Related Puts 2,000-Unit Bronx Apartment Portfolio on Market
Package includes 10 commercial properties, aims for $250M
touting the portfolio’s eligibility for a regulatory benefit known as Article 11, a designation that would offer tax breaks to a buyer in exchange for preserving units for tenants who make 40% to 80% of the area’s median income.
In-place rents across the portfolio currently average 60% of AMI, Green Street’s alert said.
A buyer could boost rents by taking advantage of Section 610 of a new private housing finance law that allows owners of affordable-housing properties to charge higher rents on units that accept housing vouchers.
The whisper price of about $125K/unit is nearly 50% less than what similar properties would have fetched before a 2019 law made it more difficult to raise rents after renovating apartments.
Related has made $30M in improvements on the 34 apartment properties, which are said to be well occupied with little tenant turnover. All of the buildings have elevators, and many boast historic Art Deco facades and lobbies, as well as on-site parking
Yeah, typical brokers trying to take advantage of people who don't understand the NYC affordable housing space.
It's extremely difficult to get an Article XI these days
Depends on how many vouchered tenants are at the properties, what their current rents are, and what a new owner will give in return. Generally 610s are only done on properties with regulatory agreements in place, which it sounds like these don't have
And is still a premium to what they're worth - benchmarking anything to pre-HSTPA for any purpose except to show the decline in RS values is a sure sign that someone is selling you a bill of goods.
Haha. So, 15,000/unit of rehab over god knows how many years, in a city where annual R&M costs routinely run into the thousands of dollars a unit. And whoopee, Art Deco facades! Just means more expensive LL11 compliance, but at least my tenants can enjoy their beautiful building exteriors as they pay affordable housing rents!
Some idiot is going to buy this without understanding the complexity of Affordable and workforce housing in NYC, and in 2 years will be complaining about how interest rates and government regulation make it impossible, just impossible!, for them to maintain their assets.
If some idiot has capacity to purchase $250M worth of real estate without doing any due diligence, they deserve to lose it all. The true "idiots", which are the syndicators are busy fighting their lenders.
Spot on OZY
Typical of brokers who don’t under *democratic state laws and regulations.
Here’s a great program.
You don’t qualify.
Affordable housing yay!
I'm not sure what the point of this is? To point out that Republicans don't care if the poor and needy die in a ditch? Or to confuse affordable housing with rent stabilization? You need to use sentences that convey meaning if you want to join the discussion
We are selling similar product in NYC to HNW buyers. They are buying at a 6x GRM. We are loosing a lot of money on these deals already (bought them in 2015-2019). These buyers already own several properties around the city, so they must have some sort of business plan, although not sure what it is exactly.
Depreciation and other tax benefits (maybe a 1031 or something) is a big one. Cash on cash yield is another, even if that will erode as expenses outpace RGB rent growth, especially if they're getting in at a nice basis and you've done some repairs to the buildings in the last 5-10 years. Sounds like you guys don't have a great handle on the mechanics of dealing with RS properties, so maybe the people you're selling to are a little more savvy when it comes to increasing rents, abating taxes, etc... also, they may be less cautious about going through L/T court since they'll have more time and less reputational risk.
Related is one of the best, if not the best, affordable housing operators/tax credit syndicators out there. If they are selling the portfolio, that should raise some eyebrows. FYI, Related is also extremely well connected in political arenas so if they could not get the Article XI or some other tax abatement, the next owner won’t have a better shot. This deal has a lot of complexity to it and it’s likely a potential buyer will get too excited about all the “upside” without really understanding how hard it will be to achieve said upside.
You should ask yourself what is it that they are seeing that makes them comfortable disposing of the asset?
^This. Related is in the pockets of most of the NY politicians on both sides of the aisle. They have landed major contracts/deals that others cannot get. If they can't get Article XI, I doubt Joe Smith from XYZ Investments can.
I'm sorry, but this fundamentally misunderstands how the Article XI process works. I am not going to sit here and say Joe from XYZ Investments can just stroll into HPD and get an Article XI (it honestly has relatively little to do with the local electeds), but to pretend like "if Related can't, no one can" is to propagate misinformation about how the NYC goes about handing out tax abatements.
PS I think you meant that Related has politicians in their pocket, not that they're in the pocket of politicians.
10 deals for $250M? Are these walk up brownstone conversions or something?
I mean... it's 2,021 units, so I doubt it
Well said. To be fair, getting that Article XI and getting that 610 Amendment are both time-consuming processes, and it's possible Related doesn't think it's worth the headache to go after them, and instead just sell some of the upside to a new owner. It's also well within the realm of possibility that they're in at too high of a basis, and they'd rather get out now rather than beat their head against a wall for a fairly small upside.
But I 100% agree that someone is going to look at this and think "hey, look at all the ways to make money!" and not think about the risk or work involved. You know, like most real estate operators do!
Yep. First question you should ask when a deal looks suspiciously good is "why am I the idiot in the room, here?"
NYMF is my least favorite asset class, granted I did not touch it until about a year ago so I’ve had to deal with COVID BS. The mechanics are incredibly stupid, you cannot raise rents and it’s hard to evict tenants.
This is the only industry in the world where someone can owe you $50k and you can’t do anything. It also makes no sense why someone is also paying $500 for a unit when new leases are like $3.5k in the SAME building.
The rise in interest rates is gonna cause a lot of the owners to get crushed once refis come around.
This is true for specific apartments and specific buildings. I'd maybe wait for another year or two of experience before making these kinds of statements.
Um, every industry in the world functions this way. Guess what happens when the guy who owes you 50k declares bankruptcy?
Yes, yes it is
I can’t imagine being at a shop tasked to underwrite this thing. What a nauseating mess it must be.
It takes a while to get caught up on all the codes like 1-37 (Section 8), 1-62, etc and understanding how they affect the actual cash flow. I have never lived in NYC or in a city with rent control so it was hard to wrap my head around the thesis.
The violations are also are weird because you could have an open case from like 2004 that was never settled.
Overall, it has been fun but I’m incredibly tired of it.
Reminds me of Stuyvesant Town–Peter Cooper Village
Sounds like a great insurance fraud buy.
There is actually some massive upside here for someone who knows what they're doing. Some of these assets are going to be absolute home runs at the basis at which the eventually buyer will enter. Remember, the feds are staying in so you effectively are leveraging off them, as well.
Anyone who wants to operate the underlying assets as if it is still 2015 is going to get crushed, of course.
You will need a VERY long timeline for this. I don't expect the 2019 rules to be revised until about 2027 at the absolute earliest, but in reality likely 2032 or so. It's going to take a a group with a decade plus horizon. I don't think a rate cute will drum up interest in these types of units due to the shock that the hike has caused.
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