Investors Pay $77 Million for a Chance to Not Raise Apartment Rents
In a rare reversal of the usual strategy, investors have bought an aging New York City apartment tower with plans to convert all the apartments to affordable, rent-regulated units. It could be one model of how cities around the country can cope with a shortage of affordable housing.
The $77 million deal in the Bronx stands as an example of a way to address a blemish on the U.S. apartment sector’s years-long boom: the difficulty in adding affordable and workforce rentals. Part of the answer comes in the form of tax breaks for owners.
Across the United States, from San Francisco to Seattle to New York, the record stretch of U.S. economic growth has contributed to rents surging in cities. State legislatures in Oregon and New York have adopted forms of rent control, and California lawmakers are also debating such a move. Developers say the key is to create more rental housing to increase supply to cut prices. Others argue that more affordable housing is needed to help those on the lower end of the wage scale.
That's where Highbridge House at 1133 Ogden Ave. in the Concourse neighborhood of the Bronx comes in. It’s a 26-story, 400-unit tower built in 1947. Two affordable housing investment shops teamed up with the New York City Housing Preservation and Development office to pay $77 million, or $192,000 per unit. That’s more than three times what the property traded for 13 years ago, when Stellar Management acquired it for $19.5 million.
Highbridge House was developed as an affordable housing property, and was subject to the city’s rent controls for decades. But as is the case with most Big Apple affordable housing properties, the restrictions on Highbridge House rents eventually expired.
Stellar, of New York, bought Highbridge House in 2006, just as the restrictions were running out. It converted about a third of the units to market rate. It also began a massive property improvement program, upgrading unit interiors and common area, and replacing the roof and windows and giving the exterior a facelift.
Now, New York-based Camber Property Group, and San Francisco’s Belveron Real Estate Partners have agreed to buy the tower, convert the market-rate units back to affordable rent levels and comply with rent regulations for another 40 years.
The two shops have teamed up before. In January they closed on an 11-property Bronx portfolio with 343 units. That deal, too, includes re-converting market rate units to rent regulated ones. Both shops specialize in acquiring and developing affordable, mixed-income and workforce housing.
Details of the deal with the New York City Housing Preservation and Development office are unclear. But typically, the new owners are granted attractive tax breaks and assistance with financing in return for preserving affordable apartments. Those tax breaks usually make the difference between the owner of affordable properties losing money, or making it.
The deal also comes on the heels of new rent regulations passed in New York state that make it more difficult for landlords to jack up rents when a unit becomes vacant, and harder for owners to pass on the cost of repairs and improvements to the property to the tenants.