Monday, June 23, 2014

Corcoran Listing Sells for Half-Off Its Neighbor's Price: 5 Arlington Place

"Don't send me Corcoran listings," is the rallying cry of those intent on peeling back behind the retail real estate market and finding opportunities that trade at less market-efficient prices.  Especially in a neighborhood like Bed-Stuy, whose market functions more like the Wild West at times than the big brokers are used to.  But scoffing at a listing just because it's Corcoran isn't automatically a shrewd strategy either.  Every deal is case-by-case, and who has the listing doesn't always determine what premium it trades at.  Case in point, 5 Arlington Place selling for $1.05M last month to a buyer from lower Manhattan, half the price that huge investment group paid for the narrow, record-breaking 22 Arlington Place right across the street for $2.25M.

How come a 20' wide house with a Corcoran listing for all to see sells for less than half what its 16' wide neighbors sold for?  (Not to mention the $1.7M+ activity on next door neighbor 7 Arlington Place and 1 Arlington Place.)  Well, 5 Arlington Place may have much of the same details that everyone loves its neighbors for...

But the biggest thing stopping this from trading at the tippy-top townhouse prices that its neighbors are selling for was the 6-Family status of 5 Arlington Place.  Most home buyers want as much of the house to themselves as possible, and aren't up for rent stabilized tenants, even if the rents are basically market.  The comments on Brownstoner for 5 Arlington's listing pretty fairly sum up both sides of the story.  We were actually quite impressed with the condition and rent roll when we toured the house, and thought people casting it off for its Corcoran and/or 6-Family status were missing a bit of a diamond in the rough.  Of course, there a deal-breakers involved for most buyers and investors, but for the gobs of people writing us every day aching to throw some money into the real estate game, and coming up against dozens more folks with much deeper pockets, this was a sweet little piece at a way-affordable price point.  Everyone wants to "invest money in Brooklyn real estate", but few people have an actionable angle on how to do so.

We couldn't get anyone to pay over $900K for 5 Arlington, and we would've done the deal ourselves if we could've, but a savvy buyer took it down for its reduced asking price.  When your smaller renovated & unrenovated neighbors sell for as much as twice more than your cost basis, you don't even have to get down to nitty-gritty on price per square foot & other metrics.  These are some killer bones for about a million with paying (although stabilized) tenants with way-decent apartments.  The basement is relatively clean with updated mechanicals, pretty new boiler, 2 water heaters for modular functionality, solid arched-brick construction...

These are the little things that add to the turnkey-ability of an investment.  Then the original details inside make for renovating "the fun stuff" like cosmetics, kitchens, and baths.  If you think making the most of an investment like this hinges on drastic measures like all of your tenants leaving or not, then you're mischaracterizing the game, and you're not going to like the majority of deals that ever come available.  Few owners have the time, finances, expertise, and/or interest in foregoing the rents on 6-8 or more apartments over an indefinite amount of time, just to offer up a building on a platter for you.  The same way you don't want your investment mired in rent stabilization indefinitely, they don't want their investment mired in vacancy indefinitely.  You don't want to kick out tenants, guess what?  They don't either.  It's a two-way street.  Much of these apartments, by the way, (did we mention?) are way-decent as-is...

When people who swear they can see a diamond in the rough end up looking a gift horse in the mouth, for only a fraction above what even the shrewdest low-ball investors offered all-cash sight-unseen, they're missing something.  The buyer of this place has a great piece for a long time to come.  A genie in a bottle at a great pricepoint on a great block with the upside that not "years down the line", but already evidenced by 5 sales on the same block much higher than this in the past week to 9 months.

Pro's:  curb appeal, sick original details, rental income & townhome potential, pricepoint half what the neighbor sold for, lots of upgrades and live-able apartments

Con's:  gone already, needs work, fully occupied with rent stabilized units, not set up as the townhomes that everyone loves

Ideally:  owner occupy a unit or two at less than half what your neighbors paid, or play it purely investment

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