Jacob Frydman

Multi-Family Properties Might Be The Way To Multi-Millions

In the current commercial real estate market, investing in multi-family homes should be on the radar. Multi-family properties don’t always have to be 20 floor sky rise apartments in a big city. They can be smaller duplexes, town homes or small condos. These smaller properties are recommended for startup investors.

Investing in multi-family homes is a great way to enter the real estate market. As opposed to investing in single family homes, the cash flow of multi-family homes is increasing due to lower property values, mortgage cost and rent increases. This can lead to many advantages for an investor. There is also less risk and less cost as opposed to owning five single family homes where you have to maintain five different properties. With all five families in the same building, there is only one roof to maintain and the tenants are in the same location.

With many unable to afford homes in the suburbs, the demand for multi-family homes is increasing. Also, the construction on new multi-family apartments is bouncing back. Many are having trouble finding stable jobs so they are leaning toward renting apartments as opposed to buying single family homes. The baby boomer generation is starting to live more frugally because they realize that they don’t have enough saved for retirement. As a result, they are spending less and recognizing that they can’t live their current lifestyles. They are working longer and see renting as a more cost efficient option. With the overall increase in demand, this inevitably leads to an increase in rent which makes investing in multi-family homes very attractive.

Now speaking of rent, if an investor is going to rely on rent to cover the property’s debt and operating costs, it is necessary for the investor to choose an area where the rent demand is high and the vacancy rates are down. Depending on the right location, a larger apartment can rent faster than a smaller one. Location is critical for a successful multi-family home to reap high rewards.

As new investors, starting off investing in multi-family properties is a good foundation for a strong and diverse portfolio. It is important to know all the “ins and outs” of the market. Evaluating past transactions and possible properties for transactions is essential. A small investment in a multi-family complex can be the outlet for a cash flow gaining investment. The right multi-family properties are income producing assets that provide great long term returns.

 

Posted on by Jacob Frydman in Commercial Real Estate, Guest Blog Post, Housing Market, multi-family, News, Residential Real Estate Comments Off

Red Is the New Green – Chinese Investors Eye US Assets

***This blog entry is a guest post from Elton Steinberg, Marketing Associate at United Realty***

New York SkylineAmerican fund managers should be aware of current and future trends that may make the Chinese account for a more significant portion of overall foreign investment in United States real estate. A variety of economic and political conditions in China are making investing in US real estate increasingly attractive to Chinese investors; these include a newly wealthy segment of the population looking to find a safe haven in which to deposit wealth, the threat of an economic slowdown, and the economic policies the government is implementing to liberalize the economy.

China’s impressive economic growth in past decades has enriched many who now look to invest funds abroad. Government policy strengthening manufacturing – along with an artificially weak renminbi and investments in infrastructure and housing – transformed China into the economic power it is today. The country’s rapidly developing economy has been unique in that it has been able to move hundreds of millions out of poverty, while simultaneously forming a wealthy oligarchy. Developments in recent years, however, threaten to undo past trends, encouraging wealthy individuals to make relatively safe investments in US real estate.

A number of changes are likely to come about with regard to Chinese investment in US real estate in response to the threat of economic slowdown and subsequent action by the Chinese government. Although a healthy dose of skepticism about the historically conservative Chinese central bank enacting widespread economic reforms would be appropriate, a recent economic slowdown in China is pressuring Chinese policymakers to adapt, lest limited economic growth lead to political turmoil. To stimulate the economy, the Chinese central bank will likely loosen restrictions on foreign investment and allow the currency exchange rate to fluctuate. Fewer regulations hindering the flow of capital will provide Chinese investors more opportunities to invest abroad, while a more volatile renminbi will prompt Chinese investors to look for a safe haven. Both policies will increase the likelihood that Chinese investors will choose to deposit funds in the US.

Any economic policy changes, however, might be too little, too late. China has for decades relied on an export driven economy. To achieve growth, state sponsored projects have drawn on a cheap supply of labor to minimize expenses. The cost of labor has, however, risen, limiting China’s comparative advantage. As the economy continues to mature, the Chinese government will have to enact reforms to allow domestic consumption to drive economic development and achieve sustainable growth. It is still an open question whether or not the Chinese government has power or even the political will to alter the course of the economy fast enough. If the government cannot sufficiently address a number of underlying weaknesses in the economy, subsequent instability will also likely motivate many Chinese investors to move wealth abroad. As it stands, it seems that Chinese investors will eye assets abroad, whether or not government reforms manage to stimulate growth.

Keeping the risk of US government action against those seen as threats to national security in mind, American fund managers should seriously consider the benefits of attracting investment from Chinese investors. Current trends are making acquisitions of US real estate enticing to the Chinese. American fund managers should also not be thrown off by Western names adopted by investors from East Asia. It cannot be denied that they mean business. If the current trends aren’t convincing enough, perhaps American fund managers should consider that China is looking to invest $3.4 billion of foreign currency in safe, inflation protected assets.

Posted on by Jacob Frydman in Commercial Real Estate, Foreign Investors Comments Off

Gimme Shelter – Foreign Investors Seek Returns and Safe Haven in US Real Estate


***This blog entry is a guest post from Elton Steinberg, Marketing Associate at United Realty***

Foreign investment has been a significant driver of the US real estate market recovery. Investors from across the globe have been responding to negative stimuli abroad by investing in US real estate. Investing in US real estate provides foreign investors protection from economic

instability and foreign government corruption, while offering significant returns compared to low performing bonds. Such benefits have led foreign investors to favor direct investment in US properties and shy away from funds that may lessen risk.

Japanese investors have historically had confidence in the benefits offered by investments in US real estate. Often close partners with US businesses, Japanese investors have in the past sunk billions of yen into acquiring US assets. Recent fear about future depreciation of the yen has made investment in US real estate increasingly advantageous. Investing in US real estate allows Japanese investors to protect their wealth against the negative effects of Japanese monetary policy. Assuming that the dollar remains strong, investments in US real estate enable foreign investors to strengthen the value of their holdings. The advantages of US real estate as an inflation hedge coupled with the current high rates of return have motivated Japanese investors to continue to transfer wealth to the US.

While traditional foreign investors in US real estate have recently had a significant impact on the market’s recovery, less traditional foreign investors are increasingly likely to drive future growth. Brazilian, Russian, Indian, and Chinese investors have been eyeing the US real estate market as an opportunity for investment. Each responding to local conditions, BRIC countries have taken note of the benefits offered by investing in US real estate.

Enriched by the rapid growth of the Brazilian economy, a growing number of Brazilian investors have worked to protect wealth from the negative impact of local instability and earn profits from safe investments. While impressive returns are offered by Brazilian real estate investments, inflation and government corruption in Brazil motivate many Brazilian investors to prefer less risky US real estate investments. A fulminating public has made many Brazilian investors fearful of future political instability and economic fallout, giving another incentive to transfer wealth to the US.  Like many wealthy Central and South Americans, Brazilians have flocked to Miami, purchasing stakes in local assets.

A recent spree of acquisitions by Russian investors has surprised American real estate experts as Russians have been providing a more significant portion of capital for US real estate acquisitions. Apparently dissatisfied with the benefits of investing in art and other luxury items that fail to yield desirable returns, Russian investors have begun purchasing trophy properties in Manhattan and Miami to gain more appropriate returns and shield wealth. Following the economic crisis in Cyprus, Russian investors have been seeking an alternative safe haven. Along with the advantage of keeping wealth out of reach of the Russian government, investments in US real estate provide Russian investors with significant returns and residence in attractive locations. It is becoming increasingly possible that Russian investors will be a consistent source of capital for investment in US real estate.

Considering the volume of foreign investment in US real estate, one would think that domestic funds investing in US real estate and catering to foreign investors would raise capital with ease. On the contrary, a number of major funds have been forced to exit the market. While such funds offer the services of managers with expertise in US real estate and opportunity to diversify, many foreign investors have avoided such investments. It would seem that communication difficulties have prevented foreign investors from realizing the advantages such investment funds offer. A variety of conditions motivate foreign investors from different countries to invest in US real estate. Perhaps, foreign investors expect American funds to cater to each of their disparate needs when encouraging foreign investors to trust them with their wealth. It will be interesting to observe whether or not foreign investors remain convinced that direct investment is the optimal strategy as foreign investment continues to drive growth.

Posted on by Jacob Frydman in Commercial Real Estate, Foreign Investors Comments Off

Foreign Investors Pour Capital into New York Commercial Real Estate Market

Real Estate Investment BankMany New Yorkers have the view that their city is the capital of the world. Recent commercial real estate trends indicate they might actually be on to something.  Investors from Russia to the Middle East are pouring capital into Big Apple real estate in record amounts.

Indeed, foreign investment in the U.S. real estate  market has been increasing for the past 12 consecutive quarters. Overall foreign investment in the U.S. is also surging.  According to the Commerce Department, the U.S. attracted $28.7 billion in foreign direct investments between January and March 2012. The investment trend has been led by Europeans seeking a safe haven from their own debt crisis and uncertainty about the Euro’s viability as a currency.  In 2011, foreign investment in the U.S. totaled $234 billion, a 14% jump over $205.8 billion in 2010. Two-thirds of that cash came from Europe.

In the real estate sector, foreign investment has about $82.5 billion in the 12-month period ending in March 2012—up about 24% from the $66 billion they spent the year before — but only 9% of all residential real estate sales come from international buyers, according to a recent report from the National Association of Realtors.

The Americas as a whole experienced a 1.5% increase in its Capital Value Index in the first quarter of 2012, while the rest of the world saw flat growth, according to the global real estate advisory firm CB Richard Ellis. That growth was concentrated in prime properties in Central Business District (CBD) areas, such as New York City. Others CBDs that saw investor focus included Washington, DC, San Francisco and Boston. Foreign investors are coming in with cash looking for assets that are tied to the value of the US Dollar in order to shelter their investments from the riskier European currencies. The New York City commercial real estate market has become an attractive investment for those foreign investors worrying more about wealth protection than income generation.

Several Real Estate Investment Trusts (REITs) and private fund offerings are attracting capital from foreign investors searching for a safe haven. That trend is expected to continue as long as yields on U.S. Treasury securities remain low and Europe continues to struggle.

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Assisted Living Needs No “Assistance”

A recent report from the National Investment Center for the Seniors Housing & Care Industry showed overall, the average occupancy rate for seniors housing properties in the second quarter of 2012 was 88.6 percent, an increase of 0.3 percentage points from the prior quarter and a 0.9 percentage point increase from a year earlier. The seniors housing average occupancy rate has risen consistently during the past nine quarters and is 1.6 percentage points above its cyclical low of 87 percent in the first quarter of 2010.

The occupancy rate for independent living properties in the second quarter of 2012 averaged 88.5 percent, and the occupancy rate for assisted living properties averaged 88.7 percent. Both independent living and assisted living showed improvement over the prior quarter, rising 0.2 and 0.3 percentage points, respectively. The average occupancy rate for independent living is now 1.7 percentage points above its cyclical low, while occupancy in assisted living is 1.5 percentage points above its respective cyclical low. “Occupancy is now at a four-year high, and the supply-demand fundamentals suggest that the recovery will continue in the near-term,” said Michael Hargrave, vice president of NIC MAP®.

 In a recent column for Commercial Property Executive Magazine, Mel Gamzon, president of Senior Housing Investment Advisors Inc. said,  “Despite all the uncertainty in the capital markets, seniors housing witnessed its second-best year ever, with a more than $16 billion transaction volume, catalyzed by the ultra-aggressive healthcare REITs. From the second half of 2010 into 2011, the REITs closed more than $20 billion worth of portfolio transactions in this space using the REIT Investment Diversification and Empowerment Act (RIDEA) and triple-net-lease structures. The REITs and their institutional capital partners have put the seniors housing sector front and center with prospective industry investment sources that are seeking returns greater than other real estate asset classes can offer.”Seniors Housing Complex in Construcion

And a large, Ohio-based real estate investment trust has bought the Windsor at Lakewood Ranch assisted-living center and a memory care operation for $30 million. Health Care REIT bought the 70,000-square-foot and 35,000- square-foot centers, at 8220 Natures Way, from companies belonging to Timothy J. Buchanan and Stephen D. “Pete” Russell.

 

According to the Herald Tribune, Health Care REIT, founded in 1970, manages a $14.9 billion portfolio of senior-living centers, medical office buildings and inpatient and outpatient medical centers around the country.

Finally, NREI has a new report that says seniors housing pros expect more access to capital and an increase in construction starts during the next six months.

Posted on by Jacob Frydman in Housing Market Leave a comment

No Vacancy Signs Dominate Rental Market

Landlords boosted apartment rents to record levels in the second quarter as demand from tenants sitting out the home-buying market pushed vacancy rates to their lowest point in more than a decade, said the Wall Street Journal. Despite the sluggish economy, average rents increased in all 82 markets tracked by Reis Inc., a real estate data firm. Average rents are now at record levels in 74 of those markets and now top $1,000 a month on average in 27 of them, including Miami, Seattle, San Diego, Chicago and Baltimore.

The biggest rent boost of the second quarter was in New York City, where the average rose to $2,935 per month, up 1.7% from the first quarter. The nation’s vacancy rate fell during the quarter to 4.7%, its lowest level since the end of 2001, Reis said.

Reis said that this is only the third quarter in over three decades that the vacancy rate has been below 5%. When vacancies fall to this level, landlords typically accelerate rent increases “and that is exactly what is transpiring,” the Reis report states.

And it’s not likely to stop soon. Rents could “spike as landlords perceive that tight market conditions afford them greater pricing power over tenants,” Reis said.

A report from AC Lawrence indicates similar trends in their June report.

According to SmartRealEstateInvesting.com, values of apartment buildings are soaring, contrasting sharply with the single-family housing market. In some cities, investors are now surpassing peak prices for rental property buildings. TIAA-CREF, which spent $800 million on apartments last year and could spend more this year.

Demand for rental apartments also may fall if some builders succeed with appeals to move renters into the market for single family homes. Home builders have begun marketing to renters: PulteGroup Inc., one of the nation’s largest publicly held builders, recently introduced a line of homes marketed as being more affordable than some monthly rents, called The Independence Series from the Centex division of the firm.

Landlords will be looking for a 6 to 10 percent increase on current tenants and an 8 to 12 percent increase on new vacancies, according to a report by Bond New York.

Overall pricing in Manhattan will likely increase by 8 to 10 percent on average for the coming year. “We anticipate landlords’ confidence levels will increase with the high occupancy rates and high prices, which will cause vacancy pricing to increase as well,” the Bond report said.

A Bloomberg News story notes that Prudential Douglas Elliman found that median rents jumped 9.5 percent to $3,121 from the fourth quarter of 2010 to the fourth quarter of 2011.

And Citi Habitats announced that their fourth quarter report found average rents rose 8.4 percent to $3,309.

 

 

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Investors Plow Equity Into Projects

The Wall Street Journal recently highlighted an upbeat trend in real estate;  a handful of high-risk real-estate projects are moving forward in major U.S. cities.

But the WSJ points out, developers are financing these projects with equity, mostly from outside investors. That lowers the risk of turning over a building to lenders if the project fails, but it also raises the stakes for developers and investors, who are putting more of their own money on the line. 

In the years leading up to the recession, developers and investors typically would borrow up to 90% of the financing for a project. Putting up only a small sliver of their own capital, they stood to make oversize gains. But when the downturn hit, many investors couldn’t pay back their debts and were forced to turn over their properties to lenders.

Firms such as Hines are moving ahead with a speculative, 45-story office building in Chicago. Montreal-based Ivanhoe Cambridge, the real-estate arm of a Canadian pension-fund money manager, has committed $300 million in equity to that development along the Chicago River.

And in New York, private-equity firm CIM raised equity for its condo tower by tapping individual investors who put in at least $1 million each. CIM is also active in other cities.

In Hollywood, a 1.7 acre site that housed a closed Old Spaghetti Factory restaurant was bought by CIM who said the high-rise will house a 301 residences, 39,000 square feet of office space, 13,500 square feet of ground floor retail and a 21,000-square-foot public park.

And in Chicago, CIM acquired Block 37, the struggling State Street shopping mall, from Bank of America Corp. Crain’s reported in February that CIM had agreed to buy the 305,000-square-foot property, which is about 30 percent leased to tenants including Anthropologie, Sephora and Puma. CIM plans to lease the balance of the building to national and local retailers.

The WSJ also said the developments now moving forward are primarily in markets that have seen high demand for certain types of space. Demand for high-end condos in New York remains strong, while a booming technology sector is pushing office vacancies down and rents up in San Francisco.

While part of that increase has been driven by rising rents and occupancies, analysts say much of it comes from increasing investor demand for properties. As a result, many buildings’ values have risen even though their incomes have stayed relatively flat. That has made development attractive. In San Francisco, for example, investors have paid as much as $800 a square foot for office buildings, while developing a new property would cost about 25% less than that.

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RENT-ing is Sweet Music to Brooklyn Investors.

Real Estate NYCYou don’t need to have a Broadway hit to enjoy rent. Brooklyn is booming.

Although the American dream is still to own property, renting has taken off in the years since the Financial Crisis, especially in highly desirable neighborhoods like Brooklyn. That has caused a flurry of activity among commercial real estate investors looking to capitalize on rising rents and low financing. A recent report in the New York Times mentioned sale of 111 Kent Avenue in Brooklyn for $55.5 million, or more than $895,000 for each of 111 Kent’s 62 apartments. The NYTimes article goes on to mention that the price paid per apartment is a record for such properties outside Manhattan, according to the data company, Real Capital Analytics.

Steiner Studios recently acquired a 60-unit rental in the Carroll Gardens neighborhood of Brooklyn for $24.5 million, or $408,000 a unit, and is in contract to buy another rental building in the borough. Other big sales include Invesco Real Estate’s purchase of 75 Clinton in Brooklyn Heights for $50.8 million, or roughly $686,000 a unit. Invesco also bought the Arias Park Slope at 150 Fourth Avenue for $57.5 million, or roughly $605,000 a unit. Equity Residential bought 175 Kent Avenue in Williamsburg for $76 million, or nearly $673,000 a unit. The Naftali Group recently bought a vacant site at 267 Sixth Street in Park Slope that was intended to be a condominium and is instead building a 12-story, 104-unit rental building.

Reports point to several factors behind the trend, including a strong rental market and low interest rates. Rents in the borough increased by 10 percent in 2010 and were estimated to increase by 7 percent last year, according to a market report by TerraCRG.

Even those people who want to purchase a home are having difficulty obtaining a mortgage, according to The Times article. So they turn to renting instead. In addition to a strong rental market, Brooklyn is attracting waves of investors because of the many stalled condominium sites that are primed for conversions into rental buildings.

The Real Deal reports that studios have recently been heating up in the rental market. Previous months have shown that studios lagged behind the one and two bedroom categories for the month-to-month price change, but that is changing. Leading the way was Williamsburg with the highest monthly studio price increase.

Data from MNS shows that Boerum and Cobble Hill are listing rents that are about $100 less than last month. Although the discounts are primarily in walk-up buildings, renters looking for a hot location with a little sacrifice in luxury should hop the F/G trains and start looking. MNS reports that compared to last spring, Park Slope has achieved the highest year-on-year price increase of 33% in the borough. Two-bedrooms are up over $1,000 and new inventory, as well as rental product in condo buildings have pushed the rents up in the neighborhood.

 

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There Are Still Clouds Amid Housing Sector’s Silver Lining

Real Estate ContractAmid mounting evidence that the extended real estate market recession is finally abating, investors are still advised to display considerable caution before jumping back into the market without the advice of competent investment counsel. Over the past few sessions, newly released industry and government data would seem to raise recovery hopes as the residential home market has shown some encouraging signs of reversal. Sales of new homes as well as resales have suddenly ratcheted upward and prices in key markets have been recovering from multi-year lows. This enthusiasm was further encouraged by Toll Brothers’ fiscal year 2012 second-quarter results which showed its revenues rose to $373.7 million with deliveries of 671 units, as compared with revenues of $319.7 million and 591 deliveries in the year ago period. But of greater market impact, according to analysts, was the fact that Toll said it ended the second quarter of its 2012 fiscal year with a backlog of $1.50 billion, for 2,403 housing units, an increase of 49% in dollars terms and 37% in units, compared to the year-ago second-quarter-end backlog of $1.01 billion and 1,760 units.

As the leading builder of luxury homes, analysts consider Toll’s encouraging results to be a possible bellwether for the housing sector in general. Nevertheless, some housing market economists have suggested that the price recovery may be more a reflection of dwindling supply, as new construction has been sharply curtailed over the past couple of years. It will take a couple of months of sustained growth in new starts numbers coupled with firming prices to confirm that a turnaround is taking hold. In the meantime foreclosure activity in outstanding mortgages from the boom years of the mid-2000s continues as a drag on the sector and the pace of loan modifications still appears to be lagging expectations. Sub-prime mortgage securitizations from the issuance boom in 2007-2008 remain well under water and even senior tranches are available at distressed sale levels. The situation is being acerbated by the reluctance or inability of banks or servicers to actually take responsibility for maintaining foreclosed properties. As a result they often are caught in unwanted litigation from tenant or tenant groups over property maintenance. Litigation serves to further delay any corrective activity leading to even greater property deterioration with the result that property values recede even further below outstanding mortgage balances.

Nevertheless, astute investors that avail themselves of well researched market intelligence should be able to identify deals that are discounted to such levels that astute management and patience should be well rewarded. For this reason it is important to seek out professional management that has experience in dealing with such mortgage instruments and that is also in touch with the market and aware of the current state of actual ground level conditions. Such an organization will be able to guide investors towards the best opportunities at any given time. But more important, they will be able to keep investors away from situations that may appear lucrative on the surface but that may actually be fraught with longer term dangers.

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Top 5 Biggest Commercial Mortgage Loans In NYC From January to April 2012

***This blog entry is a guest post from PropertyShark.com and contains data developed by their analysts. PropertyShark.com aggregates real estate data and listings from hundreds of public and proprietary sources into an easy-to-use yet comprehensive property research website covering a dozen major markets.***

A recent survey done by loan officers at Federal Reserve informs us that since the beginning of February 2012, banks — domestic banks in particular — have started to ease loan standards for the commercial real estate sector. At PropertyShark.com, we searched for the biggest five commercial mortgage loans in NYC from January to the end of April 2012 and compared them to the loans secured during the same period last year to see what the changes are.

The data shows that waters remained rather still this year except for two blockbuster loans in April. The rest of the loan activity stayed within last year’s patterns, when none of the commercial loans surpassed $175,000,000.

The biggest mortgage loan this year amounted to $520,000,000, with New York State Fund Housing Agency as lender. With it, real estate developer Gotham Organization is set to bring a change in the West Side’s residential landscape, as the massive housing project at 550 West 45th Street is expected to offer more than 1,000 affordable and luxury residential units at one address.

The second was secured against the 53-story tower at 1515 Broadway. Right before media giant Viacom paid a whopping amount to renew the lease of this entire building, the landlord, SL Green, obtained a loan of more than $320,000,000 from the New York branch of Bank of China. This is not the first mortgage SL Green, the largest office landlord in NYC, receives from the Chinese lender.

Are these two loans going to set a trend? It might be too early to tell, but they sure rocked the boat a little.

As a lender, Deutsche Bank has proven quite active during this time. In March 2012, it added to its lending books a $142,148,560 mortgage secured against the 7-story office building at 10 East 52nd Street, Manhattan, after one of its subsidiaries, the German American Capital Corporation, had financed in February a $125,000,000 loan going to The Solow Building in Manhattan.

Last year during the period January-April the highest mortgage loan was the $175,000,000 associated with The Milford Plaza Hotel in Manhattan. Foreign banks competed again with the domestic ones, Deutsche Bank appearing once more as one of the main lenders, with a $125,000,000 mortgage loan going to The Sheffield at 322 West 57 Street, one of the most sought-after condo buildings in Midtown Manhattan.

Here are the rankings for the highest commercial mortgage loans for January-April 2011 and 2012:

NYC Top 5 New Mortgages in January 2012-April 2012


 

 

 

 

 

 

 

 

 

NYC Top 5 New Mortgages in January 2011-April 2011



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