18.7.12
[Update] Caveat Emptor...
Todays Full Story below is less of a story and more of a listing. 79-89 Avenue D was originally listed by Eastern Consolidated back in May, with a very ambitious asking price of $22.5M. We picked up on this and applied our Cubed Advisory back-of-the-napkin-estimate system to the listing. By our quick numbers, the site would not be able to support an asking price of anything over $20M at the very high end.
Eastern Consolidated seems to have got the message from the market (since they didn't ask us!) and dropped the price a full 17% to $18.5M.
This is obviously a far more workable ask. The next few months will determine just how workable it is. The Arabella 101 at 101 Avenue D just started leasing- that means instant and very relatable comps that will surely be the basis of the model for 79-89 Avenue D.
Full Story
Eastern Consolidated seems to have got the message from the market (since they didn't ask us!) and dropped the price a full 17% to $18.5M.
This is obviously a far more workable ask. The next few months will determine just how workable it is. The Arabella 101 at 101 Avenue D just started leasing- that means instant and very relatable comps that will surely be the basis of the model for 79-89 Avenue D.
Full Story
Labels: affordable housing, development, East Village, Eastern Consolidated, multifamily
22.5.12
Caveat Emptor...
...or why it pays to do a little due diligence.
Call it the Facebook IPO mindset or just some very optimistic marketing, but the development site described in the Full Story below, would appear to be over reaching what is reasonable.
Located at 79-89 Avenue D and currently occupied by a one story Rite Aid, Eastern Consolidated has put a price tag on the property of $22.5M. The site clearly has a large footprint and a (locally) impressive buildable SF of around 72k. This number swells to 96kSF buildable when 20% of the residential floor area is designated low income.
The problem is in the location. Similar to 109 Gold Street that we previously blogged about, 79-89 Avenue D is sitting across the street from a public housing project. In this case it is the Jacob Riis Houses. These buildings will limit the rent potential of units built on the site and will kill all but the most bargain priced condo development.
We have been putting our 'Cubed Advisory back-of-the-napkin-estimate' technique to this one as a multifamily rental and just aren't seeing a $/SF rent that will make the asking price make sense. With residential rents in the micro area facing the Jacob Riis houses struggling to get out of the $45/SF range, an all market rate building could expect to bring in around $2.6M annually or $2.9M with a blend of low income and market rate- an increase made less viable when the cost of construction is factored in. With that kind of income backed up against a very rough construction cost, the land barely touches a useful value of $10M. That is under $140/SF buildable, which is not coincidentally close to what Eastern Consolidated quotes as nearby comps (for properties not facing a housing project). But, it certainly is nowhere near the $234/SF buildable asking price for the bonused model or $311/SF buildable as of right.
What this site, does have going for it is it's footprint. With typical lots in the area being 2500SF, the 13kSF footprint of 79-89 Avenue D has the ability to support a very large retail space. In fact it currently is one and is probably making over $800k a year in rent from it already. It is this potential for a large retail space/spaces that can command a higher rent than residential (~$62/SF on the block) and contribute a little over 30% to the rent roll that will allow bids for this site to approach what Eastern Consolidated is asking. Again, the 'Cubed Advisory back-of-the-napkin-estimate' would figure the land could command a price of $20M as a ground floor retail development with housing above. Still 10% below the ask.
All that remains to be seen now is whether the site languishes pending a market dictated price chop. Of course if some smart developer with plans to change the micro market of Avenue D can find an underwriter willing to prop up the financial model, well- that could work too.
Full Story
Call it the Facebook IPO mindset or just some very optimistic marketing, but the development site described in the Full Story below, would appear to be over reaching what is reasonable.
Located at 79-89 Avenue D and currently occupied by a one story Rite Aid, Eastern Consolidated has put a price tag on the property of $22.5M. The site clearly has a large footprint and a (locally) impressive buildable SF of around 72k. This number swells to 96kSF buildable when 20% of the residential floor area is designated low income.
The problem is in the location. Similar to 109 Gold Street that we previously blogged about, 79-89 Avenue D is sitting across the street from a public housing project. In this case it is the Jacob Riis Houses. These buildings will limit the rent potential of units built on the site and will kill all but the most bargain priced condo development.
We have been putting our 'Cubed Advisory back-of-the-napkin-estimate' technique to this one as a multifamily rental and just aren't seeing a $/SF rent that will make the asking price make sense. With residential rents in the micro area facing the Jacob Riis houses struggling to get out of the $45/SF range, an all market rate building could expect to bring in around $2.6M annually or $2.9M with a blend of low income and market rate- an increase made less viable when the cost of construction is factored in. With that kind of income backed up against a very rough construction cost, the land barely touches a useful value of $10M. That is under $140/SF buildable, which is not coincidentally close to what Eastern Consolidated quotes as nearby comps (for properties not facing a housing project). But, it certainly is nowhere near the $234/SF buildable asking price for the bonused model or $311/SF buildable as of right.
What this site, does have going for it is it's footprint. With typical lots in the area being 2500SF, the 13kSF footprint of 79-89 Avenue D has the ability to support a very large retail space. In fact it currently is one and is probably making over $800k a year in rent from it already. It is this potential for a large retail space/spaces that can command a higher rent than residential (~$62/SF on the block) and contribute a little over 30% to the rent roll that will allow bids for this site to approach what Eastern Consolidated is asking. Again, the 'Cubed Advisory back-of-the-napkin-estimate' would figure the land could command a price of $20M as a ground floor retail development with housing above. Still 10% below the ask.
All that remains to be seen now is whether the site languishes pending a market dictated price chop. Of course if some smart developer with plans to change the micro market of Avenue D can find an underwriter willing to prop up the financial model, well- that could work too.
Full Story
Labels: affordable housing, development, East Village, Eastern Consolidated, multifamily
20.3.12
Williamsburg Gains Inclusionary Housing
The Full Story below makes note of the $50M construction loan secured by LCOR to develop a large assemblage in Williamsburg at 250 North 10th Street. Being new development on empty lots, it's the kind of story that we at Cubed Advisory like to hear about. We could back out the numbers to estimated cap rates, construction cost/SF, unit cost etc., but there is another story buried in the numbers of this one.
Inclusionary housing.
Although not explicitly mentioned in the article, there is just no other way to take a 50,000+/-SF lot like 2050 North 10th, with a FAR of 2.7 and turn it into the 185,000SF development cited in the Full Story below. 185000SF is however what one gets if the site is developed to max out the inclusionary housing bonus and bring the FAR up to 3.6 (yes it doesn't work out exactly, but given rounding, mech shafts, etc. it's close enough). In the particular zone that 250 North 10th is in, developed inclusionary housing SF comes back at 125% bonus SF. For example, if one builds a 500SF inclusionary unit, one gets a 750SF floor area bonus above what the FAR would allow. This backs out to the inclusionary housing accounting for 20% of the total development.
Since inclusionary housing is mandated to rent at a less than market rate, there is clearly a trade-off here. Currently NYC caps rent for apartments in this zone at approximately $21/SF, while LCOR is looking to rent units in the mid $50s/SF- call it $55/SF. With 20% of the SF earning $21/SF and the remaining earning $55/SF, the blended price works out to $48/SF.
That's 12% less $/SF in rent (bad) over 33% more floor area (good) bringing in 16% more gross income- or roughly $1.3M annually (very good). Do we even need to mention what low income housing tax credits can do for this deal (really very very good)?
Which is the better story in the Full Story below? $50M construction loan or a $1.3M increase in revenue through smart use of zoning? Chicken and egg?
Labels: development, inclusionary housing, LCOR, multifamily, Williamsburg
2.3.12
Multifamily Unsticks the Stuck
683 Fourth Avenue in Brooklyn has been an empty lot and a typically stalled project since 2007. As land purchased by Issac Katan in 2005 with plans to build 16 units of condo and then hitting financial problems by 2006, the project followed a common trajectory of many condo jobs of the time. But, as the Full Story below tells us, good news is coming in the form of 'Greenwood on Fourth' developers.
Greenwood intends to take the existing plans, and build out the structure (currently a 421a approved basement) as a 16 unit multifamily.
Here at Cubed Advisory, we are always in favor of seeing stalled condos restarted and turned into productive and currently lucrative multifamily projects. With currently solid rents across the city, low vacancy and a general shortage of units on a per capita basis, multifamily is a no brainer. Our back of the napkin analysis estimates that the land, development and construction cost are valued around $8M. This number could be lower with savings realized for the extant basement and complete predevelopment work. Given the neighborhood comps, it seems unlikely that Greenwood will be able to realize their $45/SF rental target, with mid $30s being a more likely number for well done new development in the immediate area. This will provide a cap rate of almost 5% to just over 6%. Certainly beating the likely debt load and setting up the new development for long term success.
Multifamily construction > condo!
Labels: development, Greenwood on Fourth, Katan, lots, multifamily, Park Slope
24.2.12
Easy Money Reno
The redevelopment of 247 East 28th is everywhere today. It's in the Full Story below, it's here and here and probably a few other places too. Rightfully so! It's a simple story of an underperforming asset that is about to be repositioned for solid returns. As the Full Story below notes, 247 East 28th has been picked up by Silverstone Property Group and RWN Real Estate Partners for $53M, with plans to sink another $12M in upgrades. Over 128 units and 109kSF, our back of the napkin math tells us that is $507k/unit and $596/sf, which isn't cheap at a first look.
But, the current average rent of $40/sf provides a gross rent multiple of somewhere around 17. If Silverstone successfully repositions the building into their target 'luxury' market (and let's take the broker speak with a grain of salt), there is no reason they can't realize $45/sf like Kips Bay Court Across the street, or $55/sf like Parc East, one block down.
$55/sf would give Silverstone and RWN a GRM in the neighborhood of 12, beating current rates by 2 points.
Nice investment + nice reposition = easy money.
Labels: Kips Bay, multifamily, redevelopment, RWN Real Estate Partners, Silverstone Property Group
15.2.12
Stonehenge Going Long
Stonehenge are smart investors in NYC multifamily. They have a talent for buying undervalued or underdeveloped property and putting the work into it. One only has to look at their plans for 555 6th Avenue to see that Stonehenge creates value through transformative investment in clever acquisitions. They are one of the few firms that we at Cubed Advisory have heard talk up the merits of rent stabilized tenants as a future arbitrage.
So what are they doing with their seemingly expensive purchase of 364 West 18th? There are few facts in the Full Story below (5th item down) outside of $35M sale price for 65 residential units. So let's pad some out some more facts:
-65 residential units with 7 commercial units = $486k/ unit ($376k adjusted for weighted commercial)
-57706SF with no available FAR = $606/SF
It all adds up to some pretty thin margins, especially with average residential rents of $2800/mo, but therein lies Stonehenge's basis. Minor renovations could easily push average rents up 30%, more if some of the retail was reclaimed for amenity space. Speaking of retail, it is safe to assume that with a barber shop, check cashing store, deli and candy store- retail is also sub market rate.
Stonehenge clearly didn't buy low, especially with the amount of work to be done, but their history of long term holding of assets means that there will always be a future opportunity to sell high.
Full StoryLabels: Chelsea, multifamily, repositioning, Stonehenge
13.2.12
One of These Things is Not Like the Others
It is a well known fact right now, that in New York real estate the easy money is in multifamily rental. As the Full Story below points out though, there may be even easier money in the affordable housing subclass. Between federal and city tax credit assistance programs, federal low income housing tax credits and the Community Reinvestment Act, there is a great deal of incentives available to help improve the bottom line of such developments. But how are the numbers quoted in the Full Story related to a baseline such as $/built unit?
It looks like this:
L+M Development:
Affordable Housing Preservation Fund- $100M over 1300 units = $77k/unit
Phipps Houses Group:
Units developed since 2007- $650M over 2000 units = $325k/unit
Hobbs Court- $125M over 134 units = $932k/unit
Fordham Bedford Housing Corp
Serviam Gardens- $46M over 243 units = $189k/unit
Clearly L+M's fund numbers are low being strictly reno. Fordham seems a little light at $189k/unit. But what happened at Hobbs Court? $932k/unit development cost? Someone needs to check the published unit count or stop finishing units in gold leaf.
Labels: affordable housing, Fordham Bedford Housing, L+M Development, multifamily, Phipps Houses Group