Pamela Harris

The Buyouts August 24, 2015

Seven years ago a good friend lived on West Broadway, in a small studio. She lived there for over twenty years and then the building sold. She was rent stabilized, which basically means the landlord has to offer a new lease when the old lease is up, at an increase set annually by the city. Rent-stabilized apartments tend to have lower rents than market apartments, often much lower, since a landlord can up the rent any amount desired with the latter once a lease is up.

The general law with rent-stabilization is, once a rent hits $2700 a month, the apartment comes out of stabilization and goes to market rates. When a stabilized apartment becomes vacant, landlords usually renovate it or do enough work to the space to up the rent over $2700 a month and therefore free it from stabilization laws.

There's also rent-control, but rent-control laws went out years ago and these apartments are rare. Our building has two apartments that are still rent-controlled, and these tenants, who moved into the building in the 1950s, probably pay less than $900 a month for a one-bedroom. (Their neighbors pay around $3200 for the exact same apartment.) In addition to the two rent-controlled spaces there are maybe five rent-stabilized apartments left in our building and the rest are market.

Back to the friend who lived on West Broadway. When her building sold, she was offered $20,000 by the new owners to move out. They eventually settled on $50,000, and a month later she moved to Brooklyn. Around this same time a building on Thompson Street sold and one tenant, an elderly woman who had lived there forever, refused to take a buyout. She didn't care what the offer was. She wasn't moving. The new owners started construction around her with the hopes that the inconvenience would make her move, but she got an injunction against them. The building still stands as it was.

I've written about our neighborhood being a giant construction pit and over the last year some of the buyouts we're hearing about have been substantial. A guy with a Pomeranian at one end of the block had a big rent-stabilized apartment in a small townhouse and got $500,000 to move. Across the street, a woman with a Chihuahua inherited a townhouse from her auntie, who paid $50,000 for the building in the '50s. A builder paid her $12 million to move, and she's now in Tribeca.

Another townhouse owner just got $12 million to add his townhouse to the lot of buildings that got knocked down across the street. We watched it get razed this summer. The owner of the lot paid the owners of a nearby building $26 million for air rights, which allows for the new building to be taller than it could. We just heard that Renzo Piano will design the new building that's to rise here, and this ramps everything up a notch.

Renzo Piano designing a building is a big deal. The buyout chatter has risen and it's now moved to our end of the block. Will our owners sell? A mom and pop own our building and they bought it in the 1970s to leave to their kids. Their kids want nothing to do with complaining tenants and constant maintenance, but it's not their call to sell. A few buyers have made big offers to the owners and they've passed, so I don't think this building is going anywhere for a while.

The building next to ours is single-family, artist owned, that if anything may one day be converted to a museum. The building next to that is a small loft building converted to five co-ops. (One frequently rents for $24,000 a month and once the Piano building rises so will that rent.) The two buildings after this are owned by brothers and there's a lot of hopeful buyout chatter there. One of these buildings has rambling, mostly rent-stabilized apartments. The other building has small apartments with shared toilets in the hall and bathtubs in the kitchens. It's real old school New York, or what New York used to be. Our whole block is, really.

Our downstairs rent-stabilized neighbor loves to fantasize about how much he'll hold out for, should our building sell. His price is $250,000, a figure that started at half that amount then steadily ticked up with the rate of neighborhood construction. I don't really think about it, since I don't see it happening anytime soon. It's so easy to get tangled up in what might be, but then it becomes golden hand-cuffs. Ginger would love to move and would probably do so for a good cookie, since she's done with all the construction and the noise and the dust. I'm with her on that. Would you hold out and wait?


Hold out and wait.
We just finished a building that was the first one to start since the 2008 downturn which devastated many developers, including myself. We started in Dec, 2011, and at the time, units were selling at $600/NSSF (Net Salable Square Foot). WE built the project with Cash, no financing, since ALL financing requires us to have 50% Sales with 50% Deposits before we start. We didn't do our first sale until Feb, 2013, when the building reached the 20th of 46 floors, and that sale was for $1100/NSSF, $500 higher than the market when we started construction. We eventually sold out the building for approx $1500/NSSF, a huge success. Subsequently, Miami is now in the middle of an enormous boom with multiple buildings under construction.
Now, what has this got to do with whether you stay or not? A year after we started, we made offers on a number of different older apartment projects on the beach near our site. We went to contract on a 65 year old apartment complex with 345 units. The contract was for $112M PLUS a 6% commission that we had to pay. This site was only 8 blocks south of our project being built,
but the word was already out that we were getting high prices. WE actually lost that contract to someone who had a Right of First Refusal with the Condo Association, which they initiated 17 years previously.
FINALLY. When we finally lost that contract, we made an offer on a 180 unit site just 4 blocks south of us. One year after offering approx $325K per unit, prices had risen to such a degree that we offered $650K per key for the new contract, exactly double in one year. Amazing, right? What's amazing is that they turned us down, and they are holding out for $1.1M per unit, an unbelievable number. So far, no developer has taken their deal. Sometimes people outsmart themselves and miss the market.
In your case, with a Renzo Piano building going up across the street, the prices are going to escalate, maybe even skyrocket. with so much movement going on around you, I highly recommend for you to Hold Out and Wait.
BTW, keep me posted. Send me your exact address, as well as the address of the Piano building across the street. Maybe we'll buy it. You never know. We just paid $105M for a 40,000 sf site in Miami. Of course we can build a 1000 ft structure with 1, 520, 000 sf, but it's similar to your situation. Send me the addresses please. We work with Blackstone out of NYC, as well as Guggenheim and the Pritzkers, and I'm sure one of them would love this possibility.

Paul Murphy | August 30, 2015 at 12:27 pm

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