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http://streeteasy.com/talk/discussion/33461-seeking-rent-stabilizedcontrolled-coopsconds
Talk » Sales » Discussing 'Seeking rent-stabilized/controlled coops/conds'

Seeking rent-stabilized/controlled coops/conds
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why would you want to buy a rent controlled apt? Can't the tenant stay there forever and pass it onto his family? Most of the ones on the market are losing money on a monthly basis.

Check 25 west 13th. I think there are two for sale.

Keith Burkhardt

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They're Citi Habitats listings.

ali r.

two studios, asking $250,000 each

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I think this package is still available:
http://streeteasy.com/nyc/sale/599541-coop-505-west-end-avenue-upper-west-side-new-york

The market has been quiet. (Some would say for good reason.) Even the self-described "King of Blocks" doesn't have much on his plate:
http://www.markzborovsky.com/MZCO/properties.htm

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Newport. On the UES always has a few.

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rb345: I agree about the pricing at 505 WEA. On the other hand, the asking price may have been intended as a starting point for discussions between professional investors, not as a line in the sand.

To me, the most daunting aspect of this kind of investment is the information deficit that is almost inherent on the buyer's side. The seller has typically worked for years to expel the tenants by any means available, and has often assembled a detailed profile of each tenant and his/her family. I can only think of a few narrow situations where a purchase might be advantageous:

1) The seller is distressed, or has other reasons to cash out at a fire-sale price;
2) The seller has not been aggressive in pursuing decontrol;
3) The buyer has access to material information that might facilitate eviction or decontrol;
4) The buyer has a special connection to the unit(s) - e.g. a desire to expand into adjacent space by buying out a rent-regulated neighbor.

In our building, the successor sponsor bought the remaining RS/RC units at a deep discount, probably at least 70% below value-if-vacant. Nearly three years later, the vast majority of those units are still rent-regulated. It might take many more years to determine whether the fire-sale price was low enough.

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rb345: Your "less-than-zero" point (#4) is especially interesting. It's probably safe to assume that the current net cash flow on all six units is negative. A prospective buyer would have access to the exact numbers, although he would still have to guess future changes in rent and expenses. If you assume that the bleeding is permanent, then clearly a unit's value is negative. The key questions in calculating an IRR for this investment are:
1) How long will the owner bleed before realizing the pot of gold? and
2) How much gold will be in the pot if/when the process ends?

Current value-if-vacant is fairly easy to estimate, and you can make a reasonable guess about how that value will change over time. The big unknown is the time factor. I think the reason these assets have traded so erratically - anywhere from 20% to 45% of ViV, when there's any market at all - is that valuation is driven mostly by the assumptions a buyer plugs into his model. The fundamentals are simple, but they are overwhelmed by guesses about tenant behavior/mortality, legislative action in Albany and other variables.

That said, you're right about 505 WEA. I can't imagine a reasonable set of assumptions that would justify the asking price, which appears to be at least 50% of ViV.

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i'm sure he could have sold the same rent controlled coop for at least the price he paid for it + maintenance, and probably even a small profit after all is said and done.
That being said... the key is to buy blocks...

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What keeps him from having some means-free third party take it off his hands? Law, pride, or hope that the 27yo will eventually leave?

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RB: fine, it is

RB: fine, it will bleed money indefinitely.

However, why not pay some means-free third party to take? E.g., find someone near bankruptcy. Pay them $20K to take ownership. They spend the $20K, they spend the rent, they don't pay the taxes, etc.

My question is what happens to a means-free owner? And what keeps the current owner from getting out from the $10K annual NCF through some such mechanism?

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Got it, thanks.

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