Money to be made in converting IMDs to residential.
Not anticipating that there could ever be an upturn in the commercial market, landlords welcomed either small commercial tenants or illegal residential tenants into their buildings at whatever rent they could get. These tenants eventually became legal occupants with long-term, rent-stabilized leases known as IMD tenants. Now, as both the city and the commercial market have rebounded, landlords of IMD buildings struggle to realize the value of/or profit from their investments.
There are ways for owners of these buildings to capitalize on their holdings. With a little help, landlords, even those whose buildings have multiple violations, can bring their properties up to par with the city's Loft Law and convert the building for residential use. Once designated a residential building, IMD landlords can sell the IMD portion or even the entire building to developers or investors waiting to pay top dollar.
As stated by the NYC Loft Board, an IMD building lacks a residential certificate of occupancy. Following the stipulations of the Loft Law will bring buildings illegally converted to residential use into compliance with city housing laws relating to health, safety and fire protection. The requirements of these laws are met when the owner performs the appropriate construction work on the building to bring it up to par with the city's residential code, qualifying the building for a certificate of occupancy allowing for residential use of the building.
But how can IMD landlords afford these construction costs when the current return on the building is insufficient to cover them?
The first step is to identify which parts of the building can be used as a means to finance the initial investments and to remove any violations. Removing outstanding violations, such as an inadequate fire safety system, qualifies the building for a certificate of occupancy under the city's loft conversion law. This will enable the landlord to qualify for a new equity loan for the building, creating the means to implement more improvements to the property.
From there landlords can follow a simple model that will generate enough funds in the short term to pay for long-term objectives, including the effective removal or buyout of the remaining IMD tenants. Once these steps are completed, the landlord can shop their building to developers and investors that will pay top dollar for the property to convert the building into luxury residential units.
There are literally thousands of IMD properties in New York City.
Many are in highly desirable areas, including Midtown South, TriBeCa, the East Village, the Lower East Side and the Financial District. And that's just in Manhattan.
Metro Spire, LLC will help IMD landlords through the entire process. We provide consulting services to evaluate the state of an IMD building, connect landlords with lenders, work with the city's loft board, broker the sale and buy out of IMD tenant leases.
For more information on how landlords of IMD buildings can take these steps, Metro Spire, LLC will hold its first annual Landlord Education Night on Wednesday, June 8 from 6 to 9 p.m. at our headquarters at 363 Seventh Ave. Experts will cover topics such as correcting code violations cheaply, the ins and outs of the NYC loft law, what it really takes to undertake a condo conversion and the best uses of owner's equity. For more information, call 212.967.1400.
JOSEPH BENZ, DIRECTOR OF OPERATIONS, METRO SPIRE, LLC
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|Title Annotation:||interim multiple dwelling, landlords converting buildings for residential use and offering to tenants|
|Publication:||Real Estate Weekly|
|Date:||May 11, 2005|
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