As the market heats up heading into 2014, the questions on everyone’s minds are “can the market sustain some of the high land and building prices we are witnessing across all asset classes?” and “where are the best neighborhoods to invest?”. So we went to the field, and asked some friends and colleagues to discuss what’s on their mind regarding the current state of the market. I think you’ll find their answers quite interesting.
Where are you investing in 2014?
Jody Kriss, East River Partners, http://eastriverpartners.com/ : Our plan is to continue the theme of 2012-13 by investing mostly in existing buildings that we gut-renovate and turn into family-friendly condos in Brooklyn and Manhattan. We also will probably do at least one more ground-up project since buildings to renovate have become harder to find. So far, we have eight projects completed or in our pipeline and we plan to do two or three more in 2014.
James S. Eisenberg, Urban American, http://www.urbanamerican.net/ : We like Queens a lot. Location, neighborhoods and access are perfect to meet excess demand of popular neighborhoods in both Manhattan and Brooklyn.
Paul Henry, Patoma Partners, http://patomapartners.com/ : I’m investing in rental apartments in north Brooklyn.
David Schwartz, Slate Property Group, http://slatepg.com/: We will continue to invest in development projects, multi-family buildings and retail in Manhattan, Brooklyn and Queens. We’re very bullish on the 4th Ave. Corridor in Park Slope and are looking for more deals at and around that market.
Dvir Cohen Hoshen, Adam America, http://adamamericare.com/: We’re six deals in Brooklyn, four in Park Slope, one in DUMBO and one in Clinton Hill.
Drew Popkin, Director, Acquisitions & Development The Naftali Group,http://www.naftaligroup.com/ : The market has really heated up and we are now seeing pricing substantially exceeding that of the last peak. Since Naftali Group’s inception in June of 2011, we’ve completed 13 transactions, mostly in the residential space. In 2014, we will continue to focus on our core skill set, which is the development, redevelopment, and/or repositioning of residential assets. Our focus will remain in Manhattan and to a lesser degree Brooklyn, but if we see that these markets will eventually become too pricey, we will start to look outside and tap into other submarkets, with an emphasis on the tri-state area.
Jacob Sacks, Cayuga Capital, http://www.cayugacapital.com/: Northern Brooklyn
Biggest myth about the industry or the market you work in?
Jacob Sacks, Cayuga Capital: Outsiders don’t understand how much Brooklyn has changed over the past 10 years. They think “Do the right thing” when they should be thinking “The social network”.
James S. Eisenberg, Urban American: That you can’t make a living caring about your residents—the truth is you can. Don’t over leverage, pick properties and neighborhoods with good bones and solid access, maintain a stranglehold on expenses and most of all treat your residents and properties with the high level of respect they deserve. If you do that, you will always do well over time, no matter what the new chic metric of the day tells you to do.
Drew Popkin, Director,The Naftali Group: The myth of the off-market deal. The level of sophistication and the amount of competition in New York City is too great to allow for major transactions to occur on an off-market basis.
Paul Henry, Patoma Partners: The biggest myth is that rent control/stabilization helps keep apartments affordable.
How does the DeBlasio factor effect your sector of the business in 2014?
David Kramer, Hudson Inc, http://www.hudsoninc.com/: As housing developers, we have a lot of confidence given the DeBlasio administration’s emphasis on both overall housing production and affordable housing. If you think about the Mayor’s prior support of Atlantic Yards, his opposition to the Gowanus Canal Superfund designation, his appointment of Deputy Mayor Alicia Glen, and his reappointment of EDC President Kyle Kimball, there is already a lot of evidence that they’re off to a great start.
David Schwartz, Slate Property Group: We really don’t know yet. I there is a lot of speculation as to the changes that will occur but really we’re going to have to wait and see. We’re still very bullish on New York City going forward.
James S. Eisenberg, Urban American: It probably won’t. Bill is a very smart guy, surrounded by smart people. He knows how to put the right people in place to make a Mayor successful. His choices for deputies so far already show a strong regard for balancing a desire to take on tough social issues but not at the expense of efficient management.
Jacob Sacks, Cayuga Capital: He won’t have as much impact in 2014, but the choices he makes will definitely affect 2015, especially how he treats the upcoming 421a expiration and eventually the need for future rezonings. If 421a isn’t replaced with a similar program, development will slow, meaning constrained supply, which leads to higher rental and sale prices, which limit the growth of the city and exacerbate inequality issues.
Paul Henry, Patoma Partners: If he makes it harder to develop or renovate apartments, that will be a very bad thing for everyone, especially renters.
Dvir Cohen Hoshen, Adam America: I’m optimistic about DeBlasio.
Favorite project that wasn’t yours?
Paul Henry, Patoma Partners: I like 55 Hope Street in Williamsburg (http://www.55hope.com/).
Jacob Sacks, Cayuga Capital: Domino has the ability to reshape Williamsburg, and the group doing it is very talented so it should be a big success.
Dvir Cohen Hoshen, Adam America: I like The Pierhouse — The Toll Brothers near the Brooklyn Bridge Park (http://www.pierhouseny.com/)
Outlook for 2014: bull or bear?
Paul Henry, Patoma Partners: Bull
James S. Eisenberg, Urban American: Dog. Bulls and bears are for stockbrokers.
Jacob Sacks, Cayuga Capital: Bull. The Technology sector (which is now linked in to media, social and otherwise) will be a major job creator in Manhattan and Brooklyn. Technology also helps keep the city safe. Nationally, the booming domestic energy picture will help the US economy and lower energy costs, which will help return higher level manufacturing to the US from overseas. The recent decision by Abu Dhabi to invest $10 billion in upstate New York in chip manufacturing is a good example of this.
Jody Kriss, East River Partners: We are still bullish on our niche of family-sized condos in under-supplied sub-markets. We don’t see where the over-supply of condos is coming from in neighborhoods like Park Slope and the Upper West Side, where we are very active. We also don’t see a ton of pressure on rates from inflation while the European economies are grappling with massive unemployment. The hardest part of our business is buying deals that make sense and generate strong margins. But even in NYC, there are always complicated deals that are not particularly well marketed for one reason or another and we plan to find several good opportunities in 2014. We are already working on some we hope to announce soon!
Drew Popkin, The Naftali Group: We are bullish on the market but will continue to be cautious in our approach to new developments in the upcoming year. We tend to focus on downside risk more than that of upside potential. While our outlook on the market is generally strong, our acquisition activity will largely be dictated by where land pricing shakes out in 2014.
David Schwartz, Slate Property Group: Bull. Although I’m not as bullish in 2014 as I was in 2013. I think things are starting to get pretty hot although I still think there are opportunities.
Dvir Cohen Hoshen, Adam America: Bull
A deal that you regret having passed on:
James S. Eisenberg, Urban American: We bid a very healthy price for a fantastic property in South Williamsburg last year. At the time we felt like our Excel model was going to spontaneously combust if we pushed our assumptions anymore, so we walked way. The rents are now 10% higher than the highest stretch we were willing to underwrite. Oh well.
Jody Kriss, East River Partners: There aren’t deals that I regret passing on so much as deals that I regret losing to a competitor because we weren’t more aggressive. There are always many of those and that’s part of the business you learn to accept. That said, our track record is absolutely stellar because we have been so selective. As fiduciaries, we take our responsibility to preserve capital very seriously and we want to make sure we only do deals that have a built- in margin of safety. One thing about condo development is that if a product sells for $1,000 per square foot in the market, the development deals that we do produce that product at $700 or so per square foot — so there is a built-in margin of safety because of the value we add to each property.
Jacob Sacks, Cayuga Capital: There were many opportunities over the past few years where we were not able to convince possible capital partners of the merits, and did not do the transactions, and should have, in Williamsburg and Downtown Brooklyn. Fortunately we were able to get some done.