Multifamily Takes Manhattan
decades, pundits have argued about the ill effects of New York City’s apartment
rent control laws. But are these laws good for real estate investors? For
certain multifamily owners in today’s market, the answer is a resounding yes,
according to Asset Manager Michael F. Mikelic, CCIM, managing principal with
King Penguin Properties in New York. Mikelic recently shared his thoughts on how
rent control and other factors are shaping Manhattan apartment investment
opportunities with Commercial Investment
: Are any niches within the
multifamily sector garnering investor interest in Manhattan?
excellent and very low-risk niche are older walk-up buildings, many with in-place
rents well below free market rents as a result of rent stabilization laws that
are unique to the New York multifamily market.When purchasing a building
with current in-place rents that are 40 percent to 50 percent below free
market, cash-flow generation is very safe in this economic environment.Tenants
with such a good deal are likely to keep paying rent regardless of their
: Competition for class A
multifamily assets in core cities is said to be driving investors to look for
class B/C opportunities. Are you seeing evidence of this trend?
question.Our core focus is New York City walk-up buildings with current
rent rolls well below free market.To find deals with the gross rent rolls
and capitalization rates we need, we have had to purchase further north on the
island of Manhattan.
There has been more competition in 2011 vs.
2010, but New York has been a competitive market for some time, with many
investors and established local families ready to buy stable multifamily buildings.
Vacancy rates have been low for the last 100-plus years and currently are below
1 percent in Manhattan.
: What types of investors are
actively seeking multifamily properties in Manhattan?
Mikelic: I run an
investment fund that manages assets for wealthy individuals.These
investors are seeking safe, dependable payouts on money invested with potential
upside on asset sale in five to 10 years.
: What types of financing are most
common for these deals?
Mikelic: Many small
regional lenders really like the New York-based multifamily asset
class.We are able to secure rates at or near 5 percent for nonrecourse
financing at about 70 percent loan-to-value with a debt coverage ratio at 1.25
or higher. We are about to close on a deal in the Inwood area in Upper
Manhattan with a five-year fixed rate at only 4.37 percent with a 30-year
amortization period that required a 60 percent LTV. Interesting enough, rates
for NYC-based multifamily buildings with in-place rent rolls well below free
market actually went lower over the past quarter.
more on multifamily investment opportunities, read “Multifamily Media Frenzy”
in the Nov./Dec. 2011 issue of CIRE.