Private Property and Building Users – Commercial Monitor
When Doron Greenberg and Aviad Ohayon decided to leave the world of private equity where they had trained for about five years and start their own real estate company, many New York realtors were licking their fresh wounds.
It was 2019, and the state had just passed landmark rent-stabilized apartment legislation, making it impossible for landlords to raise rents and break free from regulation even after making major capital improvements to their buildings. So owners who acquired properties just a year ago suddenly find their business model outdated.
But for Greenberg, the situation represented an opportunity, which matured further when the pandemic struck six months later, triggering a mass exodus from Manhattan, historic inflation, and the rapid rise of interest rates, starting in the middle of last year.
“People can’t finance, they can’t refinance, and the banks are sitting on the sidelines,” Greenberg said. “With all the difficulties, we said, ‘Well, New York now presents a very unique opportunity because the price per square foot — the cost of brick — is historically so low.'” With the right equity structure and long-term investment horizon, Greenberg and Ohayon believed they could capture a slice of the city’s market. Multifamily.
Fast forward to October 2023. Their firm, GO-RE Partners, has just closed its fifth deal in New York City, acquiring a 77-unit, mixed-income multifamily building at 69 East 125th Street in East Harlem from Greystone Development for $28.2 million.
The new development was completed in 2017 and will receive a 421a tax abatement through 2043, but Greystone was facing a deadline on its loan, according to sources familiar with the deal. The developer did not respond to a request for comment.
“For their own reasons, they decided it was best to sell,” Greenberg said. “And we got a very attractive price per square foot for a new product. We couldn’t build this building today at the price we paid for it.”
For Shimon Shokouri of Ariel Property Advisors, who was part of the team that brokered the deal at 69 East 125th Street, GO-RE Partners embodies a certain type of new-age landlord: private, opportunistic buyers with a lot of equity For publishing and long-term investment strategy.
The city’s rent-stabilized building stock previously included a very similar group of investors as the unregulated market, Shukouri said. “Today it is only private capital,” Shukouri said. “Those who invest in fixed rentals today are people from the private sector, and some syndicates, who have one thing in common which is a long-term view, which means they are not investing for two or five years but at least seven to ten years, if not long.”
Likewise, the multifamily real estate market has shifted with income constraints in favor of private family offices and mission-oriented capital, with Nuveen making headlines in May of this year when it acquired a massive affordable housing portfolio of about 12,000 units from Omni Holding Inc. Mo Vaughn. .
Nuveen — whose mission-driven capital is part of its larger $156 billion in assets under management — declined to disclose the sale price, but said the deal was part of $3 billion in acquisitions in its pipeline this year, Commercial Observer reported. .
Anyone with good credit is at a huge advantage right now, and it will remain so as long as “the cost of capital is the highest it has ever been in memory,” said Will Silverman of Eastdil Secured.
In the world of Silverman Memorial Properties in Manhattan — where Eastdil brokered more than $1 billion in sales last year — everyone wants to sell.
“Users can usually pay a premium because there is no profit for developers,” Silverman said. “The challenge is a lot of times they’re not able to accommodate the timeline of the New York City deal. So you’re talking about potentially getting a higher price for people who are fickle and slow-moving.”
The Vanbarton Group’s sale of 15 Laight Street to Korean automaker Hyundai in February of this year for $273.5 million is Exhibit A, Bloomberg reported. Hyundai paid all cash for the eight-story office tower in Tribeca. It plans to use the 108,000 square feet of floor space for offices and showroom space.
Six months later, James Dyson, the King of Vacuum, splashed out $135 million to buy 747 Madison Avenue from billionaires Jeff Sutton and David and Simon Rubin, each of whom shared a stake in the 17-story co-op retail project through their private equity firm, Wharton. Properties and Wharton Properties. Robin Brothers.
The U.K.-based Dyson family office, known as Weybourne Holdings, began its foray into the New York market in March, when it bought 155 Mercer Street for $60 million, public records show. That’s a significant discount from seven years ago, when the three-story SoHo building last traded for $93 million.
There is currently no consensus on what the future holds for the city’s office market, but there have been a few non-users making purchases, Silverman said. Prominent among these is Japanese developer Mori Trust, which acquired a 49.9 percent stake in 245 Park Avenue from SL Green Realty in June at a valuation of $2 billion.
“Most of the non-user buyers are private family investors who think it’s Manhattan, it’s in a good location, and I’m going to buy it,” Silverman said. “No one has ever written a book called ‘Pendulums That Swinged Right’.”
Silverman argues that the pendulum may have swung too far at this point. He cautioned against relying too heavily on the oft-cited return-to-office numbers provided by security company Kastle Systems, which uses key FOB data to create a measure of office occupancy across US states.
The problem is that large landlords like Vornado Realty Trust and Boston Properties aren’t using Kastle’s access control products, leaving a huge data gap.
Investment sales volume in New York City fell 31 percent annually in the first half of 2023, according to an Ariel Property Advisors report. A decline in sales velocity could signal the beginning of a downturn in commercial real estate, but for new entrants to the market, David Shechtman of Meridian Capital Group said there simply isn’t enough activity to focus on the heavy trend.
Meridian has 11 deals scheduled to close before the end of the year, some of which will involve capital from out of town, others to previously unknown buyers, he said.
“I can’t say it’s as linear as it has been in past years where you say China is active, and it’s connected to global economic forces,” Shechtman said.
He said he has seen investment flow into New York City this year from Chicago, Toronto, Montreal, South Korea and South America — to name a few — but Shechtman declined to go into detail, noting only that some newcomers have had a modicum of success. Previously, but now they find that their shares go further in New York City and that the barriers to entry are lower.
“There are a lot of people who want to transact this year or next year thinking we are only two years away from lower interest rates,” Shechtman said.
Then again: “You can never time a sale perfectly.”
Abigail Nehring can be reached at email@example.com.
(tags for translation)Aviad Ohayon