The Pitch: James Nelson on selling multifamily after the fall

By Adam Pincus

James Nelson is principal at the global brokerage Avison Young, and head of its tri-state investment sales group. He has been a broker for more than 20 years.

Nelson is marketing a portfolio of Brooklyn rent-regulated rental buildings for $200 million that developer Bruce Ratner purchased from a variety of developers for a combined cost of $175 million. They all were built with 421-a tax abatements which expire in an average of 11 years.

It’s not an easy time to sell multifamily in the city, especially rent-regulated properties. The volume of multifamily sales has fallen by half since the peak in 2015, and the past few months have seen only a trickle of sales, with the exception of the $1.16 billion sale of the Putnam portfolio to L+M Development Partners and Invesco.

We [don’t] know whether or not we’ll all have autonomous cars by 2030… But you will know what your debt looks like.

Ratner purchased the buildings that have a total of 244 units and three retail spaces, between 2013 and 2016. This was after he stepped down as CEO of Forest City Ratner in early 2013. He bought these as a family investment.

The properties, including 500 Sterling Place in Crown Heights and 65 North 6th Street in Williamsburg. were constructed by developers including the Chetrit Group, Adam America Real Estate, Springhouse Partners and Silverstone Property Group. The state’s 421a program provides for a tax abatement while the units are rent regulated. The buildings become free market over time, and these buildings are staggered, with the first one becoming free market in about six years, while the average over the portfolio is 11 years.

PincusCo asked Nelson how he’s making his pitch.

The pitch is.. that one day you are going to get a fully market [rate] building.

[The state] has just taken a million of [the approximately three million housing units in New York City] and those rents are now frozen in time. What that is going to do, is that the fair market units are going to become that much more valuable.

Who is your target buyer?

If you are buying a property and your whole investment hinges on buying this at a 4.5 percent return today and you’re just going to hold it and sell it at a lower cap in the future, I don’t know that that’s a recipe for success.

The real key is that you need to be able to add value. You’ve got rents that are stabilized so they are going to be held at a certain level until that abatement expires. And in 6 to 8 years when the abatements begin to expire, you can start bringing these rents to market. That is why someone is buying this.

Do you try to paint a picture of what New York City will look like in, say, 10 years?

It’s so hard to predict even where we’ll be in the next year. But we have the ability to lock in incredibly cheap 10-year debt.

We might not be able to know whether or not we’ll all have autonomous cars by 2030 — at the speed we are going we probably will but I don’t know if I’d be forecasting that. But you will know what your debt looks like.

Why not try and forecast?

I found over time that we can show the opportunity, but we stop from doing the full 10-year future proforma.

Why?

The buyer who will pay the most money is usually the most optimistic. Often times they are more optimistic than we are.