Asking $4.5M over the summer, the prime Prospect Heights 8-Family at 531 Bergen Street closes for $3.425M this week. Just a block from Park Slope, a block from Barclays, and a block from the Bergen stop on the 2/3 trains is a healthy ~7,000 sqft building with railroad 2BR apartments, and even a bonus legal unit in the basement. In a great little pocket of Brooklyn, full of tenants at decent rents, this had great buy & hold potential written all over it at the right price. The left and right configuration creates two ~14' wide railroad apartments on each floor, which isn't as ideal as front & back, but with one side unattached you get some bonus windows too.
Surrounded by brownstone blocks of $2M-$4M+ townhomes, at asking price, 531 Bergen Street is a 3.7% cap. At its closing price, it's a 4.8% cap rate. And with no unit currently renting above $2,500/month, there's plenty of room to run on the rent roll in our opinion. In terms of valuation, there were lots of doubters. If this were 2 blocks away across Flatbush into Park Slope proper, we're sure the reaction would be different. You need look no further than Newswalk a block away on Dean Street to see what the potential is for flagship product in the Prospect Heights area...
With the decked-out rooftop...
Or, for a more apples to apples comparison, check out the project at 509 Dean Street...
A similar 8-Family that started out railroad and now the managing rental broker tells us fetches $2,800 - $4,200/month per apartment with very simple & modest upgrades...
At $2,800/unit, 531 Bergen Street is a 5.5% cap rate at its closing price. With mostly rent stabilized units in place (even if they're close to market rents), the condo conversion isn't around the corner or anything for this building. However, purchasing a functioning income property at under $500/sqft in the land of $1,000 sqft isn't bad either. We've seen what condos can do over there. An even more interesting property offered off-market on the same block had 6 vacancies, and a much easier path to condo conversion. However, developers were still pretty conservative on their price per square foot estimates on the potential sell-out. Naysayers were eying some $700/sqft. Whereas $870/sqft like 405 Dean Street is about the cheapest we'd expect. 96 St. Marks Avenue got up to $966/sqft a block away. And don't forget 171 Prospect Place. From a whole-dollar perspective, it's hard to even stand in a sheet rock box on this block under $750K for a condo, but the conversion project itself was another case of $750K net not being enough profit for plenty of bidders. Whether you underwrote it at $400/sqft ($2.8M), at a 6% cap rate ($2.75M), or at 12 times rent roll ($2.725M) - the no-brainer bids were not going to get it done for this deal. Even without a flashy broker on the case, all it takes is a few off-market phone calls to bring in well over $3M. Low-ball bidders abound, but it's not the first time a sizable piece in this corridor's gone undervalued at first glance. We're curious to see what the winning bidder does with it.
This week we'll take a look at a super-sized Crown Heights 8-Family that's one possible blue print for 531 Bergen Street and any comparable 8-Family in the area. Even a project at the caliber of 564-566 Sterling Place would be a step up. But the sky's the limit in an area as coveted as prime Prospect Heights.
Pro's: size, a block from Barclays and much more, decent rent-roll as-is, upside in the rent roll, condo conversion down the road
Con's: not a lot of vacancy to play with, multiple cash offers to compete with even without a huge on-market presence for the listing, full of stabilized tenants
Ideally: anything in the $3.2M-$3.5M looked like a good compromise for both sides, so the closing price for 531 Bergen Street is no surprise. Can't wait to see what the next one fetches...
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