If you had $5m today to put to work in real estate

Are we talking $5M from a $10M portfolio or $5M from a $100M portfolio? I ask to get a sense for risk tolerance, capacity to carry a potentially empty property, etc.

A $5m inheritance. Obviously it can be parked in private credit and make close to 10%, but friend fancies themselves a real estate tycoon. High risk tolerance but doesn't want to use leverage and wants some current income to live from - so that rules out forest land not to be harvested soon. But maybe that's what you'd do and that's cool.

Btw, I suggested an income producing NY townhouse since friend is in Manhattan but what's available around $5m is not very appealing. Personally I'd buy the vacant lot at 14 Gay St and rebuild it.

George, Ha. I analyzed 14 Gay and next door 16 together. Floor levels are different. Rebuilding grounds up for such a small one is inviting for trouble with landmark approval and neighbors DOB calls.

It is a little bit of oxymoron financially:

High risk tolerance but doesn't want to use leverage and wants some current income to live from

Yes it is odd but he's not from here and doesn't trust lenders not to screw him.

14 Gay has been such a mess that it will probably be very challenging till 16 Gay also comes down. Apparently they saved a bunch of the material on LPC orders and expect it to be used on the new construction. Definitely a hornets nest but a well built new construction would be quite valuable.

George, What do you put the square footage of 14 gay counting the space 100 percent if it 40 percent above ground? Assume there will be no square footage addition allowed? What $ per sq ft for nicely finished?

Buy a stake in the Roosevelt Hotel.

The OM on 14 Gay says the lot is 22.17 x 45 with FAR of 2.43 which adds up to 2424 ft2 above grade. Prior building was 2737 based on the building dimensions times four (which is what the OM says) including an English basement, although the top floor was an attic with a dormer. Attic was a full story according to the CO but 1/2 story according to the tax man, who puts the square footage at 1544. So let's be conservative at 2424 and assume they won't allow a cellar to be dug.

13 Gay St sold earlier this year. Has a garden and a cellar but was "well worn". 19x35 x 4 floors = 2660 ft2, sold $6.5m or $2443/ft.

41 Barrow St - which I've previously on this board called a little gem - sold this year after a cosmetic renovation for $8.9m after selling for $5m in 2020. Same size house - 2525 square feet - but with only a tiny outdoor space and no cellar. $3524 psf.

So if something were to be done with 14 Gay, it would seem that $9m would be the goal on the sale price. Pay $2.5m for the land; leaves $6.5m or about $2600/ft for construction, carrying, and transaction costs. Doesn't seem entirely crazy.

Flipping 41 Barrow would have been better. If it were still on the market in its prior state at $5.1m, I'd be telling my friend to pick it up.

249 Waverly Pl also got flipped with a cosmetic reno - $3.9m in 2020 to $6.1m this year, and all they did was paint it all millennial white and install a Pottery Barn vanity.

How deep can you build? 22.17 x 45.

Thank you for the comps. I think around $2500 per sq ft or perhaps a little less is the floor for small town house which are renovated and have some flaws such as no backyard.

Prior building was 30' deep but also set back slightly, so probably 12' of garden in the back. Just enough that it's not a flaw. For a brand new but small TH, $3000/ft doesn't seem unrealistic.

Location is B+ in my view. Small quiet street with no traffic but very central. Has some ugly apartments, not the sort of magnificent townhouses in the A+ area like W11th, Bank, W4th, and Waverly for example. Gay St is popular among a certain demographic. I'd probably not adjust either up or down for location.

Question in my mind is what ground up construction runs vs gut renovation. I tend to think that framing and facade are not particularly big expenses relative to architecture, finishes, electrical, plumbing, etc.

George, Grounds up is far more interference from the neighbors and longer approval process from DOB. Grounds up everything needs to be to the new code and need new COfO. It is for professionals in NYC. Construction cost is mainly foundation and some portion of framing. $150-200 per square foot extra. Delays $300 per sq ft cost in brain damage, uncertainty and carry for 18 extra months vs full Reno of a 100 years old house.

Strip malls.
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>> Btw, I suggested an income producing NY townhouse since friend is in Manhattan but what's available around $5m is not very appealing. Personally I'd buy the vacant lot at 14 Gay St and rebuild it.

What’s the cap rate on such a townhouse once you include an allowance for maintenance, and why should one bother when you can lock 5% in risk-free, no SALT, and inflation-protected if you wish, for the duration of your choice? Or if you want a RE angle, 6.x% in agency MBS with a good degree of protection against default risk.

You could probably ask these same question about most RE. I’m sure there are pockets of value out there somewhere — I’m a spectator in RE — but why deploy risk capital into an illiquid market that seems to be facing a slow, years-long reckoning with the reality rates as money comes due?

As far as building vacant lots, that’s labor, not investment. A worthy endeavor more likely to have a positive outcome, but I’ve seen many a developer undercount the value of their time and skill level in pursuit of a “sure” investment. Investment is sitting on your ass, doing nothing, and collecting money. Besides, I’m guessing your friend does not have the requisite skill set anyways.

>> Yes it is odd but he's not from here and doesn't trust lenders not to screw him.

How would lenders screw him?

I'm guessing you've never dealt with a bad lender. Count your blessings.

Fancy new townhouses are good trophy assets that get you a residence in Manhattan without dealing with a condo or coop board. It's the one category of Manhattan real estate that is, if anything, disappearing rather than growing in inventory. There will be as many Robert AM Stern apartment blocks constructed as there is demand for them. I feel good about my track record of picking good townhouses, based on what they've sold for then and now. But money that's smarter than me isn't going after 14 Gay St which reminds me the old chestnut about being able to figure out the sucker before doing a deal.

George,

Just because the prior building was built that far back doesn't guarantee the current code will let you build that unless there is some type of grandfathering for these Landmarked areas. There is a price for 14 Gay but no where near what they want and paid. They bought when the building existed. By taking down the building, a lot of value is lost.

"Prior building was 30' deep but also set back slightly, so probably 12' of garden in the back."

Hmm... neighbors are complaining that bringing down the building was a deliberate ploy to make the property more valuable since it's often cheaper to build new than rehab. It would seem logical in a historic preservation context that the property should be rebuilt close to what was already there - esp since it was close to the zoning FAR.

LPC historically hasn't cared what you do as long as it's not visible by pedestrians. Hence why every renovated TH in the Village has a penthouse on the back half of the roof. I'm also not convinced that the LPC really has much teeth - if they did, the Grand Prospect Hall would still stand.

George, DOB has code required min backyard. So lot coverage has nothing to do with LPC. LPC has plenty of teeth in a land marked area. So you can’t assume what you would be allowed to build with expert zoning analysis. Is it possible that the current owner made a bad decision? Why wouldn’t they build themselves? And look at the list of uncleared violations. It is clear that neighbors are pissed and they will fk whoever tries to build by continuing to file “unsafe” complaints to 311. Send me a thank you note if you were actually planning to buy this.

George, DOB has code required min backyard. So lot coverage has nothing to do with LPC. LPC has plenty of teeth in a land marked area. So you can’t assume what you would be allowed to build WITHOUT expert zoning analysis. Is it possible that the current owner made a bad decision? Why wouldn’t they build themselves? And look at the list of uncleared violations. It is clear that neighbors are pissed and they will fk whoever tries to build by continuing to file “unsafe” complaints to 311. Send me a thank you note if you were actually planning to buy this.

>> Send me a thank you note if you were actually planning to buy this.

LOL.

Ha, I think George is still counting the MTM bundle he made on his "nowhere" purhcase funded with cheap money.

I was not planning to do so, but it was the best I could come up with when asked how I'd deploy that much cash. I know the listing agent; haven't discussed this one.

Still have the place in Nowhere. When I'm not there it's cash flowing nicely with the rock bottom mortgage. Sadly there's nothing else to buy there bc inventory is so tight.