Help! Pros & Cons of Brooklyn, NY 14 unit Condo Conversion?

Question

Hi our 14 unit rent stabilized apartment building is not very profitable due to strict rent stabilization laws in NYC. I know it involves significant renovations and legal help but I believe all units will sell for about 12 million and we would only be into in for 4 million or less compared to selling or doing buyouts based on the appraised value of 2.5million. We currently don't have any debt so we have room to work

I'm NYC has some ways to make this deal harder than it looks so please share any Pros and Cons you're aware of.

Thanks!

Joseph Kotey · Answer

@Jason LeeThanks.Yeah I'm thinking more buyouts then purchases as many are lower income so 40k or so could go a long way for them to leave. I haven't gotten much of a response here. I wonder if anyone is an expert on it in the group or how to get more replies?

Jason Lee · Answer

Good location! You'd need to buyout at least one tenant to even get the non-eviction plan going as you need at least 15% of units in contract and your 2 market rate equals 14.2% (so close!). I'm not that familiar with eviction plans... because I've never seen one... but I think you need at least 50% of tenants to agree to buy in. Even then there are restrictions on being able to evict the remaining tenants. I think seniors of a certain age and anyone with disabilities still can't be evicted. Chances of half your tenants being able to afford to purchase is probably slim. If they can, they're probably smart enough to band together to negotiate steep discounts. Think about how negotiations goes when and you need them, and they don't need you. Or if that doesn't work, buyouts probably aren't going to be a slam dunk either. Pretty good location so definitely worth exploring though.

Joseph Kotey · Answer

@Jason Lee Thanks so much for the reply. Any amount is better than 2.5 haha. 8-10 million out would be great. I'm going off of what a developer who wants the deal gave me. It's near Bedford ave on Eastern Parkway, Crown heights. Pretty good area. 2 are Market rate, my cousins and the super who would leave. I was told that we can pay people to leave then get a certain percentage of tenants to allow the conversion. Is this not true? I know we can't do that to rent it for higher amounts as we would only get a 20% increase plus renovations but I was told for a conversion if approved by tenants it allows for more options. Giving them an option to buy etc...

Jason Lee · Answer

You can only convert under a non-eviction plan. So you can only renovate and sell market rate units. How many are market? If they're all stabilized leases I'm not even sure you'd be able to get an offering plan declared effective. Otherwise you have to wait until tenants vacate to renovate and sell each unit so who knows when you could get all 12mm out... maybe never. And you're considering this just as the pace of condo sales and prices are softening. Where is this located?