In contract this week on the edge of Prospect Lefferts Garden & Flatbush, it's the 8-Family buy & hold dream at 245 Martense Street. Once a 10-cap back in 2012 for $869K, this property hit the market in February this year asking $2.4M. Now a contract's been executed over $2.7M. When you buy a 10-cap, turn it into a 15+ cap, and sell it at sub-5 cap, you're talking about 300% appreciation. And when you're financing the asset with 25% down in the first place, your cash on cash return is even sicker. When we tried to tolja' this was one of the most interesting buildings in the world...
Who knew it'd sell below a 5-cap? As offers came in from $2.05M-$2.5M between January and March, getting any higher than that started to feel almost greedy...
But the market speaks, and the market kept taking it up higher. Like wayyyy up! By the time a proctology exam from a DHCR doctor revealed a few benign polyps, walking the top buyers a bit off of their $2.75M offer, the glass was already more than $320K full, not $30K empty.
Even last year the gross income and average rent per unit were on a steep curve that doubled the value of the building in a year & a half...
"They said it wouldn't last, we had to prove them wrong..." and average rents posted another double-digit percentage increase in the following year. It's not rocket science. When you make sensible improvements that take this...
To this...
... you're going to see some improvements in your rent roll. Along with a new roof, new boiler, new hot water heater, new electrical, brick repointing, and significant renovation and restoration to most of the units, this baby was born to run.
Debbie Downers, Negative Nancys, Critical Cathys, Pollyannas, Goldilocks and other doubters will tell you things like, "We prefer more prime neighborhoods," or "Watch out for rent stabilization," or complain about how much they net off even the finest cap rate.
Is it so hard to focus on the parts that actually matter most? On its best day as a 15+ cap, which is already more than anyone could ask for, this building nets just over $5K/month. And that's with burdens like over $1,000/month in property taxes, which no one likes to pay. But besides the cash flow, the appreciation's where it's at! From day of purchase to executing contract this week, the building appreciated over $2,000 per day! In the year and a half from purchase to contract last week on 1134 Bergen Street, a building that net "only $2,000" on its best months, the appreciation was almost $1,000/day. But they don't hear us though.
The newest boogie man spooking nay-sayers these days is the stormy cloud of rent regulations stepping up even further with DeBlasio & team making hay of the hot button issue. Which we always take with a huge grain of salt, because everyone in the industry has been trying to spook everyone else about "and with rates going up..." for the past 5+ years, while the 20+ year chart on interest rates looks like this...
But that doesn't stop the rent regulation headlines from piling up, and the spooky rumors & chatter from circulating amongst the lips of people who have no idea what they're talking about.
Maximum increases on 1 & 2 year renewals for rent stabilized apartments were recently lowered, a move that ostensibly favors tenants and freaks out landlords. However, the numbers that matter most stayed the same and even increased. So getting folks to prioritize what's really happening gets lost in the headlines.
Likewise, there's still plenty of money to be made for landlords at rental rates that are still a value compared to market, but you won't hear anyone else speaking anywhere nearly that resonably about the issue when it's so much more fun to play two divisive sides. 245 Martense is a shining example of hitting that happy medium.
With bidders ranging from 1031 buyers to Europeans more concerned with capital preservation than unsustainable growth, a great deal for buyers and sellers finally crystallized this week on "emerging Brooklyn's" 8-Family darling.
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