The East Village is a playground for New York City’s urban trendsetters, drawing them to its trendy bars and restaurants in century-old walk-ups. But the neighborhood has also been a battleground for decades between tenants and their advocates allied against residential landlords seeking to profit from the ever-rising rents in the apartments above.
The most recent punching bag was Ben Shaoul, a developer and owner of Magnum Real Estate Group. Since buying hundreds of units over the past several years there, he along with his partners Westbook Partners and Meadow Partners, are credited by real estate brokers and investors with executing an expensive and aggressive rehabilitation plan, but at the same time infuriating renters and advocates who claimed they unfairly removed rent-stabilized tenants and created a difficult living environment.
Now there is a new, major player in the neighborhood: The institutional-level Kushner Companies, a major residential and commercial landlord which has purchased 408 apartment units in 25 buildings in the past seven months, and is in contract to buy another 49 apartments in six more walk-ups in the coming weeks. And Kushner plans to buy more, real estate sources said.
“[Kushner] love[s] the East Village because there are a ton of people looking to rent there and under 1 percent vacancy,” an industry source said. “[It is] now likely the largest landlord in the East Village with all [its] acquisitions, and will continue to buy more.”
The firm, headed by CEO Jared Kushner, declined to comment for the story.
The acquisitions have raised the eyebrows of tenants and advocates who see the move as another example of expanding gentrification, and wonder how the Uptown, white-shoe-style owner and its management firm Westminster Management will operate in the East Village.
“Tenant meetings are already in the works, [even as tenants] are trying not to make any hasty judgments. But they are poised to react if they see any signs of aggressive ownership,” Brandon Kielbasa, lead organizer for the tenant advocacy group Cooper Square Committee, said.
Kushner paid eye-popping premiums to the sellers over their own purchase prices — approximately $179 million for the total package, compared to the $122.6 million that Shaoul and his partners paid — and is loading more debt on the buildings. That’s usually a red flag for housing advocates —possibly indicating that a landlord plans to boot out rent-stabilized tenants — but that may not be the case here. That’s because some advocates look at these buildings as lost causes, now that the once majority rent-stabilized buildings are currently about 70 percent free market.
“With a succession of owners that often abused the tenants, [the buildings] are now [majority] market rate and of no great public interest, and that has really damaged the neighborhood,” Benjamin Dulchin, executive director of advocacy group Association for Neighborhood and Housing Development, said. He blamed a major change in rent-stabilization laws in 1996 that allowed for owners to deregulate apartments under certain conditions. “The neighborhood is losing income diversity that made it such a wonderful [area].”
In fact, the residential walk-up apartments, all marketed by Rosewood Realty Group as well as other firms, are throwing off an enormous amount of cash, according to brokers’ estimates. For example, the residential apartments in one of the buildings in the $130 million portfolio average more than $4,500 per unit, sources said.
Shaoul, president of Magnum, said neighborhoods are often resistant to change.
“By redeveloping a portfolio of under-managed assets on behalf of great institutional partners, we were able to stabilize the assets and attract a long-term buyer,” he said.
The first portfolio Kushner bought was a two-part deal in August and October, when it paid Benchmark Real Estate $58 million for an eight-building, 140-apartment package that included 10 stores in the East and West Villages, including 156 Sullivan Street. The portfolio has an estimated net operating income above $3 million, sources said.
The transaction underscores the increase in value in recent years. Benchmark bought the properties between October 2009 and October 2011, for a combined $33.25 million, and sold them for $58 million, city records show.
The next package was for 268 units and 24 stores sold by Magnum and Westbrook for approximately $130 million. The net operating income for that is about $7.5 million. With a projected debt level of $97 million, costing about $3.3 million per year in interest payments, Kushner and its partner could pocket nearly $4 million per year in profits on that group of 17 buildings alone.
The most recent purchase has not yet closed. Kushner is in contract to buy a 49-apartment unit portfolio that includes one store, and has a net operating income of $2.9 million. Assuming they put a 70 percent loan to value ratio, they would earn about $1.7 million per year.
That rosy financial picture for Kushner is largely due to the efforts of prior owners, including Magnum and others, who took apartments which were majority rent-stabilized and flipped them to majority free market.
Sources said they did not project large increases in rent to justify their purchase.
“[Kushner] did not underwrite aggressive rent growth but believe[s] there is a good chance [it] will see the market continue to grow,” an industry source said.