$16,850,000 in Upper Manhattan Buys a 107-Unit, Affordable Housing Portfolio.
$16,850,000 Buys 107-Units of Affordable Housing in Upper Manhattan
Owners of Housing Preservation & Development (HPD) properties in New York City enjoy a range of benefits, not least of which is access to favorable financing that simply isn’t available to owners of market-rate properties.
But, when it comes time to sell an HPD property, the owner faces a number of difficult decisions and a series of challenges in finding a buyer and reaching a close.
Recently, the West Bridge Associates engaged New York Multifamily to sell a 107-unit portfolio attractively located in Upper Manhattan at 151st and 152nd between Broadway and Amsterdam. The 107 units comprised 6 buildings with 3 retail stores on Broadway.
It’s easy to see why any buyer would be interested in this portfolio. Not only does it offer prime location, but it also takes advantage of HPD financing. As an added benefit, the units themselves had been completely gut-renovated in 2000 — a rarity with these types of properties in this location. However, the buyer would need to meet HPD requirements to maintain the financing.
Here’s a look at the services and recommendations New York Multifamily provided on the journey toward successfully closing on the sale of the West Bridge Associates portfolio.
A Value Opportunity Amidst Challenges
The West Bridge Associates portfolio offered incredible value. A healthy rent roll included more than $1 million in annual residential revenue, as well as more than $100,000 in annual commercial revenue via the 3 retail units.
Prospective buyers would see the portfolio even more favorably given that the gut-renovation of each unit had taken place less than 20 years earlier — a recent renovation when compared to typical HPD properties in Manhattan.
While the value would be evident, so too would be the challenges. HPD deals are notoriously complex because they involve a number of parties. And any buyer would need city approval to keep in place the HPD designation and enjoy continued access to HPD financing — which immediately reduces the pool of potential buyers.
The New York Multifamily team has experience in maximizing value under even the most challenging circumstances for sellers. The team members working on the West Bridge Associates deal used their depth of experience, extensive networks and ability to provide reliable financial analyses to ensure that this portfolio’s owners maximized their value.
Overcoming the 3 Biggest Challenges
There’s a certain lack of transparency around HPD deals, which makes them unique and incredibly challenging to get into contract and closed. In the case of the West Bridge Associates portfolio, New York Multifamily provided expert guidance and services in overcoming these 3 specific challenges:
1. Keep Affordable Housing?
One of the earliest decisions would be to keep or abandon the affordable housing designation. This portfolio’s residential units were rented at substantially below market rate: 70% below for 1-bedrooms units, 67% for 2-bedrooms, 72% for 3-bedrooms and 73% for 4-bedrooms.
New York Multifamily used comparative financial analyses to evaluate opportunities offered by both paths — choosing either affordable- or market-rate housing. And, despite affordable-rate’s large gap between market-rate rent totals, analysis indicated that preserving the affordable housing status and maintaining the HPD financing would be the best approach.
While this decision would make it more difficult to find a buyer, the opportunity to maximize value was too much to ignore, and the decision to keep the property affordable also engendered goodwill with the city — which ultimately helped smooth the path from contract to closing.
2. Navigating a Complicated Process With Multiple Parties
Closing an HPD deal includes more parties than a non-HPD transaction. For example, the West Bridge Associates portfolio included a limited partner, a general partner, attorneys, brokers, prospective buyers and the city — multiple city agencies, in fact.
A huge part of New York Multifamily’s role was serving as the hub of contact and correspondence for these many parties, as well as ensuring that each party was gaining momentum toward a closing. It’s essential for each party to work together and push toward a common goal if an HPD property under contract is to close successfully.
3. Finding a City Approved Buyer
As noted, the city doesn’t approve just any buyer for an HPD property. This naturally limits the pool of prospects and places a greater importance on choosing the right buyer from the start. Going under contract with a buyer that might fail to gain city approval could slow the process down considerably, adding months to the amount of time before closing.
New York Multifamily leaned on its network and experience to identify and evaluate potential buyers in order to choose the one who would help maximize the property’s value.
Bonus: Increasing Cash Flow Through a 1031 Exchange
West Bridge Associates offered its portfolio at an asking price of $18,500,000 — $172,897 per unit or $192 per square foot. And New York Multifamily worked to help West Bridge Associates overcome the 3 challenges above: choosing to maintain status as affordable housing, successfully navigating a complicated process with multiple parties, and identifying the city-approved buyer who would best help maximize value.
The portfolio was under contract for more than a year, but it closed successfully and provided the owners an opportunity to use a 1031 exchange to turn equity in a multifamily property into management-free, cash-flowing properties. In this way, the owner reduced management and increased cash flow. A double win!
Interested in learning more about this deal or how we can help you enjoy maximum return on your investment in a multifamily property? Contact us today or call 212.430.5114.
Buy Peter's Book Today! Available on Amazon.
Catch up on our most recent posts here:
New York’s real estate market beats to an entirely different rhythm to any other in the world. Here, we have everything; fast-paced transactions with property which changes hands rapidly sitting next to ancient buildings which have been held by the same families for generations.
The recent sale of the a family’s Greenwich Village portfolio perfectly represents the antique side of New York – the low-velocity, long cycle of property which rarely changes hands and are often the architectural and cultural heritage of the city.
I’ve met countless NYC multifamily owners and entrepreneurs. All types. Those that own 12 units, and others with yuge 5,000-unit portfolios.
As a by-product of working with them, I have become a student of their success. They all share similar qualities. Regardless of your stage of life or industry, these habits transcend real estate and have something to teach us all.
There are any number of reasons to separate from a real estate partnership. One partner may need to free the capital for other purposes – such as retirement or education funding.
The investment’s performance may not be living up to expectations. The property owned by the partnership may require more upkeep, maintenance, or repair than anticipated, or management responsibilities may be proving burdensome.