NYC’s New Commercial Real Estate Owners: Private Equity and Building Users

'Nobody ever wrote a book called "Pendulums That Swung Just Right."'

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When Doron Greenberg and Aviad Ohayon decided to leave the private equity world where they had apprenticed for about five years and start their own real estate firm, many New York landlords were licking fresh wounds.

It was 2019, and the state had just passed a landmark piece of legislation for rent-stabilized apartments that made it all but impossible for owners to raise rents and break free of regulation even after carrying out major capital improvements in their buildings. So owners who acquired properties just a year before suddenly found their business model obsolete.

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But, to Greenberg, the situation presented an opportunity, which only ripened further when the pandemic hit six months later, triggering a mass exodus from Manhattan, historic inflation, and the rapid ascent of interest rates, beginning in the middle of last year.

“People can’t finance, can’t refinance, banks are sitting on the sidelines,” Greenberg said. “With all the difficulties we said, ‘OK, New York now presents a very unique opportunity because the price per square foot — the cost of bricks — is very low historically.’ ” With the right equity structure and a long-term investment horizon, Greenberg and Ohayon believed they could capture a slice of the city’s multifamily market.

Fast forward to October 2023. Their firm, GO-RE Partners, has just closed on its fifth deal in New York City, picking up a 77-unit, mixed-income multifamily building at 69 East 125th Street in East Harlem from Greystone Development for $28.2 million. 

The new development was completed in 2017 and will receive a 421a tax abatement until 2043, but Greystone was facing a deadline on its loan, according to sources with knowledge of the deal. The developer did not respond to a request for comment.

“For their own reasons, they decided it’s better to sell,” Greenberg said. “And we got a very attractive price per square foot for a new product. We can’t build this building today for the price that we paid for it.”

To Ariel Property Advisors’ Shimon Shkury, who was part of the team that brokered the deal at 69 East 125th Street, GO-RE Partners epitomizes a certain kind of owner in the new epoch: private, opportunistic buyers with a lot of equity to deploy and a long-term investment strategy. 

The city’s rent-stabilized building stock once had a very similar pool of investors as the unregulated market, Shkury said. “Today it’s only private capital,” Shkury said. “Those who invest in rent-stabilized today are private people, some syndications, who have one thing in common and that’s a long-term view, meaning they invest not for two years or five years but at least seven to 10 years, if not longer.”

The market for multifamily properties with income restrictions has similarly shifted in favor of private family offices and mission-driven capital, with Nuveen capturing headlines in May this year when it scooped up a massive affordable housing portfolio comprising some 12,000 units from Mo Vaughn’s Omni Holding Company. 

Nuveen — whose mission-driven capital is part of its larger $156 billion of assets under management — declined to disclose the sale price, but said the deal was part of $3 billion of acquisitions in its pipeline this year, Commercial Observer reported.

Anyone with good credit has a major advantage right now, and it will remain so as long as “the cost of capital is the highest it’s ever been in memory,” said Eastdil Secured’s Will Silverman.

In Silverman’s world of Manhattan trophy properties — where Eastdil brokered more than $1 billion in sales last year — everybody wants to sell. 

“Users can usually pay a premium because there’s no developer profit,” Silverman said. “The challenge is often they’re not able to accommodate the timetable of a New York City deal. So you’re talking about maybe getting a higher price for people that are capricious and slow-moving.”

Vanbarton Group’s sale of 15 Laight Street to Korean automaker Hyundai in February of this year for $273.5 million is Exhibit A. Hyundai paid all cash for the boutique eight-story office tower in Tribeca, Bloomberg reported. It plans to use all 108,000 square feet of floor area for offices and showroom space.

Six months later, vacuum kingpin James Dyson sunk $135 million into acquiring 747 Madison Avenue from billionaires Jeff Sutton and David and Simon Reuben, each of whom shared a stake in the 17-floor retail co-op through their private equity firms, Wharton Properties and Reuben Brothers.

The U.K.-based Dyson family office, known as Weybourne Holdings, began its foray into the New York market in March, when it bought 155 Mercer Street for $60 million, public records show. That’s a deep discount from seven years ago, when the three-story SoHo building last traded for $93 million.

There’s no consensus right now on what the future holds for the city’s office market, Silverman said, but there have been a few non-users making purchases. Notable ones include the Japanese developer Mori Trust picking up a 49.9 percent stake in 245 Park Avenue from SL Green Realty in June at a $2 billion valuation.

“Most of the non-user buyers are private family investors taking the view that it’s Manhattan, it’s well-located, I’m going to buy,” Silverman said. “Nobody ever wrote a book called ‘Pendulums That Swung Just Right.’”

Silverman is of the mind that the pendulum has probably swung too far at this point. He warned against relying too heavily on the oft-cited return-to-office figures put out by security firm Kastle Systems, which uses key fob data to create a barometer of office occupancy across U.S. states.

The problem is that large landlords like Vornado Realty Trust and Boston Properties do not use Kastle’s access control products, leaving a significant gap in the data.

New York City investment sales volume dropped 31 percent annually in the first half of 2023, according to an Ariel Properties Advisors report.  The slump in sales velocity could very well signal the start of a downturn in commercial real estate, but as for new entrants to the market, Meridian Capital Group’s David Schechtman said there simply isn’t enough activity to focus on a heavy trend.

He said Meridian has 11 deals slated to close before the end of the year, some of which will involve out-of-town capital, others to previously unknown buyers.

“I wouldn’t say it’s as linear as years past where you say China is hot, and it’s tied to global economic forces,” Schechtman said. 

He said he’s seen investment flowing into New York City this year from Chicago, Toronto, Montreal, South Korea and South America — to name a few — but Schechtman declined to get into specifics, noting only that some of the newcomers had a modicum of success previously, but are now finding their equity will go further in New York City and the barriers to entry are lower.

“There are a lot of people who want to transact this year or next with the belief that we’re just two years away from interest rates dropping,” Schechtman said. 

Then again: “You can never time a sale perfectly.”

Abigail Nehring can be reached at anehring@commercialosberver.com.