PH Realty-led Partnership Sees Rent-Stabilized Housing as a Future Value-Add Asset
Although many investors have moved to the sidelines when it comes to rent-stabilized housing, a partnership led by PH Realty remains optimistic, having recently closed on a $180 million acquisition of 715 units of which the majority are rent-stabilized. The transaction completes the partnership’s total purchase of 1,300 units spread across a 24-building portfolio, having closed in June 2024 for $103.55 million on the first-half of the residential package, with per unit prices ranging from $93,220 at the low to $265,625 at the high according to online real estate platform CoStar. The sale by Sentinel Real Estate fetched a price that was at an approximately 60% discount from what the firm had paid between 2015 and 2019; and marks Sentinel’s exit from the rent-stabilized market. Two bridge loans totaling $120 million at an interest rate of about 7% were secured to finance the transaction, which according to a spokesperson for lender Bridge Invest, where “underwritten for expenses to rise 1.5 times faster than the rents.” When renovations are completed and interest rates are “ideally” lower, the partnership which also includes Alma Realty, Rockledge CRE, and an unnamed pension fund, plan to seek a refinancing with agency debt.
The portfolio is concentrated in the neighborhoods of Ditmas Park and Brighton Beach in Brooklyn, as well as Manhattan’s Washington Heights neighborhood. Currently about 90% occupied with 85% of the units rent-stabilized, new ownership plans to renovate units to boost occupancy and produce modest returns. Despite the purchase discount and the ability to “notch an increase” in rents if money is invested in the buildings and apartments, it has been pointed out that ever-rising expenses such as real estate taxes and insurance creates a return on investment the typically doesn’t pencil out since the allowed increases in rent for the stabilized units is determined by New York City’s Rent Guidelines Board (RGB) and “reliably lag inflation.” However, PH Realty head Peter Hungerford is hoping that “moves on the city level will ultimately ease the pressures of rising expenses,” and that the federal government will eventually step in if insurance premiums that are rising at the fastest rate “get so out of whack.”