Deal Story: 103 3rd Place (Discounts Are Here)

As part of a selloff campaign for its pre-war NYC multifamily portfolio, the Related Companies just sold 446 Lorimer Street for a 53% discount to the purchase price eight years ago. Related bought 446 Lorimer Street, a corner 53-unit property, for $25.5m in 2016 and sold it for just $12m this year. The headlines below tell the story better than I can.

According to Crain's New York Business,

"More than just a place to live, 442 Lorimer seems a vivid symbol of the real estate speculation that's intensified in the multifamily sector in recent years. Indeed, the building has changed hands four times in about a decade, with each seller managing to notch a notable profit, at least until this month's transaction."

The frenzied market speculation that proliferated the marketplace during 2014-2018 is easing, and experienced operators are stepping up to take these deals down. All the buyers for the handful of pre-war properties Related has sold this year in NYC are investors with +$100m AUM, and hundreds and perhaps thousands of units owned/under management. Operators are finding ways to buy properties at prices that make the investment tenable for themselves.

Deal Story

103 3rd Place

103 3rd place is an example of inflated valuations returning to levels that create compelling business cases for investors. The chain of transactions over the last decade go like this:

• Owned for a while by a local family

• Bought in April 2014 for $1.8m

• Bought in July 2015 for $4.95m

• Bought in October 2024 for $3.4m

The (8) eight-unit residential walk-up property has two apartments (configured in left and right layouts) per floor. The property has (6) six fair market apartments and (2) two rent stabilized apartments (75% FM, 25% RS).

The business plan for the next buyer should be to spruce up the apartments and common areas and raise, update any deferred maintenance, and raise rents commensurately. Because the building has two rent stabilized tenants, the potential to make building-wide alterations is limited. You won't see the buyer replacing staircases or playing with the exterior four walls of the apartments.

Gut rehabilitation be damned, there is an excellent opportunity to raise rents from where they are now in the mid $50s per building square footage to closer to $75 per square foot. Because of Good Cause Eviction, predicting when the purchaser will achieve his pro forma rents is difficult. The new owner cannot control when tenants vacate, and because of this, he cannot determine when his renovations can begin. The other challenge is whether the building's current apartment layouts are appealing enough to garner rent of $72 / square foot.