Thursday, December 11, 2014

Another Crown Heights Building Breaks $2M: 80 New York Avenue

We already saw killer end-user townhomes this week in Lefferts and Bed-Stuy going over $2M, now let's take a look at what's fetching over $2M in Crown Heights.  80 New York Avenue is a massive 10,000+ square foot corner 8-Family property, a 25' x 105' building, with windows and upside for days.  It came out asking $2.6M this year and closes this month for $2.3M.  We told would-be buyers & so-called "investors" that this building - the sister play to the smaller, cheaper 70 New York Avenue across the street - is one of the best buy & hold opportunities in all of Brooklyn.  But if it's not a 6-cap right out the gates, these novice buyers don't wanna touch it.  Only problem is, for every 6-cap in town, there's a dozen or more buyers who'd be happy to take it at a 5-cap.  And buildings in better parts of Brooklyn just a mile or two west trade as low as 4-caps.  So, while nobody's in a rush to give an investor their twenty dollar bill in exchange for three 5's in this market, savvy buyers are paying up for bedrooms, windows, and upside...

We can already hear them clamoring, "But this is an 8-Family building, you can't compare it to a 1-4 Family townhouse."  Ahhh, but can't we?  This is obviously not an apples to apples comparison to the townhomes in these "emerging neighborhoods" commanding over $2M, but comparing a few features of the two does illustrate why these buy & holds are so attractive.  The as-is earnings of 80 New York Avenue make it sound extremely frothy no matter how you slice it.  The building sold for 24 times rent roll.  That's a big difference from the 10-12 GRM buyers still think they can shop for in this market.  Also, the as-is cap rate is a paltry 1.8%.  Even buyers in prime Manhattan can scoff at that.  The property grosses less than $95K/year.  Heck, our 3-Family limestone around the corner that's less than half the size already grosses more than that.  And, finally, 80 New York Avenue is full of rent stabilized tenants.  Not all rent stabilization is created equal, but these are the nuances that send the novices running for the hills.

The key to 80 New York Avenue is its upside.  Not sure if you're tried to rent a decent 3BR apartment in Brooklyn recently, but the price per bedroom metric is as high as its ever been.  And the most rapid rental growth is seen in "fringes" like Crown Heights.  The NYTimes covered how hard $1,000/BR was for recent grads to find "rooms" divided by curtains in the East Village:

NYTimes even gave a whole interactive diagram on how to evenly divide rent among 3 uneven rooms:

This is how strategic individuals paying $750-$1,500/month for a room in a 3-bedroom share have to be, but some fancy-pants investors don't even apply this much strategy to investments that gross them over $20K/month.  At a modest $825/BR, this building grosses more than that.

80 New York Avenue's 3-5 year trajectory compares favorably to the townhomes and ground-up developments sites that trade for around the same price.  When semi-finished & finished end-user townhomes between 3,000-4,000 sqft that won't gross over $100K/year in the near future are breaking records between $2M-$2.5M, then 10,000+ sqft buildings with eight 3BR apartments that could easily gross over $250K/year sound like a bargain for the same price.  8-cap here we come!

Or, if you speak price per square foot, we're talking about pretty cute corner bones for under $220/sqft in a neighborhood where last year's $425/sqft is over $550/sqft today in townhomes, and even higher on condos.  Heck, dirt around the corner at 906 Prospect Place sold for $3.5M, or ~$150/buildable square foot.  So buying corner bones at $220/sqft is really attractive when it costs barely more than the dirt:

While 80 NY Ave is by no means as amazing as 1502 Bedford Avenue, which closed for $2.075 in January 2013, gutted, and refinanced for $4.5M later that year...

...we're in a different market since even then.  However, the game plan on these "emerging" corner 8-Fam's is pretty much the same.  With 8-Family Bed-Stuy beauties the size of 70 & 80 NY Ave or larger going for $2.5M-$4.5M on and off market, these more affordable Crown Heights apartment buildings sandwiched between beautiful brownstone & limestone blocks just off of Nostrand Avenue make for a relative value and buy & hold winners in the near-term.  Tomorrow we'll take a peek right around the corner at what $2M+ looks like in townhomes in Crown Heights.

Pro's:  huge corner 8-Fam with 3BR apartments, decent curb appeal, full of windows, barely more than a top notch townhouse costs, under $250/sqft, all about the upside

Con's:  as-is rent roll is way below market with stabilization, purchase couldn't be low-balled, over $2M is certainly a lot of money in general, lots of work & repositioning to be done, won't happen overnight, had to be cash or non-contingent to win the deal

Ideally:  a true winner for a savvy buyer.  Medium-sized fish should have been taking a stab at the big fish potential return on this one.


  1. how on earth are you comparing the ppsf of an apt building to a detail filled 1890's mansion?

    Why don't we just go to the grocery store and compare filet mignon to granola bars since calories are the only things that really matter?

  2. We're comparing the ppsf of an apt building to a detail filled mansion - on Earth - because apartments typically trade for higher ppsf than townhomes. So when someone buys the apt building for almost half the ppsf that a mansion goes for, that's a lot of coin to be made on the condo conversion.

  3. Here's why you can't compare the two:

    The properties are not the same. According to the IRS they do not fit the definition of 'like-kind', in which case it's not a fair basis for comparison since the benefits one gets from the properties is very different. Simply looking at $sf is very misleading. Its misleading because the two structures are so very different on paper but also in real life, separate utilities must be maintained, different insurance, different maintenance costs, and perhaps (although I'm not sure) different codes used to bring this to market. Why does any of this matter? Well lets say you want to bring the electrical up to par, to do this on a 1 family house it might cost you ~5k to put in a 200 amp service upgrade and new meter, but with this you have to do that same project x8. Each unit has to have it's own panel and meter.

    Yes they will make money off of it and they got a good deal, but lets not compare it to a multifamily house since it isn't one.

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