More and more REITs investing in Big Apple

By Michael Stoler | March 23, 2011 02:32PM

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Investors from around the world want to own commercial real estate
assets in New York City. Equally important for ownership is the publicly
traded and non-traded real estate investment trusts seeking
opportunities in the Big Apple.

REITs like SL Green Realty, Vornado Realty Trust, Boston Properties and
Brookfield Properties have significant ownership in the city’s best
office buildings.

With regard to the prize asset class in New York City, the residential
rental market, REITs who have dominated ownership in this market,
especially in Manhattan, have included Equity Residential; Apartment
Investment and Management Company, or AIMCO; AvalonBay Communities and
Archstone-Smith (no longer a publicly traded REIT, although it could
potentially go public again).

The newest entrant into the Manhattan marketplace is Colorado-based multi-family landlord UDR. The S&P 400 company, a leading multi-family REIT, owned or had an ownership position in 59,614 apartments in the country, including 1,170 homes under development, as of Dec. 31, 2010, according to the company website.

On March 1, UDR announced that it had entered into a definitive agreement to with the Witkoff Group to acquire 10 Hanover Square, a 493-unit rental apartment building in the Financial District, for $260.8 million, from the Witkoff Group. The 23-story building, located between Water and Pearl streets, was the corporate headquarters of Goldman Sachs and Kidder Peabody, before being converted to a residential tower in 2005. The building also contains 41,650 square feet of retail space. The company estimates the purchase price, excluding retail, at $484,000 per apartment.

“The expansion of our portfolio into Manhattan reflects our desire
to own and operate apartment homes in markets that have the best
growth prospects based on favorable job formation and low home
affordability,” said Tom Toomey, president and CEO of UDR. “With total
revenue per home of $3,000 per month and only six years following the
completion of a major redevelopment, the acquisition of 10 Hanover
Square will further enhance the overall quality of our portfolio.”

In 2010, one of the most active investors of residential apartments in New York City was Equity Residential. The S&P 500 company, which entered the Manhattan market in 2004 with the acquisition a rental building on Ninth Avenue and West 37th Street, owns or has investments in 452 properties with a total of 129,829 apartments.

In the first quarter of 2010, Equity acquired three residential buildings from Macklowe Properties, including the Longacre House on West 50th Street and Eighth Avenue, 777 Sixth Avenue in Chelsea And Rivertower On East 54th Street near Sutton Place, paying a total of $475 million.

At the end of third-quarter 2010, the company owned 5,887 apartments in Manhattan with an average monthly rent of $2,623. The company is in the process of developing its $53 million development at the southwest corner of 10th Avenue and 23rd Street near the High Line. There will be 111 market-rate apartments and 10,000 square feet of retail space.

Last year, Equity in joint venture with the Clarrett Group opened the Brooklyner, the 51-story, 490 unit residential rental tower, the tallest building in Brooklyn, at 111 Lawrence Street in Downtown Brooklyn.

Another active residential REIT is AIMCO, the owner and manager of 768 apartment properties containing 123,000 apartments in 43 states, the District of Columbia and Puerto Rico. As of Dec. 31, 2010, the company owned a total of 2,441 residential rental units in Manhattan.

New York City may see the entry of a new residential REIT this year. Archstone, previously known as Archstone Smith, may be resold to the public, in what the Wall Street Journal said “could be the largest real estate initial public offering ever.”

The Wall Street Journal reported that Archstone, owned by Lehman Brothers Holdings Inc., Bank of America Corp. and Barclays PLC., could raise $4 billion to $5 billion by selling its shares. That would put the value of the company, which owns about 200 apartment developments in the U.S and 230 in Europe, at about $18 billion, including debt.

Today, Archstone owns and manages 10 residential rental buildings in Manhattan and one tower on Montague Street in Brooklyn Heights.

With the rental market getting stronger expect other residential REITS to set their sights, and dollars, on the Big Apple.

Michael Stoler is a columnist for The Real Deal and host of real estate programs “The Stoler Report” and “Building New York” on CUNY TV and on WEGTV in East Hampton. His radio show, “The Michael Stoler Real Estate Report,” airs on 1010 WINS on Saturdays and Sundays. Stoler is a director at Madison Realty Capital as well as an adjunct professor at NYU Real Estate Institute, and a former contributing editor and columnist for the New York Sun.