Bulk condo sales heating up.
"What has exploded recently has been occurring for the last five years on a lower scale and a lessor speed," explained Mark Zborovsky, who specializes in the sale of blocks of unsold shares and bulk condominium units.
Prices on the luxury bulk units are ranging from $140 a foot as the low to $350, but depend, brokers say, on the size and location of units; if they are new; co-op or condo; and if they are currently rented.
These sales have become more visible as sponsors, banks that took over ownership from sponsors, and even successor lenders and bulk purchasers have made them available to investors. "They have come to a point of, 'Let's sell this and stop fooling around,'" Zborovsky observed.
According to Yoron Cohen, managing director of Edward S. Gordon Company, there was not much activity in this segment from 1987 onward. During this time, foreign investors had a hard time identifying assets that were safe, even though residential properties were considered safer than commercial ones.
While the banks found they might sell a unit or two from time to time, they were realizing they would have to manage them for a number of years. There is also pressure from the Federal regulators to get rid of assets. To effectuate an individual apartment sale, Cohen noted, "You have to discuss each unit as if it were an office building."
Cohen said he had to work for many months to sell Citibank on the idea of selling its Concorde units in bulk. For Citibank and most other lenders, it finally becomes a practical solution to sell the owned units in bulk.
Additionally, The Corcoran Group's President, Barbara Corcoran said, "Developers who are holding product are coming out of the woodwork now that's the weather is sunny."
Over the last few months, shopping binges have developed as investors cull through the last of these bulk pickings.
Steven Rockmore, president of Residential Realty Advisors, said "It's amazing, a year after the time was right they come out of the woodwork. Now people want to do this, but it's a little late." For many investors, he noted, when they find out what others have paid, they are no longer interested.
Even so, Corcoran thinks there will be no problem finding willing buyers. "That's a wave that hasn't even crested," she declared.
Other investors, particularly foreign ones, still feel they are getting good deals and are continuing to close on properties.
"I have noticed the market is heating up and the investors are paying more than they absolutely dreamed of last summer," agreed Zborovsky. "The major reason is not just that the economy or the real estate is doing better, but just that there are more buyers that want to bid on properties."
Those buyers are often major international investors like the Chinese, who "They are all shrewd investors. Surprisingly they do know the market, and for whatever their own reasons, and combined with the economy in their own country, it lets them buy these properties more aggressively than these New York buyers."
One recent sale is the $38 million bulk purchase brokered by Cohen and Richard Baxter of Edward S. Gordon for 168 unsold condo units, along with the garage, at the former Kalikow property, the Concorde, at 222 East 65th Street. This 24-story, converted rental building was sold to an investment group of foreign purchasers managed by the American Georgetown Group.
Last Fall, the American Related Companies cut a deal for the Tribeca Tower, a failed condominium project that is now being successfully rented. Sources say the company is about to complete a transaction for the Lou Futterman-developed, brand new 30-story red-brick property on the northeast corner of 57th Street and Tenth Avenue that was originally built as a co-op and remains empty. A Related executive declined comment.
New York-based Rose Associates is buying the Chequers, a 121-unit building at Broadway and 62nd Street originally constructed to be a condominium by Peter Kalikow. The building is expected to be renamed and continue to be rented as luxury stabilized apartments, or perhaps converted when its 421 a abatement runs out. Adam Rose did not return calls.
Keith Anderson, spokesperson for Travelers Real Estate Investment Company, which was to receive some of the reported $30 million in proceeds from the sale, said the level of interest was strong from both foreign and domestic investors.
"The indications we get from them is that they are more interested in the apartments and residential properties rather than office," he explained, "because the foreigners feel the residential holds less downside risk than the office properties."
Zborovsky is working with a Chinese group that signed a contract for a co-op block and underlying mortgage in Long Island from a major bank for under $3 million, which was to have closed last week.
The Italian group Beni Internationale bought a $6 million block on the Upper East Side and another multi-million block on the "upper, upper East Side" says Zborovsky.
"I am working with an investor from Israel who in the first seven months has either bought or put a couple of thousand condos and co-op apartments under contract for just under $20 million," he added. Zborovsky is also working with a group from Italy and another buyer from London.
Eastwinds Units Sell
Unicapital Realty Inc., owned by European investors, purchased 260 of the 330 condo units at the Eastwinds, 345 East 80th Street, for $27.7 million, a price that those familiar with the transaction say included some additional costs and one small commercial unit. The ground floor retail was not included in the deal, which closed in June. The square-foot price of a have started to buy in the belief that New York has hit bottom and can only go up. They view American investments as a safe and secure place to put their money because an upheaval of the government is unlikely. Additionally, they are concerned about economic and political factors occurring in their own country.
The turnover of Hong Kong to the Chinese in 1997 is a worry, but is not stopping the real estate market there from hitting record peaks. Rather, it is an invitation for people to remain in place.
Nevertheless, "Asian people want to get their money out," said Rockmore. "Europeans want to make money."
Albert I. Berger, president of the investment sales division of The Carlton Group, said while the Pacific Rim's own market is exploding, it is a bubble that is bound to burst, as each buyer is making 50 percent returns on selling to the next one in line. "We can't compete with their returns but we offer political and economic stability," he noted
The Chinese, therefore, are actively negotiating on the sale of bulk condos in Manhattan. "Their interest is that people always need a place to live and it provides a small, modest cash flow," explained Berger, "and yet there is the possibility of growth - if the market changes - with a sale."
Corcoran says she wishes Americans were as confident in the marketplace. "The Americans are more mistrustful and distrustful," she observed. "They compare it to where it was and where it can go. Foreigners compare it to other worldclass prices and see New York as a cheap buy. They see it as a secure place to put their money."
The Chinese are so visible, not only are they interested in New York real estate, but because they have been more aggressive than other investors, says Zborovsky, who notes there are many different groups in the marketplace who are actively purchasing.
"If it is not Glorious Sun it is American Continental Properties or Mark Zborovsky," he continued, referring respectively to the Chinese purchasers of the last condominium units at Worldwide Plaza and the purchase by ACP of the unsold shares at Lincoln Towers.
"It's not only the Chinese but other nice and well dressed buyers," he laughed. bit more than $140 a square foot reflected the rent stabilization of some of the units.
Richard Ortoli, a partner with the law firm of Rubin, Kalnik & Balin, represented the buyers for the Eastwinds, and along with the broker, Richard H. Pinney, of Pinney, Stone & Co. Ltd., have been involved in bulk sales including units at the Monarch, The Evans and Trafalga House, where the purchases were all made from sponsors.
James Murray and David H. Gaunt represented Kalikow on the Eastwinds transaction. Condos are a desirable type of investment, notes Gaunt, who added there was a lot of interest in the Eastwinds property from foreigner and Americans, alike.
"Part of the reason for the attractiveness is that it was a desirable location, and they were condos rather than unsold co-op units," he explained.
Co-ops Less Liked
Co-ops are often avoided by foreign investors because they have boards that often restrict subleasing and are governed by stricter rules. Additionally, co-ops are owned as stock in a corporation while an underlying mortgage usually encumbers the property. Condominiums, however, are real estate lots that can be owned and operated free and clear of market regulation. Their boards are also less regulatory-minded.
The units at the Boulevard, a former Bruce Eichner project at 86th and Broadway, are for sale by Citibank, sources said. "This is a co-op with an underlying mortgage," said one broker. "It's not so easy to find a buyer for a co-op with no tax abatements."
When American Continental Properties purchased 1,800 co-op units, many of which were in Lincoln Towers, they didn't have those concerns, said Alissa J. Gaines, vice president of acquisitions. "When you buy the apartment, the first buyer after the sponsor doesn't need board approval, though it is very important to have good relationships with the board," she warned. The American company, headed by Daniele Bodini, is currently in the market for both condos and co-op units, along with other properties.
"There are fewer such blocks of condos around," Gaunt noted. "Eighteen months ago there were a number of these blocks of unsold units."
Over the last few months, blocks and even buildings have been swooped up by deal-makers.
Modrian In Bulk Deal
Last year, Kirkpatrick MacDonald, managing partner of Palais Partners, a European investment group, purchased the empty, new Grand Palais and renamed the property The Modrian. Since then, he has been negotiationg with various parties for a bulk sale to kick off the condominium plan. "We had been negotiating actively through a New York City broker and signed a contract a week or two ago for one buyer for 27 apartments at an average price of about $275 a square foot. And almost all of them are rented studios," he added.
MacDonald says Jessica Rolm, a broker who worked closely with Will Zeckendorf - who is managing the property together with Anthony Malkin - rented 80 percent of the building's apartments at over $40 a square foot average rental.
"Supply and demand is such that they are not creating more condo units at this point," said MacDonald. "We see a strong demand for rental units. We're basically waiting for the market to turn for an eventual sales strategy."
All the bulk buyers are renting out the units and have an eye toward selling them when the market gets higher. "That is each and every person's strategy," Corcoran said. "They are all taking a wait and see attitude."
While they may buy on a per-foot basis, Corcoran said, they are usually measuring their investment by what they can rent the units for, comparing it to what it costs to hold.
Gaunt compared the purchase of condo units to a convertible bond. "You get a current income while you are waiting your opportunity to sell for a higher appreciation," he said.
Paul Chang noted that by finding the right managing agent and the right leasing agent, his company can expect a predictable return before they have to worry about the long term appreciation. "As long as there's a minimum 6 to 8 percent that would be within our range," he said.
Corcoran concurred on the 6 to 8 returns, although others believe that figure can go higher for other investors. "With a bulk deal they can hedge one apartment against the other," she added.
The Chinese generally do about 50 percent financing, added Corcoran, bringing the financing with them or working through corresponding banks.
"You're going to see the wave build," added Corcoran. "Already the buyers are not limited to bulk apartments. They are looking at commercial properties, at hotels and at buildings that can be redeveloped to condos. And all motivated buy the fact that they are buying in a good time."
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|Publication:||Real Estate Weekly|
|Date:||Jul 27, 1994|
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