Manhattan Apartments Lure Investors Seeking Foothold in
Carmiel - Mar 18, 2011 12:01 AM ET Fri
Mar 18 04:01:00 GMT 2011
When UDR Inc.
(UDR) agreed to pay $260.8 million for
a tower in Manhattan’s Financial District, it was
not only the borough’s biggest apartment sale in almost three
years. It was also the company’s first foray into
The deal this month by Highlands
Ranch, Colorado-based UDR is the latest by a multifamily property
investor trying to establish a beachhead in the borough, as
apartment demand climbs and rents recover from last year’s lows.
Several new players are finding opportunity as city mainstays such
as Equity Residential, which bought three prime high-rises from
developer William Macklowe in 2010, turn their attention to
less-costly acquisitions outside New York.
Manhattan “has everything going
for it from a multifamily perspective,” said UDR Chief Financial
Officer David Messenger, whose company is the third-biggest
publicly traded U.S. apartment owner. New
York has a great economic base,
financial center of the world, extremely high propensity to rent,
low home affordability.”
Eight apartment buildings below
96th Street in Manhattan were sold or went into contract this year,
not including converted or stalled condominiums, according
to Real Capital Analytics
Inc., a New York-based property
research firm. The three largest by price, which are also the most
recent, went to buyers who are dropping a multifamily anchor in the
Management, a Chicago-based private-equity
firm, agreed to buy Related Cos.’s 265-unit Sagamore building on
the Upper West Side, beating 15 other bidders. The company also has
purchased multifamily properties in Los
Angeles and Washington, D.C., in the past year,
according to Real Capital.
The Elektra, a 166-unit apartment building
in the Gramercy neighborhood, also went into contract last month,
to buyer Invesco Real Estate, Real Capital said. The Dallas-based
company hasn’t owned a multifamily property in the borough since
2004, said Bill Hensel, an Invesco spokesman.
“For several years leading up to
the credit crisis, Equity Residential and Archstone were the
dominant buyers of rare, large, trophy, luxury multifamily
Manhattan offerings,” said Doug Harmon, senior managing director
at Eastdil Secured
LLC in New York. Harmon represented
the owner of 10 Hanover Square, the Witkoff Group, in its deal with
UDR, as well as the sellers of the Sagamore.
“These days the playing field is
a little more open and a little less predictable,” he
The newcomers aren’t “clouded by
their knowledge of history” of the market, which might make them
more hesitant to strike a deal, said Robert Knakal, chairman of
commercial property brokerage Massey Knakal Realty
Services in New York.
“Sometimes you have investors who
have been around for decades who turn transactions down, who say,
‘I could have bought that building decades ago for $30 a square
foot, why would I pay $700 a square foot today?’’ he said. ‘‘It
prevents them from making a move.’’
Longtime apartment owners
haven’t abdicated the borough, according to UDR’s Messenger, who
said his company competed with Equity Residential
(EQR) on several deals last
‘‘We still see all the common
players at different sites as we’re entering a building and they’re
leaving a building,” Messenger said. “We know that they’re around
and they know that we’re around as well.”
Demand for Manhattan apartment
properties has pushed up prices and lowered the yield for
investors. Capitalization rates on multifamily buildings in the
borough averaged 5.1 percent in the fourth quarter of 2010,
compared with 6.6 percent nationally, according to Real Capital.
Cap rates, a measure of investment yield, are calculated by
dividing a property’s net operating income by its purchase
Invesco’s contract to buy the
Elektra for $125 million implies a cap rate of 4 percent, according
to Real Capital. Invesco’s Hensel said the company doesn’t comment
on sales that are pending.
The average monthly rent for a
one-bedroom Manhattan apartment increased 8.6 percent in February from a
year earlier to $2,535, according to brokerage
Habitats. Rents for two- bedrooms
climbed 9.6 percent to $3,597, while three-bedroom apartments had
an average increase of 12 percent to $4,874. Average rents for
apartments of all sizes have recovered 11 percent from their
January 2010 low of $2,914.
The apartment vacancy rate
declined in February to 1.18 percent from 1.54 percent a year
earlier, Citi Habitats said.
Rent Vs. Own
While rents are climbing, New
York is the No. 1 U.S. city where leasing an apartment is more
affordable than buying a home, according to property
website Trulia.com, which compiles data from 50
At least two high-end Manhattan
buildings came to market last month. Developer Gotham Organization
is selling its Upper West Side high-rise, the Corner, just a year
after construction was completed. Africa Israel USA expects to
fetch at least $200 million for 88 Leonard
St., its tower in the TriBeCa
neighborhood that began leasing in 2007, Chief Executive Officer
Tamir Kazaz said in an interview last week.
Of the almost 150 would-be
buyers who inquired about the property, which includes a fireplace
lounge and an outdoor communal whirlpool, many were companies that
don’t yet own apartments in Manhattan, he said.
“A lot of them are domestic,
outside of New York -- Chicago, Atlanta,
California,” Kazaz said.
LLC, which bid on the Sagamore,
will probably “take a run at” 88 Leonard, co-founder David Schwartz
said in a telephone interview. The investment firm, which owns and
operates more than 15,000 apartments in 12 states, has a new $500
million fund that will be leveraged to buy $1.5 billion of
apartment assets, the company said in a March 8 statement.
Manhattan is one of its targets, Schwartz said.
Waterton Associates entered the
New York market in December, when it bought the senior construction
loan and mezzanine debt of downtown Brooklyn’s 271-unit Addison
apartment complex. The borrower will complete construction on the
property and retain ownership, Schwartz said. Waterton will be paid
a “preferred return” from the rental profits.
“We have no presence in New York
and we felt structuring a debt position in this case was fine for
us,” Schwartz said.
“We’ve always been an
opportunistic buyer and New York is difficult in that there’s
tremendous competition, extremely savvy local players,” he
UDR’s purchase of the
493-unit 10 Hanover
Square is the largest apartment deal in
Manhattan by price since August 2008, when
University bought the 304-unit Gramercy
Green complex for $275 million, according to Real Capital data.
LaSalle’s agreement to buy Related’s Sagamore for $140 million is
the biggest transaction since last March.
“Both recent deals demonstrate a
growing institutional appreciation for Manhattan’s resiliency and
the current positive imbalance between demand and supply, which
will no doubt lead to strong rental growth over the foreseeable
future,” said Eastdil’s Harmon.
UDR has been considering
acquisitions in Manhattan for at least two years, according to
Messenger. It reviewed the Macklowe collection of three buildings
that went to Chicago- based Equity Residential, the largest
publicly traded U.S. apartment owner, for $475 million, he
UDR officials are “walking up
and down the streets looking at different assets,” and plan to buy
several more properties in Manhattan soon, Messenger said,
declining to specify how many or when.
“You’re going to see us
continually monitoring the market,” he said. “One asset isn’t going
to be enough for us.”
To contact the reporter on this
story: Oshrat Carmiel in New York at firstname.lastname@example.org.
To contact the editor
responsible for this story: Kara Wetzel at