If you could purchase anywhere in NYC, any building under 5mm or 20 units what neighborhoods would you buy. What neighborhoods are undervalued and which ones is there still upside. At what cap rates or whatever return metrics would you use. I'm looking for all answers, but especially outside the box. There are no wrong answers.
I'm going back and forth between Harlem and Brooklyn(Heights,Red Hook,Boreum Hill, Williamsburg etc). I would like to have a healthy mix of RS units to mitigate any downside risk in the market. people paying 50%-70% of free market would likely keep paying their rent in a recession and with the oversupply of brand new market rate units the people looking for free market in a walkup are not the same tenants that would be attracted to these brand new buildings.
Comments (21)
OK. First off, there is almost no product at 10-20 units in those neighborhoods for under $5mm. Maybe some smaller buildings, under 10 units.
There is no reason to "want" a rent stabilized tenant; the idea that they'll pay rent when free market tenants don't is crazy. Maybe you have to lower rents in other units, but if there is a tenant paying 1,000/mo for a 1,500/mo RS apartment, you'll find someone to pay 1,000/mo for the FM apartment too. And you'll have more upside flexibility when the market turns again. You can't even really make the case that buying the rent stabilized unit means a lower purchase price - Sellers still act like its 2012 and you can evict RS tenants easily, and always price a premium on the "upside" in those units. It's one of the reasons why so much product in NYC traded in the 3-4% cap range a few years back - purchasers were buying on potential upside and cheap rates, not underlying NOI. With rates going up, it's just not possible to buy a negative 75bps spread to interest rates any more.
Also, I assume you are an experienced NYC real estate professional, or someone with a very deep balance sheet, or else I'd advise against the entire enterprise. It's really tough to make that business work.
That being said, if you're super committed to it... the Fordham and Norwood areas of the Bronx is a great neighborhood; amazing transit (both Metro North and subway), medical and higher education (Montefiore and Fordham U) within the neighborhood, reasonable access to parks (Bronx Zoo and Botanical Gardens), and closer to Midtown than you think. 36 minutes from Fordham Road to Herald Square, which compares favorably with Prospect Park South and other "hot" neighborhoods.
Ridgewood in Queens as a ton of smaller-style housing stock, and hasn't be a huge target for gentrification. Quiet neighborhoods, decent small scale retail on the major avenues, not a huge target for bigger players. Transit can be an issue but no worse than most tertiary neighborhoods.
Eastern Prospect Lefferts Gardens in Brooklyn. Again, great medical, reasonable transit options, increasingly gentrified, and decent access to Prospect Park. You're walking distance to a bunch of neighborhoods on the forefront of gentrification in Crown Heights and Western PLG.
There are many more, obviously. PM me if you want to discuss any of them in more detail; I spend the vast majority of my time in non-prime markets in Brooklyn, the Bronx, and Northern Manhattan, I have some decent insight into what is going on out there. The problem with the neighborhoods you mentioned is that prices will be in the 500,000/door range, which means it is very difficult to get any kind of scale for the purchase price you're looking for.
I agree about the unit size point you make, but I also included OR. So I am interested in locations like crown heights or flatbush where this might be possible, or Fordham where it is definitely possible(very familiar with the area), but appreciate your input and agree with your investment thesis.
I disagree about the rent stabilized apartment buildings. While some(80% are priced as a stabilized buildings), there are deals here and there where you get a 4.5% or 5% cap in a maybe not soooo prime area. I'm happy purchasing a building then slowly with MCI gaining a slight increase in rents, and possibly have the occasional tenant move. With the right mixture of FM and RS you can capture the upside while mitigating your downside risk. Especially with buildings that need about 100-200k in repairs.
I might reach, and I appreciate that. In the mean time are there any brokers to stay away from?
Maybe, but here's the thing - Maybe you get a seller who'll let you have the RS units at a 5 cap and the FM units at a 4.5 cap. The potential upside on the latter is worth a lot more than the "steady" cash flow on the former, especially considering you have a much bigger collections risk on a rent stabilized tenant. You often don't have security deposits. Maybe they're always a little in arrears. Small things add up, unfortunately.
However, if that is your plan, my other piece of advice (if you aren't already aware) is target buildings with a unit mix that leans towards studios and 1 bedrooms. Those units turn over more often, since it's much harder to prove legal residency for inheritance rights on a studio than a 3 bedroom. Plus, a family of 5 in a 3 bedroom is likely less transient than a couple or single person living in a studio
Don't the change in laws in 2018/2019 in NYC restrict a vacancy increase for RS units?
Also, I would be very wary of the new emissions regulations coming into effect in NYC over the coming years. Once they also put it on smaller buildings, many owners will not be able to pass the costs onto their tenants like the large midtown office buildings are currently working through as their leases roll. If these emission caps and fines reach the small Landlord, could be major problems.
Which measure is this? Reading through a google search but haven't found the part on costs
It was 2019, and yes, it did. This thread predated that change in law, so it isn't particularly useful in 2022.
Astoria, Sunnyside, Bay Ridge, Parkchester...
Astoria, Buschwick and Central Harlem are my two favorite markets for resi outlook at the moment.
what do you consider central harlem?
117-118-119 St east of Second Av. Many are 50/50 RS/FM. People seem to love being close to that Target and Costco on 117
Flatbush (neighborhood, east of Ditmas). Most of these are larger rental buildings, but a fair amount of smaller stock hasn't changed hands since the 1960s and have retail spaces
Smaller buildings (4-6 unit + small biz underneath) on the far side of East Williamsburg/Maspeth (area around House of Yes)
Bushwick area around Maria Hernandez Park and Alphaville full of 6-8 unit rentals that usually trade around $1.5m
Reviewing couple near Maria Hernandez Park and its rent stabilized in Bushwick. Price is actually lower now so that might not be a good sign. Did you end up moving forward?
What are some good lenders in this sub 5mm space?
Anyone know the Bronx area well? I have a question about a specific neighborhood. Please PM me if so. Thanks.
which specific neighborhood?
Tried PMing you. Echoing CREShervin, which neighborhood?
If you have apartments units where the rent threshold of $2,700 has been reached, can can you deregulate the apartment? Do you have to wait for the tenant to vacate or can you send a letter?
@Ozymandia & @CREShervin what would your DD list for an asset in one of these NYC neighborhoods look like? How are you determining CapEx/deferred maintenance/outstanding issues? Any NYC specific items?
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