MF Developers: Opportunities Sit Where Least Expected

Left to right: Martin Nussbaum, Slate Property Group; Ofer Yardeni, Stonehenge NYC. Not shown: Will Blodgett, Fairstead Capital.

NEW YORK CITY—Two areas that likely scare multifamily developers and investors in the current market—one being a type of product and the other being a section of the city—actually are ripe with opportunity. That was the message of the panelists late last week at the latest installment of Ariel Property Advisors ‘ Coffee & Cap Rates series, entitled “2016 Kickoff: Market Trends From Industry Leaders.” Market players would do well to embrace, and not shy away from, rent stabilized buildings, while Brooklyn—which might be getting bypassed due to fears of over capacity—is still brimming with demand, according to panelists Will Blodgett , founding partner, Fairstead Capital ; Martin Nussbaum , principal, Slate Property Group and Ofer Yardeni , chairman and CEO, Stonehenge NYC . “We’ve stayed away from rent stabilized buildings where we have to upgrade because we don’t know where policy is going,” admitted Nussbaum. However, Blodgett countered, “People are going to overpay for fair market housing in the next one to two years because they’re worried about rent stabilization but there are opportunities there.” In general, the policy needn’t be feared, noted Yardeni. “I have no issue if rent stabilization stays at zero percent. Those 1% or 2% increases are not how I make my money; I need to get the vacancy so I can go from $800 per square foot to $2,000 or $3000 per square foot. Regulations create efficiency.” Meanwhile, there is money to be made in Brooklyn. Panel moderator Shimon Shkury , founder and president of Ariel, noted that the borough’s rental unit pipeline is very full, and 25,000 new residents are coming, and Nussbaum acknowledged that the rental unit pipeline already is bursting. But he sees room for condominium development. “We saw the same trend a while ago and we started getting development sites for condominium properties,” he explained. “Land prices in Brooklyn have moved so much, at least in the last 12 months, that we can’t pencil out rentals. But there’s tremendous demand for condominium inventory and not enough product. “People are legitimately moving to Brooklyn from Manhattan,” he continued, “and it’s not just because of money. The borough is established now, it’s not the little brother of Manhattan anymore. It is it’s own place with its own brand.”