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Who Buys Value-Added Buildings?

New York Multifamily

Value-add is all the rage among multifamily investors, but once they add the value, who’s buying? Megalith Capital Managment CEO Sam Sidhu told us Friday that his company, which has built a $300M portfolio of NYC properties in just three years, typically holds assets for three to seven years. So Megalith leaves a little meat on the bones—a little value left to add—for future owners. That might mean locking in a seven-year loan at today’s rates for a buyer to assume in three years. Or maybe Megalith will renovate just some of the units, whatever it can get to during its medium-term hold.


There always are long-term investors out there to buy from Megalith, Sam says. In fact, its funds are opportunistic precisely because it’s too difficult to compete for top-performing assets with longer-term holders. For the past two years, "opportunistic" has meant development. Megalith has three shovel-ready projects now. It bought the 6 Cortland Alley site last summer when Sam pegged Northeast Tribeca as emerging. Now it’s become a prime submarket (they grow up so quickly—cherish your neighborhoods), and Megalith and Imperial Development Group are building four full-floor condos (3,750 SF each, big enough for four bedrooms) and a two-story penthouse. The planned building is rendered above.


The company also is starting on two Dumbo projects it bought in March 2013 from the Jehovah’s Witnesses (before Kushner and RFR made their move there). Megalith and Urban Realty Partners will convert a warehouse on Water Street near Jay into 15 condos, adding a penthouse floor, and will break ground on 105 apartments (rendered above), the first new-construction apartments in Dumbo in a while. Sam expects the rentals to benefit from the Brooklyn Tech Triangle, the conversion of the rest of the Witnesses’ Watchtower complex into creative office, and the northward extension of Brooklyn Bridge Park. With land prices so high, Megalith is switching back to acquisitions and expects to add $150M to its portfolio by the end of 2015.