RE Deal Discussions
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#ixz…"
Let's use this thread to post RE deals we find interesting and are worthy of discussion.
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.
i would say you could do a ton of renovation with that sort of low basis and still kill it
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/property-post/?__lsa=12… 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.
Can you pls elaborate? What kind of portfolio, commercial or residential?
Check these out: http://online.wsj.com/article/SB100014241278873237067045782297700645234…
http://business.financialpost.com/2013/01/09/td-tower-stake-swap-sets-n…
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.
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/2013/01/sony-tower-fet…
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.
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.
Love this idea. Did anyone go forward with this?
Hell no, for Christ's sake, they are pension funds, the 9 to 5 bunch. If it's Blackstone I may believe.
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.
Cool, thanks for posting this. For deal 2, did you hire a lawyer to assist in the county changing the setbacks? did you have any problems with neighbors? that would be a major problem in my area, and a major headache. Delays on this front could easily turn the deal sour.
For deal 3, what type of entity did you buy the lots from? all three from the same seller? Did you use a broker to line up the buyers?
The devil is in the details - i am trying to understand how this works because i'd love to do it one day.
Last question - are all numbers used pre-tax dollars? Cheers, Chris
Hey, Chris. Yep, all numbers are pre-tax, although I did get the benefit of long-term capital gains tax vs. short-term capital gains tax because these deals took more than 12 months.
For deal 2, the neighbors were very much opposed. The lot was (is?) in an area where the descendants of former slaves held much of the land. Over the last 30 years they've been slowly selling the older houses and little by little, painfully slowly, new houses are going up. Because so often the new buyers are white and very culturally different than the current neighbors there is opposition because they, understandably, would like to preserve the last 150 years of culture. The community association, however, which opposed the building, has no legal authority. We didn't hire a lawyer because my builder/business partner has built over 2,000 houses and knew based on his experience what the county would want and what they would approve. At the zoning hearing, the community association voiced their opposition. My builder presented great plans and they were accepted in a unanimous vote.
A lawyer would probably be more important for larger scale commercial construction. Residential can be considerably less complicated ASSUMING you're working with experienced people who know exactly who to talk to and what to do.
On deal 3, I bought the lots from a family that inherited the lots several years ago when the family matriarch finally expired.
On deal 1, I used a broker to find buyers because the market was bad--and ended up getting crushed by the market. Deal 2 I didn't use an agent--I knew a guy who was interested and he leaped at the opportunity. On deal 3, well, right now the entire Washington, D.C. area is in an inventory crunch--there's SO little. I took advantage of it and, based on my experience in real estate and the people I knew, word of mouth was able to sell the houses in 24 hours. In a tougher market I would have never touched those 3 lots given their geographic area, but since I knew there was an inventory crunch I believed things would sell quickly. They sold in 24 hours--I was expecting the 3 sales to take 3-6 months, so even I was surprised.
very neat. interested to hear about your next deal - i'm sure it will be awesome. Here's one that caught my eye today:
It turns out that real estate investors Stephen Meringoff and Leslie Himmel scored quite a deal when they snapped up 158 W. 27th St. for $25 million back in 2010. Now the two, who are longtime real estate investment partners who focus on the booming midtown south neighborhood, have cashed in on the area's huge popularity. Mr. Meringoff and Ms. Himmel have sold the roughly 116,000-square-foot building, which straddles the northern edge of midtown south, to Emmes Asset Management for $57.5 million.
Read more: http://www.crainsnewyork.com/article/20130131/REAL_ESTATE/130139974#ixz…
Any news on the firm now? Have heard them around in the New York area, but are they still active?
http://online.wsj.com/article/SB100014241278873236396045783685800437186… Not a deal yet, and this is pure speculation, but who thinks the Malkins can get the req'd 80% shareholders needed to vote "yes" to go ahead with taking the ESB public? Would be a killer deal to work on IMO, although I don't think it's going through. Malkins just pushed the voting deadline back into May at the earliest. Thoughts?
Hudson Yards gets the green light on SAP and L'Oreal, and financing. Will be such an epic project, glad to see them get some traction so they can get the whole thing underway. I am moving down to NY for Columbia and hoping to live just northeast or southeast of the hudson yards, in Clinton or Chelsea, and we able to jump on the 1/3 and head to campus.
Anyways, Udechukwu and any others interested in getting the deal projects going, I have 3 HBS real estate case studies we can use. Is there a good platform to do this (share docs, post comments, etc)? I assume Google has something that can be used.
Chris
I'm definitely still up for this. I don't think too many others are, but I think it'd be something that would pay off down the road. PM if you and Udechukwu want to figure out how to get it rolling.
I'd be down
EDIT: time permitting
Hey guys,
Not sure if you ever got this going, if so I would definitely be interested as well. Have some personal investing experience in NYC, as well as work on some of these larger type deals in my office. Feel free to PM me if there is a way to move forward. Thx!
Always have these options:
http://www.wallstreetoasis.com/group/commercial-real-estate
http://www.wallstreetoasis.com/group/real-estate-professionals-group
I don't know how much value if any I would be able to add to a case study, but I would definitely want to read all the analysis and commentary that comes out of it. Sounds like a very interesting idea
Did this ever get going? Interested in reading analysis/commentary. Wouldn't be able to contribute unfortunately.
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