you have to work around the regulated people or buy them out. They probably take up more room than is required in order to file under and eviction plan, which is annoying. After that, you have about $400-$450/foot in renovation costs to fix up the place (around that much, who knows unless you actually check the building out). Leaving a profit margin of $1000/foot before all other costs to sell and taxes.... then you have to worry about carrying the regulated apartments (negative cashflow) in perpetuity. If you are losing $10/foot per year on these units, that will quickly eat up your profits over time. And I am not even mentioning the loss factor inherent in older walkup buildings. You'd have to put in another stairwell and an elevator (hopefully no regulated tenant is in the way of THAT too). Suddenly your sub $500/foot deal turns into a $700 NSF deal, which is getting high. Lots of factors to look at.

While I agree it could be a good deal despite all that, its probably not a homerun.

brandon st randy's picture

sdb5057: I can throw a rock

PE
(Gorilla, 705
 
Points)
 on 1/16/13 at 7:43pm
sdb5057:

I can throw a rock and hit 10 $500/foot or less properties like this in Manhattan. I was working on a beautiful elevator pre-war on west 72nd street that was asking $450/foot in an area generating upwards of $2000/foot as well. The rent regulated apartments really kill the value fast. You can condo the building, but you have to work around the regulated people or buy them out. They probably take up more room than is required in order to file under and eviction plan, which is annoying. After that, you have about $400-$450/foot in renovation costs to fix up the place (around that much, who knows unless you actually check the building out). Leaving a profit margin of $1000/foot before all other costs to sell and taxes.... then you have to worry about carrying the regulated apartments (negative cashflow) in perpetuity. If you are losing $10/foot per year on these units, that will quickly eat up your profits over time. And I am not even mentioning the loss factor inherent in older walkup buildings. You'd have to put in another stairwell and an elevator (hopefully no regulated tenant is in the way of THAT too). Suddenly your sub $500/foot deal turns into a $700 NSF deal, which is getting high. Lots of factors to look at.

While I agree it could be a good deal despite all that, its probably not a homerun.

Well said. The worst thing about rent regulation is that it disproportionally screws over the small mom and pop building owners. Big developers have the resources, manpower and high power attorneys at their disposal to dig up every loophole in the book, come up with creative deal structures to circumvent existing regulations.

The dirty little secret about rent regulation is that it is a cash cow for big developers like Related etc who benefit from the skyrocketing housing and rental prices at the expense of both smaller unit owners (who probably poured their hard earned life savings into properties that they cannot benefit from) and market rate tenants who are forced to use their hard earned and heavily taxed money to subsidize the RS folks.

...well, he's no use to us if Detroit is his idea of a small town!

chrisjr's picture

Sony Corp. is packing its

RE
 
Points)
 on 1/18/13 at 4:09pm

Sony Corp. is packing its bags and will be looking for a new home in New York City. The electronic giant announced Thursday that it reached a deal to sell its 37-story U.S. headquarters office to a consortium of investors led by the Chetrit Group for a whopping $1.1 billion, said The Wall Street Journal.

Read more: http://mycrains.crainsnewyork.com/blogs/red-wrap/2...

Building going to be converted? That's a huge tenant on the street - Hudson Yards candidate?

sdb5057's picture

chrisjr: Sony Corp. is

 
Points)
 on 1/19/13 at 6:49am
chrisjr:

Sony Corp. is packing its bags and will be looking for a new home in New York City. The electronic giant announced Thursday that it reached a deal to sell its 37-story U.S. headquarters office to a consortium of investors led by the Chetrit Group for a whopping $1.1 billion, said The Wall Street Journal.

Read more: http://mycrains.crainsnewyork.com/blogs/red-wrap/2...

Building going to be converted? That's a huge tenant on the street - Hudson Yards candidate?

If I recall, Sony plans to stay in the building for a few more years. I am not sure what the hell this will be turned into at a price point of $1500/foot. With renovation and marketing/broker costs, this will be finalized at around $1.5 billion. That is a HUGE base cost to work on. I don't know how they will pull something off unless it's a very high end condo or hotel.

Edit: Did some quick numbers. If properly renovated and leased (AS OFFICE), the building could generate around $150 million/year in revenue and generate upwards of a 7.3% cap rate.

Assumptions: Office @ $90/sqft (Total RSF would be approx 800,000)
Retail @ $1,500 blended (Total RSF at 40,000)

Thats a pretty good deal actually... Especially with future inflation considerations.

veljones69's picture

I think this is probably the

RE
 
Points)
 on 1/19/13 at 3:08pm

I think this is probably the best RE topic made in a long time. There is actual thought process and discussion going on in here as opposed to people just begging for career advice or whether REIB or REPE is the better choice.

I was wondering if we could make a topic where we solved RE case studies. Those are the best things to sharpen for those trying to enter the RE field and "work on deals" for those who don't get to work on the cooler deals yet. Just a thought.

huanleshalemei's picture

chrisjr: OMERS has been very

(Gorilla, 519
 
Points)
 on 1/21/13 at 1:35pm
chrisjr:

OMERS has been very active in the US (Hudson Yards 50% JV) and looks like they are trying to lighten their portfolio in Canada.

Can you pls elaborate? What kind of portfolio, commercial or residential?

The Auto Show

chrisjr's picture

Check these out:

RE
 
Points)
 on 1/21/13 at 4:51pm

Check these out: http://online.wsj.com/article/SB100014241278873237...

http://business.financialpost.com/2013/01/09/td-to...

huanleshalemei's picture

chrisjr: Check these out:

(Gorilla, 519
 
Points)
 on 1/22/13 at 1:24pm
chrisjr:

Check these out: http://online.wsj.com/article/SB100014241278873237...

http://business.financialpost.com/2013/01/09/td-to...

Thanks, great articles.
The TD deal is kinda intriguing, low key management, record-breaking (high) purchase price and anonymous buyer...someone help connect the dots here?
'Blake Hutcheson, chief executive of OMERS’ Oxford Properties Group, confirmed the sale had taken place, though he did not name the buyer. Industry sources say the $750-per-square-foot price is even more than H&R Real Estate Investment Trust and Dundee REIT paid when they teamed up to buy the Bank of Nova Scotia tower.'

The Auto Show

sdb5057's picture

huanleshalemei: chrisjr: Ch

 
Points)
 on 1/22/13 at 1:39pm
huanleshalemei:
chrisjr:

Check these out: http://online.wsj.com/article/SB100014241278873237...

http://business.financialpost.com/2013/01/09/td-to...

Thanks, great articles.
The TD deal is kinda intriguing, low key management, record-breaking (high) purchase price and anonymous buyer...someone help connect the dots here?
'Blake Hutcheson, chief executive of OMERS’ Oxford Properties Group, confirmed the sale had taken place, though he did not name the buyer. Industry sources say the $750-per-square-foot price is even more than H&R Real Estate Investment Trust and Dundee REIT paid when they teamed up to buy the Bank of Nova Scotia tower.'

I don't know anything about canada's markets, so I cannot comment at all in this arena. However, I do hear that the RE market is doing pretty well up there. Must be all that mob money being invested.

huanleshalemei's picture

Hell no, for Christ's sake,

(Gorilla, 519
 
Points)
 on 1/22/13 at 2:15pm

Hell no, for Christ's sake, they are pension funds, the 9 to 5 bunch. If it's Blackstone I may believe.

The Auto Show

chrisjr's picture

Pension funds here are very

RE
 
Points)
 on 1/22/13 at 2:15pm

Pension funds here are very thirsty for returns, and are competing aggressively with REITs such as Dundee, Riocan, Allied, and to a lessor extent, H&R. Most PE shops have been squeezed out of the mid and high end office assets (I work in office specifically so I can't really comment on industrial and retail... though I know Dundee just launched an industrial REIT and PIRIT is a very successful REIT here). There would have been several interested pension funds in the bidding, and it appears this one has won. I assume Oxford is bullish on US recovery and bearing on Canada maintaining these levels... so they are quietly divesting in their highest value Canadian assets.

I wasn't around when the deal occurred, but near the peak of the market in 07-08 there was an event involving a shotgun clause, whereby Oxford ended up buying the entire asset at record highs from Brookfield, if i'm not mistaken. Very few thought they could ever sell the asset for higher; however, they have just done that with 50% of the property.

The asset is a top three building in Toronto. AAA in quality, location, and is 100% leased to very quality tenants. Commands a 80% premium over somewhat comparable assets such as 199 Bay and First Canadian Place, with triple rents sitting at about $50.00 with no allowance.

DCDepository's picture

Putting together these huge

O
 
Points)
 on 1/23/13 at 12:06am

Putting together these huge deals I'm sure is cool, but it would be great for you prospectives (those who dream about multimillion dollar deals) to put together some smaller ones first, ones that you've got some skin into.

I'm working right now on my 3rd deal. The first one (2009 and 2010) I bought land in the Washington, D.C. suburbs of Virginia in a nice area. The lot itself was an undesirable lot because it was small, narrow, and its setbacks were not conducive for a legitimate, by-right house. Not to mention that alternative plans had been rejected by the county in the past. So I put down $100,000 and made a calculated risk that my builder's design would get accepted. It was, we did the project. Took 1 year to get permits and to build the house. My final net profit was a paltry $10,000.

My 2nd deal (2011 and 2012) I bought a hyper small lot in an extremely high end area. Again, the by-right lot was not conducive for an actual house, so we bought this crappy lot for $142,000, got the county to change setbacks, and built a sick house. Made $300,000.

Now for my 3rd deal (2013 and 2014), I just went under contract to purchase 3 lots for $160,000 in a very middle class and further out Virginia suburb of Washington, D.C. I went under contract this Sunday, Jan 21 to purchase the lots and sold all 3 houses/lots on Monday, the next day. Locked in a $107,000 profit in 24 hours, but the total project will take 18 months to complete.

Honestly, the reason I think doing some of these deals yourself is important is because it forces you to learn your market and to understand basic permitting and bureaucratic processes; having your own skin in the game forces you to think analytically and mathematically and forces you to get outside of your dream world; and it demonstrates first hand how unimaginably difficult building structures in large population centers can be. There's SOOOOOO much I've learned doing these projects. I highly recommend you get off the sideline and jump in the game.

chrisjr's picture

Cool, thanks for posting

RE
 
Points)
 on 1/23/13 at 11:37am
DCDepository's picture

chrisjr: Cool, thanks for

O
 
Points)
 on 1/23/13 at 12:47pm
chrisjr's picture

very neat. interested to hear

RE
 
Points)
 on 1/31/13 at 3:09pm
Patient Skeptic's picture

http://online.wsj.com/article

(Monkey, 55
 
Points)
 on 3/25/13 at 11:26pm
Udechukwu's picture

veljones69: I think this is

RE
(Monkey, 62
 
Points)
 on 4/10/13 at 5:01pm

Ordinary guy. Extraordinary mindset.

I had a flair for languages. But I soon discovered that what talks best is dollars, dinars, drachmas, rubles, rupees and pounds fucking sterling.

chrisjr's picture

Hudson Yards gets the green

RE
 
Points)
 on 4/10/13 at 5:05pm
veljones69's picture

chrisjr: Hudson Yards gets

RE
 
Points)
 on 4/11/13 at 4:30pm
CRE's picture

veljones69: chrisjr: Hudson

RE
(King Kong, 1,089
 
Points)
 on 4/11/13 at 10:25pm

See my WSO Blog | See my AMA Thread

thenine93's picture

Hey guys, Not sure if you

 
Points)
 on 4/20/13 at 2:46pm
CRE's picture

Always have these options:

RE
(King Kong, 1,089
 
Points)
 on 4/20/13 at 3:38pm

See my WSO Blog | See my AMA Thread

StudentOfTheStreet's picture

I don't know how much value

(Chimp, 13
 
Points)
 on 4/20/13 at 10:26pm

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