Michael Stoler does some great primary research into multi-family, hotels, commercial property trades- which informs my business but isn’t my primary focus.
The overlap in this week’s email was interesting.
If you care to read below, he goes into detail about the rental buildings different REIT (real estate investment trusts) are purchasing.
But what I’m seeing on a ground level is that individual purchasers are picking up performing rentals, earning 3-4% returns.
Worth a read below, too:
This is what he had to say:
Everyone wants to own residential apartments in New York City, especially Real Estate Investment Trusts
In the world of real estate and business, some people “put their money where their mouth is”. It looks like the president and ceo of UDR, owner and manager of more than 62,000 apartment units is doing exactly what he is saying.
In November at REITWorld 2011: NAREIT’s Annual Convention in Dallas, Tom Toomey, president and CEO of UDR, Inc, was quite confident about the short term and long term fundamentals in the apartment sector, noting that 2011 has been a great year. The company had done more than $4 billion in transactions and had spent $ 1 billion in the New York market alone.
As reported in REIT.com, Mr. Toomey discussed the company’s plan in the New York market and said that the recent transaction represented two different strategies. The first are undermanaged properties with a potential upside for redevelopment and he said the other is an investment in the financial district next to the rebuilt world trade center area. He said, “All of that office space that you find down there is being occupied and when you look at the submarket what you find is there’s very little housing, so we decided to make a significant investment, a little over $600 million, in buying two building right down in the financial district.”
He was bullish on the market noting that “We are coming off a generation low, but even as the supply doubles it will not keep up with the demand side of that equation. The demand between now and 2015 and 2016 looks like there are about 4 to 5 million rents on top of the 40 million. We can’t meet that demand so I’m not worried about overbuilding at this point.”
Earlier this month, UDR as a partner in a new formed real estate joint venture with MetLife, wherein each party owns a 50 percent spent $1.3 billion in the purchase of 12 operating communities containing 2,528 apartment homes. A total of 710 apartment units are located in Columbus Square, a recently development, high rise apartment building located on the Upper West Side of Manhattan. The joint venture paid $630 million or $877,324 per unit for the residential portion of the buildings.
The sale by the partnership of Stellar Management and the Chetrit Group of the five tower complex, located on Amsterdam and Columbus Avenue did not include about 400,000 square feet of retail and 392 parking spaces.
It was just last month that Harry Alcook, SVP, at UDR, said, “If you were to say $1.5 billion to $1.8 billion in New York City is a reasonable target over the next couple of years that is probably the right kind of number.”
The purchase of the apartments in Columbus Square represents a significantly higher price than they paid earlier in the year when they acquired the 493 unit rental building 10 Hanover Square. The REIT paid $260.8 million to the Witkoff Group, for the property which included 41,650 square feet of retail space. The company estimated that the purchase price excluding retail, at $484,000 per apartment.
Over the past few years, the major owners of residential rental multi family apartments in New York City include REITs and organizations which include UDR, Equity Residential and Archstone. In December, Archstone acquired the 209 unit apartment property at 377 East 33rd Street on First Avenue, across from the NYU Langone Medical Center. The company paid $131 million or $626,794 per unit.
In the third quarter of 2011, UDR acquired three apartment properties, containing 1,423 units for $911 million in Manhattan. One of the properties is Rivergate, a 706 unit apartment community, one block away from 377 East 33rd Street. The company paid $443.4 million, or $628,045 per unit for the 35 story, apartment building which included 24,315 square feet of retail and commercial space an a 125 space parking garage.
The REIT also purchased the 210 unit, 21 Chelsea, for $138.9 million or $661,428 per unit. The purchase of the 14 story building included 1,600 square feet of retail and a 152 space parking garage.
The third acquisition was 95 Wall Street, a 507 unit, in the financial district one block east of its building at 10 Hanover Square. The REIT paid $328.9 million, or $648,717 per unit. Once again this purchase included the purchase of 7,526 square feet of retail space and a 97 space parking garage.
At the end of last year, Equity Residential purchased the 113 unit residential rental building at 175 Kent Avenue in the hip Williamsburg section of Brooklyn for approximately $76 million or $672,566 per unit.
I may not have a crystal ball, nevertheless, it looks like the REITs, local and international investors from around the world have a couple of things in common. They all have a desire to own real estate in New York City, especially residential rental properties. It seems that paying a price of nearly $1 million for a residential unit an increase of nearly double the price paid over twelve months is not having an affect on the investment sales market. With interest rates at record lows, coupled with the availability of financing from Wall Street, Insurance companies, Fannie Mae & Freddie Mac, and commercial and savings banks, the outlook is very bright for this asset class.