How to Make Money in New York City (Part 3)
Bisnow’s NYC Capital Markets Summit is this Wednesday. On that topic, here's Part 3 of our series on how smart investors are turning profits in the world’s most competitive market. Check out Part 1 and Part 2, too.
8) Go big or go home
Starwood Property Trust chief originations officer Warren de Haan knows large construction loans are hard to come by, especially non-recourse ones; banks find their size and complexity difficult. (Just like on the SATs, banks probably shouldn't guess on the hard ones.) Starwood, though, finds good risk-adjusted returns and little competition in large construction and rehab loans for top-of-the-line sponsors, especially because Starwood is a one-stop shop for borrowers seeking large loans, whereas banks usually syndicate after the initial $100M.
Starwood has $400M-plus loans for the building Coach will occupy in Related and Oxford Properties’ Hudson Yards and for the apartments, condos, and Whole Foods at 250 E 57th. (For $400M, you could be buy at least two, maybe three organic tangelos at Whole Foods.) We snapped the World-Wide Group, Rose Associates, JPMorgan, and Lubert-Adler residential project on Saturday.
9) Fill the gap
Square Mile Capital announced in mid-2013 that it would originate $1B in debt in the US by the end of 2014 with strategic partner USAA. Square Mile co-managing principal Jeff Citrin (above, in Colorado with his wife, Rona) tells us his company, which does a lot of first mortgages and mezz loans, also is making opportunistic moves with preferred equity investments; the goal is to help sponsors fill the financing gaps left by traditional senior lenders, which still are pretty conservative about placement within the capital stack. That opportunity will remain at least until the deals capitalized through the ’08 peak have been resolved. Jeff, like the other capital markets pros in this issue, will speak at our event.
10) Get cheap financing and hold on
An investor whose model requires returns in the high teens will usually face an outlier in the bidding process, someone willing to pay more, says Massey Knakal's Garrett Thelander. The answer: Get used to it. He says traditional investors will have to pay competitive prices, say, a 4.5% cap for a stabilized apartment building. Then they can finance low, at 3% or 3.25%, and, as Wilson Phillips says, hold on for one more day. Massey Knakal just repped a buyer of a Northern Manhattan apartment building whose starting bid was $8.5M with a cap of $9M. The client finally exceeded that ceiling, buying the property for $9.5M. Investors still can turn profits on deals like that, though, Garrett says, by bringing in active management.
Garrett’s group also arranged a $32.1M construction loan for the 133 apartments going up next to the Prospect Park subway stop on Lincoln Road in Prospect Lefferts Gardens (we snapped the site's signage depicting the building and the single-story subway station). Anderson Associates bought the land five years ago, now has leveraged up, will build, and will lease it up (and still be home in time for supper).
Thanks also to event sponsor CBRE and panelist Bill Shanahan. Devoutly New York-focused, he has more than three decades of real estate experience and has sold, financed, and structured some of the industry’s most innovative and iconic assets, doing more than $60B of sales, advisory, JVs, financing, leasehold, and development transactions. Bill's transaction experience in major markets has put him at the forefront of the industry’s changing trends, a subject we look forward to him tackling on Wednesday. Sign up for our event here.