All Forum Posts by: Sebastien B.

Robert, depends on the neighborhood. Miami beach tends to go about 2x appraisal value.

Part of "so-so" areas go for 50% of appraisal (but appraisal really doesn't help when it drops 40% over a year)

Derek,

For a property with high growth potential (5th/park/madison quality), expect GRM in the 20's.
For a normal property? Saub-18 or so could be doable.

For example, a West village apartment averages for $2,000/foot. The next day, you can rent it for $80/foot. Without any more information, that is automatically a 25 GRM.

Flat iron has a GRM figure of around 20x

Yorkville can be sub 16.

You don't buy a manhattan condo for the early cash flow. You buy it to park your cash in a safe place that has high appreciation and high demand for rent.

That being said, send me a PM and I can get you a $500k apartment that will cashflow around $1300/month after CC/Tax and before debt service and a relatively strong growth rate over time. Depending on your level of leverage, you should be cashflow neutral after taxes.

Oh, and the only harlem neighborhood with a better GRM than yorkville is central harlem and is about .5 less.

Yes I was. I recently spoke to the borrower (regarding other properties he owns) and he is still in control of the property. Whoever over payed must be kicking him or her self right now.

Miami has so much international money running through it right now. The only way to get a good deal is to buy in locations where only locals live, as well as "boarder" areas. Miami has very strong bordering of its neighborhoods. A property worth 500k is worth $200k only a few blocks over. Buying in this between zone is where you can take advantage of market inefficiencies.

Buying at auction/REO has become a sucker's bet. People automatically assume that the REO/Auction is so cheap that they tend to pay a premium over the actual value of the loan that the property defaulted on.

I was in an auction for a beautiful miami beach property that was worth around $2 million. However, the note on it was for $1.25 million. By the time bidding was over, the purchaser had paid 20% higher than the actual balance on the note. That's far too risky to me. If the borrower decided to start paying again, you are stuck with a 4% yield for god know how long (and it was a floating rate too).

I am at the forefront of the manhattan market when it comes to purchasing large properties. Here is a rundown of how it is:

You have to have A LOT of money to make a Manhattan property work. Either you are a well known landlord and get off market deals for 30-40% less than market prices. Or you are a big shot who can pay 3-4% cap rates because you can borrow at sub-3% (and this is 100% doable for some of the people I work with), renovate the property completely, and then cashflow at 8% after refinancing for 40% higher than you purchased the building for in 5 years.

For a "trophy" asset (I.E 5th avenue corner of 57th), expect a cap rate approaching 2%. The reason people pay 2% now is because a trophy property in Manhattan will generally get above average growth yields (ON TOP of the already ridiculous growth inherent in ANY Manhattan property) on it's leases when they expire or renew. A non-trophy asset may increase its rent by 30% in 3 years, but a trophy asset probably has a 70%+ growth in it's rents. 2% now is 12% in 5 years with almost zero risk of default. Almost every investment fund in the world wants that property. More than they want treasuries.

Foot for foot, It's cheaper than London, its cheaper than Hong Kong, and its technically in the same "Class" as those other areas. There is also the fact that all currencies lead to USD, and when the US does poorly, every other country does a lot worse on average. The US would default, and half the world would go into a deep depression before Manhattan got truly hit by it. I call that a safe investment. I'd much rather park my cash in a 2% cash flowing property in Manhattan than in a 2% yield treasury bond that has a 10% chance of default (which would cause interest rates to shoot up and destroy the value of that bond anyways).

Even average buildings are usually below "market" by 25% on rents that wont expire for another 2-10 years. You are talking guaranteed income for those years, plus a 40% increase in rent rolls once the building leases roll over. If a tenant defaults, GREAT! Another floor that can be brought to market x years earlier! If not, just wait until the lease expires and quadruple up. That is incredible growth for the relative risk profile. The large institutional investors buying the big deals are all cash, they hardly even borrow, or they are REITS and just issue shares at ridiculously cheap costs.

Lastly, 40% of Manhattan is landmarked or zoned historic. There is so little room to develop that only the huge players have a chance, and even when they do, it hardly puts a dent in the demand.

I was recently reading an article about a soho property that is being bought out by a large retailer. The article discussed that the cap rate was sub 2%, but at the same time, the retailer currently leasing the building was paying 1/20th of market. You buy a building that is cashflowing $200/foot and in 5 years its cash flowing $4000/foot? I'd take that for 2% going-in cap any day of the week.

I almost forgot. 1031 exhanges are the center of almost every deal in Manhattan right now. Usually no financing is involved.

Upper manhattan is a value trap. Too much room for new building in the future (if ever). The least risky value growth plays are Central park north and below. Possibly even Brooklyn (but again, its a value trap right now).

Lower manhattan may be your best bet. FiDi is relative junk right now but its sub $600/foot for property (You could get a lot worse in "better" areas for sure.) The neighborhood isnt amazing, but a lot of money is being put into the area. Freedom tower will really help kick the area up in value.

Don't expect anything quick in terms of returns on investment... but with the money you saved buying cheap there, you can finance more lucrative short term investments in other areas. I personally don't like the area in general, but there are some nice condos that have amazing views and huge living spaces with plenty of amenities.

I used to be a sales/rental broker in Fidi. If you ever need a hand, feel free to let me know.

Adding to what has been said above: Monthly costs vary between $1-$3 per foot.

Some reasons why these cheap properties cashflow so high:

1. Low growth rate: Do you want to buy a tech startup with high growth and low starting cashflow? Or do you want a high dividend stock that pretty much pays everything out and grows very slowly (or not at all)? You probably wont be able to refinance out your equity anytime soon on a very cheap property.

2. Higher risk: Sure, this property could be worth a lot more in 20 years, but then again, it might not. Depending on the location, could be prone to destructive elements than a more expensive property. How much would you want to be compensated for a building that might be destroyed in 2 years due to some mishap/disaster? How about if a tenant gets hurt? Also, low income families are usually the most effected by economic shocks. Even with solid tenants, a single injury or firing could wipe out months of cashflow.

3. More headache: More tenants, more repairs, more time spent traveling to each property to maintain. More liabilities.

I personally dabble in the area between lower and middle class areas and upper middle class to upper class areas. The rent is on the high side for one class (but manageable) and on the low side for another. In case of economic downturn, there isn't a huge shift in pricing. If a sufficient upturn were to manifest, that border area will gentrify faster than the fringes.

The "border" areas to me provide the best bets in terms of growth, cash flow
and relative risk. Established towns with safe economies and decent crime rates. A random town in Oklahoma may have a great cashflow, but what keeps that property going? What happens if that town suffers a loss of a major business?

Simple answer?? You wont.

I am the adviser/consultant/agent to an investment fund centered on new york assets. I know my way around the city's real estate opportunities, and I try all the angles.

I will tell you that if you are looking for cashflow or a cheap deal that requires a little bit of work and is worth the investment, you wont find it.

If you want below market, you are going to have to do the following:

1. Buy Big/Develop
2. Buy Rent regulated.

I really don't recommend either unless you have the money and/or patience to take such risks.

Manhattan is all about appreciation and value add. You buy a great asset for a 4% cap rate, dump tons of money in renovations and tenant negotiations, and in 5-10 years you sell for 2-5x your investment. This is usually how the market here works.

That being said, you really don't want to go through the manhattan condo renovation process with anything but bulk/regulated apartments. Find something that is in decent shape and hold on to it.

The UES has generally been seen as a long-term growth asset with strong inherent value. It's a safe and mature market with stable demand. High quality buildings are abound.

The UWS is more popular with less generational wealth and young prfessionals. This will be the next UES as the new wealth becomes generational. I think the market here is under priced compared to its future value, but buildings like 15 CPW are quickly changing that.

The West Village is trendy and expensive, but I just don't see the inherent value of the location unless you are very social and own a townhouse. (It is also more flood prone). Owning here seems more like a fashion accessory than a living investment.

East village is relatively hip and cheap, but you are stuck in the value trap. There is too much space left to develop before prices really start going higher. Most of the inventory is lower quality. It's basically the west village sans the lack of development space.

Soho has high value and high price, but is also very trendy. I see a lot of growth in that area as the laws become more favorable to non-artists. There are so few development spaces that prices are going to skyrocket over time. The apartments are usually high quality and roomy (they were built to house manufacturing).

Tribeca/hudson square is okay, but I really don't understand the appeal. It seems a little too plastic to me. Something about it makes me feel confused. It's pretty "secluded" compared to the rest of the city. I think it will be a great neighborhood once the rest of the city below canal develops. Until then? Overpriced.

Fidi is currently junk and worth next to nothing. However, you can find the best deals there. Find a huge condo under $500/foot and you are pretty golden.