Monday, September 17, 2012

Unicorn Watch - South Slope for $1.15M: 394 10th Street

In the comments section of our "Chasing the Unicorn" post, one reader asked us, "Is there even any hope for sub 1.5M in South Slope?"  We said only if it's an SRO, estate sale, under-marketed, or some combination of those.  Case in point, today's pick is an under-marketed SRO that you won't find on your Streeteasy or your New York Times.  You might not come across it if you're not in the business of painstakingly searching every commercial broker's website on the regular.  You might be fortunate enough to swing a $1.15M purchase in south Slope, but you might have other things going on in your life like a career, a family... Maybe you don't have time to check hundreds of websites all the time to make sure no gem of a listing has slipped through the cracks.  Maybe you're not really interested in 700,000 sqft at a "BigBox Waterfront Retail Development Site" like some of their other clients.

394 10th Street comes to you courtesy of commercial brokers who put their listings on LoopNet, a commercial listing website recently acquired for $860M.  But for all those hundreds of millions of dollars in value LoopNet represents for the commercial real estate market, that's not where most people go looking for a townhome in Brooklyn's beloved Park Slope.  Yet for "only" $250K more than a vacant, boarded-up, foreclosed house in Bed-Stuy listed with the same company, you can still get a brick townhome that's not a shell in South Slope between 5th & 6th Avenues?  On the same block as an even-smaller Corcoran listing for $1.575M at 415 10th Street??  What's the catch?

394 10th Street isn't boarded up.  And it's not like it's all rent controlled.  Corcoran's getting around $1,450/month for a studio in there.

And this isn't the first time they've gotten market rents in this building for a studio:

Albeit an SRO, if this house is really a 6.5% cap, you're talking prices people pay in way less desirable neighborhoods than South Slope.  The "10-units" they're claiming inevitably include some rooms with common kitchen & bath on a floor.  And we suspect you could amp that cap rate up significantly if you ran the building a little differently.  Some have proposed a B&B kind of model, which there are competing theories as to the legality of.  As one broker told us, "The city put these SRO's because there wasn't enough short-term housing, now they wanna say you can't use them for short-term housing?"

Either way, if you could get a conversion going now, or take over part of it, or at worst sit on a 6.5% cap for a few years with a 1 or 2-Family townhouse conversion as a top-notch destination for this house... wouldn't be the worst $1.15M we've seen on these blocks in the past 18 months by far.  Afterall, this is a pricepoint that a fixer-upper in Bed-Stuy just dropped to.

Pro's:  pricepoint, cap rate, block, not a shell, south Slope value

Con's:  SRO, not much look inside, gotta get some clarity on the rent roll and tenants, just under 17' wide

Ideally:  worth looking into and seeing if the drawbacks aren't a deal breaker


  1. Why would they put this on streeteasy? If you are too busy to check commercial brokerages websites or Loopnet for an SRO opportunity, you are way way too busy to spend time consulting SRO attorneys, negotiating buyouts with statutory tenants, and dealing with the HPD. Not to mention traditional lenders won't touch SROs. What kind of person looking for a townhouse is going to pull $1.15M out of their bank account to go through the headache of converting an SRO.

  2. "Why would they put this on streeteasy?" - good question. Perhaps to get 20 times the relevant exposure they're getting on LoopNet?

    Closing any deal can be tough, finding them shouldn't be.

    "What kind of person looking for a townhouse is going to pull $1.15M out of their bank account to go through the headache of converting an SRO[?]" - another good question. Perhaps the type of person who just paid $1.25M for a tear-down a few blocks away in Park Slope:

    Or the type of person who paid $1.1M for an SRO in Clinton Hill last year:

    Or the type of person who paid $1.34M for an SRO in Fort Greene 3 years ago:

    Or the type of person who paid $1.45M for an SRO in Prospect Heights last year:

    Or the type of person who bought 135 St. Johns Place recently, another SRO with tenants:

    Or somebody who likes getting 6.5% cap in one of Brooklyn's most sought-after neighborhoods instead of >1% in their money market account.

  3. The type of person who is willing to buy an SRO with a certificate of no harassment or one that will be delivered vacant is very different from the person who would buy fully occupied SRO with statutory tenants in it.

    I don't see that 135 St Johns traded?

    1. Good point, there are many circumstances an SRO can be in that can significantly affect the value. In exchange for tenants, here you get a 6.5% cap rate. But, again, nobody's paying us tens of thousands of dollars to sell the property, we're just calling out some of the pro's & con's, as well as the deficiencies in their marketing, IOHO.

      If you want a vacant SRO with easily acquired C of NH, we're touring one today that hasn't hit the market yet.

      You'll see that 135 St. Johns traded when it's recorded publicly.