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Speculator Beware Watch List January 2018

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Speculator Beware Watch List January 2018 SPECULATOR BEWARE WATCH LIST JANUARY 2018 The monthly Speculator Beware Watch List shows rent-regulated buildings that are currently being marketed for sale at prices that may rely on low-rent paying tenants being pushed-out. Other displacement risk tools such as ANHD’s comprehensive, on-line Displacement Alert Project Map (www.dapmapnyc.org) look at certain existing building indicators and information about past sales to assess risk. The Speculator Beware Watch List is a valuable new tool for organizers because it is forward-looking. It takes a new approach by looking at the prices of buildings currently being offered for sale and using common real estate industry metrics to assess whether the offering price may be elevating the risk of displacement. This is a partial list, based on information we can glean from available sources. Landlords, developers, banks, and brokers often seek speculative prices and overleveraged financing which fuel a cycle of tenant harassment and displacement known as “predatory equity”. Tenants and community organizers can work together with proactive strategies to discourage speculation if they know a problem may be brewing. Identifying speculation before it happens is one important way to protect affordable housing. EVERY BUILDING IS DIFFERENT, BUT WE USE THESE GENERAL GUIDELINES TO IDENTIFY POTENTIAL RISK: • Sales Price ÷ Gross Rental Income (the “Gross Rent Multiplier”) is an indicator of the sales price in relation to the income generated by rents. We use asking sales price on the Watch List because there is no final sales price yet. A standard assumption is that this indicator should be below 11 if it is based on the rents of the existing tenants. We color-coded this column in the Watch List to clearly show where this indicator suggests there may be an increasing risk of speculation and displacement: Greater than 11 is yellow Greater than 15 is orange Greater than 20 is red • Net Operating Income ÷ Sales Price (the “Capitalization Rate”, or “Cap Rate”) is an indicator of the rate of return the purchaser can expect to earn on his/her investment. We use asking sales price on the Watch List because there is no final sales price yet. If the cap rate is relatively low, there may be reason for concern that the owner may seek to quickly raise the rents to earn a higher rate of return. Currently, cap rates in New York City often range from about 3% to 5.25% depending on location and age of the building. Rent- regulated buildings are often closer to 4.5% - 5.5%. Cap rates below the norm may be cause for concern. • Debt Payment ÷ Net Operating Income (the “Debt Service Coverage Ratio”) is an indicator of whether the payments on the mortgage debt can be supported by rent from the existing tenants. A debt service coverage ratio less than 1.2X may be cause for concern and less than 1.0X may be cause for alarm because the income from the building cannot support the debt, which may mean that the purchaser expects to push out low-rent paying tenants. Some aspects of this indicator are not publically available, so this particular Watch List indicator may not be accurate. Because it is an important industry measure, we offer a few scenarios based on standard assumptions of debt and interest rates for reference. 1 SPECULATOR BEWARE WATCH LIST JANUARY 2018 ANHD SCENARIOS Address CD Total % of Rent Asking Asking Net Debt Payment / Net Notes & Quotes from Offering Sheet # of Regulated Sales Price Sales Price / Operating Operating Income Units Units Gross Rental Income / (Debt Service Coverage Ratio) Income Sales Price (Gross Rent (Cap Rate) with a 3.5% with a 6% Multiplier) Interest Interest Rate Rate BRONX 1049 Kelly St BX2 9 78% $1,825,000 11.52 6.02% 1.86 1.40 1151-1155 East 165th St BX2 22 100% $4,675,000 11.48 5.03% 1.56 1.17 Belmont Fordham BX6 108 100% $21,000,000 11.43 5.23% 1.62 1.21 Multifamily Portfolio 1547 Commonwealth BX9 12 100% $2,800,000 11.86 4.68% 1.45 1.09 Ave 4429 Carpenter Ave BX12 7 100% $1,350,000 12.01 4.83% 1.49 1.12 737 East 219th St BX12 6 100% $1,250,000 12.05 5.07% 1.57 1.18 BROOKLYN 431-433 Wythe Avenue BK1 16 19% $6,500,000 18.09 4.61% 1.43 1.07 "Three apartments are rent stabilized yielding (part of Williamsburg roughly 46% of market rent. Four ground floor Southside Portfolio) apartments are currently vacant and most have been renovated, while the remaining nine are free- market and yield $50/SF in revenue." 313 South 4th Street BK1 12 25% $4,500,000 24.04 3.30% 1.02 0.77 "Three apartments are rent stabilized yielding (part of Williamsburg roughly 60% of market rent. Two ground floor Southside Portfolio) apartments are currently vacant and have been renovated, while the remaining seven are free- market and yield approximately $50/SF in revenue." 313 South 4th St BK1 12 25% $4,000,000 16.17 4.04% 1.25 0.94 "Three apartments are rent stabilized yielding roughly 60% of market rent. Three apartments are currently vacant and have been renovated, while the remaining 6 are free-market." 247 Devoe St BK1 5 60% $2,300,000 16.49 4.82% 1.49 1.12 706 Grand St BK1 6 0% $3,700,000 23.97 2.79% 0.86 0.65 "All of the residential units are on month-to-month leases." 85 Quay St BK1 6 67% $6,750,000 14.55 5.53% 1.71 1.28 The two FM units are vacant/former owner occupied. The RS units are under "loft law." They list two possible "pro forma" scenarios, one of which assumes renovating unit with existing unit mix and the other divides the vacant units into additional smaller apartment units.” 69 Meserole Ave BK1 8 100% $3,600,000 28.98 2.11% 0.65 0.49 2 SPECULATOR BEWARE WATCH LIST JANUARY 2018 ANHD SCENARIOS Address CD Total % of Rent Asking Asking Net Debt Payment / Net Notes & Quotes from Offering Sheet # of Regulated Sales Price Sales Price / Operating Operating Income Units Units Gross Rental Income / (Debt Service Coverage Ratio) Income Sales Price (Gross Rent (Cap Rate) with a 3.5% with a 6% Multiplier) Interest Interest Rate Rate 147 Conselyea St BK1 8 100% $2,550,000 38.23 1.19% 0.37 0.28 Lists a GRM of 37.1 under current metrics and a GRM of 16.4 under pro forma metrics. Clinton-Grand Portfolio BK2 126 97% Not listed N/A N/A N/A N/A "Current ownership has begun the process of (4 contiguous buildings) increasing revenue over the past 24 months by completing high-end renovations, creating duplexes, and adding bedrooms to apartments that have experienced turnover through either attrition or buyout agreements. To date, 37 of the 126 units have been renovated and leased at market rent or are in the turnover/renovation process... Accelerated upside is unlocked when the HPD Home Program expires in June 2018. Currently, the maximum rents for the 52 units operating under the program are limited based on a determined percentage of AMI (Area Median Income) threshold, regardless if the unit vacates and is renovated. However, the AMI rent restriction on the 52 units is removed upon expiration of the HPD Home Program, unlocking significant upside in the ability to increase revenue.” 305 Livingston St BK2 6 83% $4,500,000 26.40 2.24% 0.69 0.52 Bed Stuy Portfolio BK2 88 52% $32,500,000 16.44 4.77% 1.47 1.10 “80% Free market or preferential” 393 Chauncey St BK3 6 100% $1,400,000 14.02 4.74% 1.47 1.10 "Ownership is currently evicting the tenant at Apt. 3R. Three tenants have not renewed their leases and are month-to-month.” 70 Patchen Ave BK3 17 100% $5,050,000 15.44 5.02% 1.55 1.16 Has a J-51 tax benefit. Benefit is in year 23 of 34 (started in 1994 and goes until 2028). 871 Hart St BK4 6 33% $2,950,000 16.44 5.23% 1.62 1.21 4 units have been renovated. 787 Hart St BK4 6 67% $2,150,000 16.44 4.60% 1.42 1.07 4 of the 6 units have been recently renovated. 950 Hart St BK4 21 100% $7,750,000 16.71 3.80% 1.18 0.88 "The building is operating as an existing artist loft building that is in the beginning stages of an IMD conversion to residential apartments." 550 7th St BK6 8 50% $6,875,000 21.55 3.97% 1.23 0.92 164 Dikeman St BK6 8 50% $2,750,000 15.28 5.31% 1.64 1.23 "Currently there are average in place rents of $30.87/ SF, which is significantly below the market of $50/SF." 3 SPECULATOR BEWARE WATCH LIST JANUARY 2018 ANHD SCENARIOS Address CD Total % of Rent Asking Asking Net Debt Payment / Net Notes & Quotes from Offering Sheet # of Regulated Sales Price Sales Price / Operating Operating Income Units Units Gross Rental Income / (Debt Service Coverage Ratio) Income Sales Price (Gross Rent (Cap Rate) with a 3.5% with a 6% Multiplier) Interest Interest Rate Rate 457 15th St BK6 20 50% $10,000,000 17.19 4.07% 1.26 0.94 "The asset offers significant upside in the rents with rent-regulated units averaging $1,262 in a building where free-market units are achieving an average of $3,610." 247 60th St BK7 6 100% $1,450,000 19.43 3.53% 1.09 0.82 Two tenants are month-to-month.
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