Wednesday, January 23, 2013

Multifamily Package Sold in Bed-Stuy

Real estate investors love that 6%+ cap rate with upside that Brooklyn offers.  A package of 5 multifamily buildings in Bed-Stuy just sold for $7.6M, not far from the asking price of $7.95M.  And from what we can tell, it sure looks like a power move for anybody with the funds to pull it off.   When it comes to mixed-use & multi-family properties, listing broker Stephen Palmese is the master of the 6-cap, moving 10 buildings on Myrtle Ave in Clinton Hill in that range since 2010.  Last year, some people were sleepin' when he dropped an 8-Family on ya on Washington Avenue at the Crown Heights & Prospect Heights border at a nice cap rate too.

This 5 building package consists of a total 62 (or 63) apartments that rent for an average of $1,132/month per apartment.  Compare that to studios in the area averaging $1,400/month, 1BR's almost $1,700/month, and 2BR's over $2,000/month.  And over half of the units are "destabilized or registered with preferential rents."  This sales price is way less than $200/sqft and a solid 6.67% cap rate, that will be over 7% if the rents go up less than $50/month next year.  The buildings range from 8 units to a 21 unit property, for a total of over 45,000 sqft.  The sweetest one in our opinion is the 25' x 75' corner spot at 570 Jefferson Avenue...

Not only did Massey Knakal handle the sale, they rolled out some sweet financing on 75% of the debt at 3.25%!  We're no math wiz, but if you've got $5.7M borrowed at 3.25% on something making over 7% by next year... that's not a bad way to deploy $1.9M.  While 4,000 sqft. fixer-upper townhouses 2 miles west sell for $2M cash and up, it's interesting to see what else $2M can do.

Pro's:  performing asset, diverse package in upcoming area, almost a 7-cap with rents still way below market

Con's:  already sold, takes a hefty downpayment, overall property condition is unknown, must be a beast to manage

Ideally:  the sales price may seem lofty, but this is comparatively not that capital intensive for a purchase that makes so much sense on paper

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