Multifamily Takes Manhattan

For 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 Real Estate.

CIRE : Are any niches within the multifamily sector garnering investor interest in Manhattan?

Mikelic: An 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 economic situation.

CIRE : 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?

Mikelic: No 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.

CIRE : 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.

CIRE : 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.

For more on multifamily investment opportunities, read “Multifamily Media Frenzy” in the Nov./Dec. 2011 issue of CIRE.

Rich Rosfelder

Rich Rosfelder is vice president of strategic communications for CCIM Institute.


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