Hi All,
Wanted to get your take on how the acquisition markets for RS in NYC are trading. Are we looking at 6-7% cap rates depending on the mix. Have been out of the RS space for 4 years.
What kind of premiums are they trading at compared to Free Market properties.
Thank you
Full RS buildings are trading at significantly higher cap rates, and trades are slim in general. There are a few groups that are taking a “contrarian” approach, assuming a long term hold under the assumption that the laws will eventually swing back the other way, as they can’t really get any worse. But as it stands today, super challenging to buy these assets with operating costs increasing at a greater rate than RGB allows for rent increases. We only focus on predominately free market buildings for this reason.
421A is separate because units can actually switch to free market after the tax benefit expires. Think there’s a real opportunity for these expiring 421A deals because these buildings likely haven’t had a meaningful update in 15-25 years. But they’re priced as such AKA you’re not seeing close to 10 caps like on traditional RS buildings.
What about 60% FM? Or some variation
60% FM and up cap rates are much lower. In Manhattan below 96th street and prime neighborhoods of Brooklyn I’d say in the 5-6% range.
It really depends. Aside from the obvious regulatory issues, the big problem with buying rent stabilized right now is that you simply do not know what is inside the walls you're buying. A well maintained building which obviously has had actual money invested in it (so... not new kitchen appliances, building envelope/systems) and which has a stable and not too far in arrears tenant base might trade in the low 6s or even high 5s. But that isn't the normal type of asset being traded. A lot of these are owned by slumlords who have been stuck for the last several years and who held on thanks to low COVID rates. A lot of them are owned by decent developers/owners who simply cannot keep up with the amount of money needed to maintain a building which might be 100+ years old, and in which rents are bottom of the barrel low to begin with.
You just need to be creative to thrive in this space. Most people who bought RS in the past didn't actually care to operate the asset; the idea was to get as many RS tenants out and turn the units and then flip the building. So almost no one actually understands the ways in which to find city/state assistance, either in the form of subsidy or tax abatements, because there are very few professional landlords in the space and a lot of professional speculators.
421a is an entirely different ballgame.
thank you. Would be looking in prime areas of NYC or BK.
Are there still subsidies and tax abatements? I thought the J-51 went away, and that was the only one. Any others?
It feels like a ~70% FM and 30% RS mix would provide some good downside coverage in case of a recession.
Article XI for one. Plenty of term sheets from the agencies if you want to go that route. Applying for excess PBVs from HPD or NYCHA or HCR. None of them are one size fits all approaches, but there are ways to extract additional value from these properties, which given the basis some can be acquired at, is no joke.
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