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REA
July 31, 2019  

Pension Offers Manhattan Apartment Tower

A pension fund is offering a renovated apartment tower in Midtown Manhattan— the largest multi-family listing in the city since tighter rent restrictions were imposed on regulated units.

The 392-unit building, at 10 East 29th Street, is valued at roughly $380 million, or $969,000/unit. At that price, the buyer’s initial annual yield would be about 4%. Eastdil Secured is representing the owner, Los Angeles County Employees, which is being advised by Invesco Real Estate of Dallas.

While the new rent regulations have depressed multi-family sales, Invesco could benefit because all but four of its apartments carry market rents and therefore aren’t subject to the restrictions. Given the dampened interest in regulated properties, some think market-rate buildings might now command a premium.

The pension fund’s 48-story property, which is 98% occupied, is on the south side of East 29th Street, between Fifth and Madison Avenues in the so-called NoMad neighborhood (North of Madison Square Park).

The building, called Instrata NoMad, was completed in 1999. Lacera purchased the property for $300 million, or $743,000/unit, at yearend 2012, when it was known as the Madison Belvedere and had 404 units. Studley brokered the sale for Rose Associates of New York.

The pension fund updated the apartments, building systems and common areas. Units range in size from studios to three bedrooms and feature hardwood floors, stone counters, stainless-steel appliances and washer/dryers. Amenities include a fitness center, a courtyard, bicycle and storage facilities, a children’s playroom, concierge service and a rooftop deck and lounge.

The property, among the tallest apartment towers south of 30th Street, has 360-degree views.

The law enacted by the State of New York last month makes it significantly harder for owners to raise rents and convert the roughly 1 million rent-stabilized or rent-controlled apartments to market rates.

Previously, landlords could raise rents by as much as 20% when tenants vacated and by 6% after renovations, and could remove units from restrictions entirely once rents reached $2,775. Now, rents cannot be hiked upon vacancies and can be raised by only 2% following renovations. What’s more, the $2,775 threshold for removal from the restrictions was eliminated.

Tenants’ groups have hailed the new rules, but owners contend that repairs and improvements will no longer be economical and that business plans based on gradually converting units to market rates are no longer feasible.

Blackstone, for example, recently halted renovation work at the massive Stuyvesant Town apartment complex, Crain’s New York Business reported. “In light of the recent legislation, we are in the process of evaluating capital investments at Stuy Town,” a Blackstone spokeswoman told the publication.

The anticipated enactment of the new law depressed sales in New York City. Some $2.7 billion of apartments traded in the first half, down 38% from $4.4 billion a year earlier, according to Real Estate Alert’s Deal Database.