Finding match for sponsor shares.
There are very few buyers, Zborovsky admits, but the ones he has are interested in making deals. Zborovsky, president of Mark Zborovsky & Co., Inc., is a real estate broker who specializes in the sale of tenant-occupied co-op units to investors.
Zborovsky said the prices he obtains for the shares vary from 10 to 20 percent of market value, depending upon the negative cash flow, which could run into the hundreds of dollars each month. The less negative flow, the easier the units are to sell. Sometimes the price is higher, he added, particularly if there is positive cash flow. "The packages I am working with now have very little negative cash flow but the owners have problems with other buildings," he explained.
Of six parcels he picked up since January, four are now under contract. One block of 16 units, formerly owned by Manhattan Savings Bank on Third Avenue and 77th Street, has a positive cash flow of $200 above the maintenance, even though the units are rent stabilized. The investor paid 25 percent of market value, Zborovsky said.
The investors are both local and foreign concerns and individuals. Some are from Boro Park in Brooklyn, others from London England, and some are from local management companies.
Local investors, he said, will purchase blocks with a slightly negative cash flow if it is in a strong, well-located co-op with a long underlying mortgage and in good physical condition. They are willing to spend about 16 to 17 percent of market value for such a property, he said.
PAckages of 25 to 695 apartments have been sold by Zborovsky over the last several years, including some while he was a broker with The Stern Organization. In 1989 and 1990, he sold more than 2,000 occupied sponsor units with a total vacant market value in excess of $96 million.
As one of the only broker in the area specializing in unsold shares, Zborovsky is now the first to get the call from the bank which is about to become the owner of a defaulting sponsor's shares, or from the sponsor who has watched his bank account dwindle while obtaining rents which do not cover his costs. Zborovsky says he feels badly for the sponsors who used to be very "proud" and sophisticated businessmen but are now in financial trouble and owe the banks many millions of dollars.
Sponsors Zborovsky has worked with include Arthur G. Cohen, Martin Tepper, stephen Shalom, Francis Greenberger, Aaron Ziegelman and others, while lenders include CrossLand Savings, Manhattan Savings Bank and the First Manhattan Bank for Business.
Acting like a matchmaker, Zborovsky brings together the various investors with the right block of occupied apartments.
One investor from New York City purchased units on the Upper East Side and told Zborovsky that they are his "pension money." Even if an apartment becomes vacant, he claimed, the investor would not sell it, nor would he "work" the apartments and push the tenants out. What he said to Zborovsky was that he is 40 years old, and in 20 years he would expect the 20 tenants to be gone, and only then he would sell to obtain his retirement money.
Other investors begin working the tenants right away, Zborovsky said, making reofferings or paying cash settlements to create a vacant unit which is worth much more than one which is occupied. Most purchasers want to work the tenants themselves, he said, and "don't want to hear that there used to be 60 apartments but now there are 57."
"Most of the buyers right now are strong financially, and work in management companies which have experience in managing unsold shares," he said. These are sophisticated investors who already have computer data bases which can manage the apartments without too much more time and effort. A couple of recent large-sized sales were completed, he said, because "the management company picked it up for nothing and took over and will hold onto it."
Some prospective purchasers, Zborovsky said, are only interested in the Upper East Side luxury units. There are two companies in London, however, that are interested in buying apartments in Sunnyside, Kew Gardens, and Jackson Heights. One of these investors, Zborovsky said, made money investing in similar properties in London, so he feels comfortable going into areas, such as those in Queens, consisting of middle-income tenants.
This investor feels the middle-income people are not attached to their apartments and therefore could buy out the tenants and have vacant units to sell. "In Manhattan, where the little old lady has always lived in her apartment," Zborovsky said, "no amount of money will ever buy her out."
Another British company wants to buy the best in Manhattan because they are looking at this as a long-term investment. "It's so pleasant to her," Zborovsky admits, "because usually people want to make money overnight." Here the investors are saying, 'I'm buying long term, and I believe in the prices of New york real estate.' This company often pays 15 cents on a dollar, Zborovsky added.
He has also watched the prices fall. A year ago, he said, the occupied units were selling at 50 percent. A block of 695 units he brokered for Cohen and Shalom at three properties in Queens sold for $15 million dollars last year but produced $500,000 negative cash flow. "Now the guy will buy only with no negative cash flow," Zborovsky said.
Zborovsky has 6,000 apartments on his desk right now from different banks and sponsors. He is brokering unsold condos in Forest Hills with positive cash flows because, he said, the bank does not want to hold onto them. There are also 55 units in Fleetwood, in Westchester, with a positive cash flow generating a 4 or 5 percent return -- "Usually the return is zero," he noted -- and these he expects to will these to fetch between 15 and 20 percent of market value.
He also has 400 apartments all over the Upper East Side with negative cash flows of approximately $4003 per unit per month. "I said I will work on it for a while," Zborovsky said he told the owner, but noted this deal "is not a profit making machine." In this case, Zborovsky feels he will be selling the units for enough to cover his commission just to get the sponsor out from under the negative cash outlay.
Not just anyone can buy these units either. Zborovsky has set up ground rules for the pruchaser. "Someone will just take it over for nothing but the investor must put into escrow enough to cover negative cash flows for the next three years which amount to $165,000 per month," said.
In another building in Forest Hills, he said, there are 60 apartment that the co-op has taken back from sponsors that have substantial negative cash flows. Here, he believes only a handful of the tenants might buy. "The rest will not buy because they are unsure of the financial security of the co-op" he said.
Zborovsky has a love of buildings and architecture that began during his childhood in the Soviet Union. He received an NS in structural engineering from the University of Kiev. After coming to America 12 years ago, Zborovsky was a project manager and senior engineer at DeSimone and Chaplin Consulting Engineers, Inc. and participated in the design of Trump Plaza Casino in Atlantic City, Trump Tower and 104 Fifth Avenue and other buildings before becoming a broker.
"I looked at buildings and admired the beautiful architectural styles," Zborovsky said. "I was fascinated by the ideas that would allow you to build a 112-story building on four columns." As a broker he learned the value of office space while his next job, selling apartments, he said, taught him how to determine if a building was financially secure and the importance of location.
Zborovsky admitted he does not want to buy any units for himself, saving, "That is for people who have management experience and a long-term outlook."
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|Title Annotation:||Profile: Mark Zborovsky|
|Publication:||Real Estate Weekly|
|Date:||Aug 7, 1991|
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