Let's say you have 10 apartment buildings within 20 miles of each other in the NYC suburbs for a total asset value of $25 million. Are there any institutional buyers who would be interested in something like that or would you have to sell this off one at a time to HNW types?
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You could sell it as a whole, unless they are very far away from each other.
PM for more specific advice. Also my advice is to tranche it and sell it both as whole and part. See what bites.
Ten buildings totaling $25MM in the NYC suburbs mean they are small deals. Institutions would not be interested, you'd have to go the one-off route or a portfolio sale to a private investor that runs his own small shop. Are these in Westchester? My office works that market.
Let me guess: You know the owner and he wants a ridiculously aggressive cap rate that only an institution would pay?
Not in Westchester. Just trying to avoid a problem before it occurs. We were thinking of implementing this strategy but I was concerned with what the exit would look like. I'm starting to think buying a $10 mil building that needs work in a rapidly growing area is the better play. Buy it for $10 mil and turn it into something that's worth $25 mil in 10 years. Seems like you can make a lot of money by turning something institutional investors wouldn't touch into something they'd pay a premium for.
What does the institutional cutoff look like in Westchester, Long Island, etc?
Most of the institutional shops I talk to definitely won't look at anything under $20MM and that's already on the low end. Are you local to the NY area? Private capital tends to go much higher up in the NY metro. Was selling a $35MM deal and no institutions would touch it but private capital was lining up around the block with the cash to close fast. NY is a strange market in the sense that there are a lot more family offices that can capitalize big deals than anywhere else.
To answer your underlying question, yes, you would be much better off doing a $10MM deal and making it worth $25MM than trying to assemble a portfolio of smaller assets. The exit on the portfolio would be a headache and you would not be paid a premium.
Usually, no, institutions will not touch it. With that said there was a deal in the NYC area last summer of 10 buildings for about $40 million total that sold to a large institutional investor / developer. Although the answer is usually no, you never know - totally depends on specifics of the deal, needs of the buyer, etc.
How many units are these buildings?
8-12 ish.
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