Manhattan's pulverized condominium market is opening the door for investors willing to buy individual apartments wholesal...
New York always comes back.
In the 1970s, New York City was on the verge of bankruptcy, experienced significant city-wide cuts with one-fifth of public workers getting laid off in 1975, saw an increase in arson representing 7% of fires in the '70s vs. just 1% during the decade prior, and the subway was coined "the muggers express," with over 250 felonies committed per week, making it the most dangerous transportation system in the world.
National Archives and Records Administration.
New York City will never forget September 11, 2001. Nearly 3,000 people died, and the city was rocked to its core. Cultural landmarks, famous buildings, restaurants, and neighborhoods were covered in smog and smoke, and fear permeated the streets.
The global financial crisis and the bursting of the U.S. housing bubble caused real estate to plummet, which significantly harmed financial institutions globally, with New York City at the center as the financial capital of the world. It culminated in the bankruptcy of Lehman Brothers in 2008 and an international banking crisis.
Getty Images / CNN.
What can we learn from history?
Despite market disruptions, over the past 100 years, real estate prices have continued to increase, appreciating by almost 1,000 times every decade. The prices doubled from the ’50s to the ’60s and nearly doubled again from the ’60s to the ’70s. After New York City came out of bankruptcy in the late ’70s, international buyers started to take notice of the New York real estate. Prices went up almost six times in the ’80s and more than double again in the ’90s. From the '90s to the 2000's, real estate nearly doubled again.
Headlines create fear, which create buying opportunities.
Those with the vision to see beyond the fear may have a once-in-a-lifetime chance to buy real estate at deeply discounted prices.
The NYC Opportunity Fund is formed for the purpose of acquiring, leasing, and managing a portfolio of New York City real estate.
Our intended strategy is to focus on acquiring properties that we believe (1) can be purchased at a compelling value based on current market conditions and (2) have the potential for significant capital appreciation.
2020 has been a tough year for New York City real estate. The pandemic essentially forced the market to come to a halt, with the impacts of Covid-19 exacerbating a trend of declining sales and prices in the residential space that began years ago due to changes in tax laws, reduced demand from international investors, in concert with the delivery of way too many high-end luxury units. By the end of the year, median rent in Manhattan decreased to $3,000, a level not seen since 2010, new developments faced serious hurdles, and headlines read that the New York market was about to implode.
We are currently in the longest and deepest downturn that the New York City market has faced over the last 30 years, which includes downturns from the great financial crisis in 2008-2009 and the events after 9-11 in 2001.
The Fund's goal is to take advantage of this distress in the residential market and to aggregate an attractive, diversified portfolio of real estate that we believe has the potential to significantly increase in value.
We expect to use substantially all the net proceeds from this offering to acquire properties that are appropriate for our investment strategy and our investment objectives, including:
- Acquiring or investing in properties from lenders that have foreclosed;
- Acquiring or investing in properties quickly from sellers with timing restrictions;
- Acquiring or investing in primarily residential real estate, including bulk condominium units
We intend to deploy the capital that we raise through this offering from the initial closing of the offering through the fiscal year-end 2022 (the “Investment Period”).
Properties that are not held for sale will be leased to market rate tenants to generate cash flow to cover carrying costs and fund expenses. We intend to sell the properties we acquire on an individual basis with the goal of maximizing investor returns.
We may employ modest leverage to enhance total returns to our investors through a combination of senior financing on our real estate acquisitions, secured facilities, and capital markets financing transactions. Our target portfolio-wide leverage after we have acquired an initial portfolio of diversified investments is between 30-50% of the greater of cost (before deducting depreciation or other non-cash reserves) or fair market value of our assets.
The Market Today
It's a buyer's market in New York City. The fallout from the pandemic has caused an exodus of people to move to New York City's surrounding suburbs, driving up home prices in those locations. However, buyers and investors who believe in the city's recovery have a unique opportunity to capitalize on the dip.
New York City is beginning to show signs of recovery. In the fourth quarter of 2020, closings grew compared to the previous two quarters, signed contracts returned to pre-Covid levels, and supply growth slowed.
- The low number of contracts signed between mid-March and early August caused by the pandemic now is causing a notably diminished number of closed sales.
- Closings in the fourth quarter declined 30% year-over-year to just under 1,900 sales, the lowest fourth quarter for closed sales in over 20 years. However, closings did experience a quarterly increase for the first time since the Covid-19 pandemic began, increasing 18% versus the third quarter.
- Sales volume during the fourth quarter fell by 3% versus last quarter, totaling $3.39 billion, due to a drop in average price.
- Contracts rose 8% year-over-year to just over 2,800, the first annual increase since fourth quarter 2019.
- Days on market rose year-over-year for the 18th consecutive quarter to 139 days.
- Inventory remains quite high, and active listings are much higher than in 2019 due to a surge of inventory reopening.
- As of December, there was a 36% increase in inventory compared to the fourth quarter of 2019—this represents the most significant annual percentage increase since the second quarter of 2006.
- Nearly 3,500 listings hit the market in the fourth quarter of 2020, which is slightly higher than the ten-year historical fourth quarter average of 3,400 new listings.
- The number of active listings grew at all price ranges, but the increase was greater at lower price ranges than higher ones, with the number of listings under $1 million increasing by over 50% year-over-year.
- Price data predominantly decreased in the fourth quarter of 2020, with sellers reducing prices and buyers gravitating to properties with more space.
- The median price at $1.044 million rose a minimal 4% year-over-year but was still 20% below its Second Quarter 2019 peak of $1.347 million.
- The median price per square foot fell 1% annually to $1,225 per square foot.
- Average price decreased 5% year-over-year to $1.787 million, on par with the fourth quarter of 2014 and 25% below the second quarter 2019 peak of $2.346 million; average price per square foot fell 8% year-over-year.
- Average price figures declined as buyers prioritized more space over building and location.
- A sharp drop-off in new development closings exacerbated this quarter’s decline.
The managing member of the Fund is NYC Recovery Manager, LLC a joint-venture between James Nelson and Republic Real Estate.
James Nelson has served as a Principal and Head of Avison Young’s Tri-State Investment Sales group since February 2018, where he leads a group of three dozen professionals in the sale of multi-family, office, development and retail properties. Prior to joining Avison Young, James served as Vice Chairman of Cushman & Wakefield from 2015 until 2018, where his team was ranked the number one investment sales broker nationwide in 2016. Previously, James was a partner at Massey Knakal and was named the company’s youngest partner in 2004. James has also served as a Principal of River Oak NYC I, LLC since 2012 and River Oak NYC II, LLC since 2015. Each of these entities are private equity funds focused on multifamily properties in New York City. Throughout his over 20-year career, James has been involved in the sale of approximately 500 property and loan sales for an aggregate value of over $5 billion dollars. James is a former REBNY Commercial Board Chair, on the Board of Governors for the Young Men’s/Women’s Real Estate Association of New York (YMWREA) and is a Board Member of the Counselors of Real Estate and SparkYouth NYC
Republic Real Estate is the real estate arm of Republic and is managed by Janine Yorio and Jesse Stein.
Janine Yorio has served as the co-head of Republic Real Estate since its inception in May 2020. Previously, Mrs. Yorio served as the Chief Executive Officer of Compound Asset Management, Inc. from February 2018 until May 2020. Mrs. Yorio was previously the Chief Executive Officer of Stayawhile, Inc. a short-term rental company that she founded in October 2016. Prior to founding Stayawhile, she worked as co-founder of Roam Co-Living from July 2015 to April 2016. From February 2009 to July 2015, she was founder and CEO of NewSeed Advisors, a boutique investment banking firm for the farmland and sustainable agriculture industries which was sold to a publicly-traded company. Prior to that, she worked as Senior Vice President of Acquisitions & Development at Andre Balazs Properties (owner/manager of the Standard Hotels, Chateau Marmont, Sunset Beach and Mercer Hotel), and prior to that she was managing director of NorthStar Capital, where she managed a diversified portfolio of structured real estate investments, including the initial public offerings for three REITs and for Morgans Hotel Group. She began her career in investment banking at Salomon Brothers Inc. Mrs. Yorio graduated from Yale University.
Jesse Stein has served as the co-head of Republic Real Estate since its inception in May 2020. Previously, Mr. Stein served as the Chief Operating Officer of Compound Asset Management, Inc. from February 2018 until May 2020. Mr. Stein is also the Managing Principal of Advanced Fundamentals LLC, a data analytics and real estate indexing firm which he founded in July 2016. Previously, Mr. Stein served as the Chief Executive Officer of Commencement Capital, LLC from April 2016 until February 2018 and was a founding member and the Chief Operating Officer of ETRE Financial, LLC, a real estate financial services and information technology company, from August 2012 until February 2016. During his time with ETRE Financial, Mr. Stein also served as the Chief Operating Officer, Secretary, and a member of the Board of Directors of ETRE REIT, LLC. Mr. Stein graduated from Cornell University and received a Master’s Degree in Real Estate Investment from New York University.
We are currently testing the waters for a potential Regulation A+ offering. We anticipate that the offering would seek to raise up to $50,000,000 with a minimum investment of $1,000.
NYC Recovery Manager, LLC will receive the following fees for services related to the investment and management of the Fund's assets:
Asset Management Fee: 2.0% per annum of the members’ aggregate capital contributions.
Acquisition Fee: 1.0% of the gross purchase price of each property we acquire.
Performance Fee: 20% of distributions after investors receive a 6.0% annual return.
We intend to deploy the capital that we raise through this offering from the initial closing of the offering through the fiscal year end 2022 (the “Investment Period”).
The term of the Fund shall be three years from the conclusion of the Investment Period (the “Term”). The Manager, however, may elect to extend the Term by no more than two (2) successive one (1) year periods (each a “Renewal Term”).
The Fund is targeting 12% to 15% net annualized returns to investors. The major factors that will influence investors returns include:
- The discount to market value we acquire our properties (How We Buy)
- The rate of appreciation of New York City prices (The Market)
- The pace at which we dispose of our assets (Absorption)
Disposition of Assets
As each of our investments reaches what we believe to be its optimum value, we will consider disposing of the investment. If a disposition is made during the Investment Period, we may do so for the purpose of either distributing the net sale proceeds to our investors or investing the proceeds in other assets that we believe may produce a higher overall future return to our investors.
We intend to distribute to investors the net sale proceeds of any property disposition we make following the Investment Period (12/31/22) on a quarterly basis.
Secondary Market Listing
We expect that the evolution of various secondary market exchanges for private and exempt securities may provide an opportunity to list the Shares of the fund on a secondary market exchange. Our team intends to actively monitor the options that may be available to us for the listing of these shares during the term of the fund.
In the event that the Shares are not listed on a secondary market prior to December 31, 2027, we may, at that time, begin a process to liquidate the Company’s assets in a timely manner and distribute the proceeds of such liquidation to the holders of the Shares. The Manager may, however, elect to extend the term by no more than two successive one-year periods.
NYC Condo Recovery Fund, LLC is “testing the waters” to gauge market demand from potential investors for a potential offering under Tier II of Regulation A of the Securities Act. No money or other consideration is being solicited, and if sent in response, it will not be accepted. No sales of securities will be made or commitment to purchase accepted until qualification of an offering circular by the Securities and Exchange Commission ("SEC") and approval of any other required government or regulatory agency. An indication of interest made by a prospective investor is non-binding and involves no obligation or commitment of any kind. Any offer to buy securities may be withdrawn or revoked, without obligation or commitment of any kind, at any time before notice of its acceptance given after the qualification date. No offer to buy securities can be accepted and no part of the purchase price can be received without an offering circular that has been qualified by the SEC, which we urge prospective investors to read carefully at such time.
Certain information contained herein constitutes “forward-looking statements,” which can be identified by future dates or the use of terms such as “may,” “will,” “should,” “could,” “would,” “potential,” “continue,” “expects,” “anticipates,” “projects,” “future,” “targets,” “intends,” “plans,” “believes,” (or the negatives thereof) or other variations thereon or comparable terminology. Forward-looking statements are subject to a number of risks and uncertainties, some of which are beyond the control of the issuer. Actual results, dates, performance, prospects or opportunities could differ materially from those expressed in or implied by the forward-looking statements. The forward-looking events discussed in this Presentation may not occur. NYC Condo Recovery Fund, LLC undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Nothing in this article should be construed as a recommendation to buy, sell, or hold any investment or security or to engage in any investment strategy or transaction.