Colorado-based UDR expects to buy up to $1.8B in Manhattan rental properties

TRD New York /
Aug.August 01, 2011 06:02 PM
From left: UDR CEO Thomas Toomey, the Rivergate, 10 Hanover Square and 21 Chelsea (building credits: PropertyShark)

The large real estate investment trust UDR, that last month paid $443 million for
the Rivergate apartment building in Murray Hill, plans to make a total investment
of up to about $1.8 billion in Manhattan rental properties in coming years,
company officials said.

“If you were to say $1.5 billion to $1.8 billion in New York City is a reasonable
target over the next couple of years, that is probably the right kind of number,”
said Harry Alcock, senior vice president of asset management. That total includes $840.7 million in deals completed or in contract this year.

The company, based in Highlands Ranch, Colo., is winning deals even as it
is facing potential competition from more experienced, local players such as
Stonehenge Partners
, Macklowe Properties and others.

UDR reported earnings today, with funds from operations of $63.6 million in the
second quarter, up from $45.7 million in the second quarter a year ago.

The firm had an ownership interest in more than 60,000 apartment units in the
nation as of June 30, but before April never owned anything in New York City.
That month it bought the 493-unit 10 Hanover Square
in Lower Manhattan for $259.7 million. It closed on the purchase of the 709-unit Rivergate, at 606 First Avenue, between 34th and
35th streets on July 19, and it is in contract to purchase the 210-unit, 21 Chelsea
at 120 West 21st Street, for $138 million. That is expected to close in the third

The company’s strategy to date has been to buy from real estate families that
were not maximizing the potential income, company president and CEO Thomas
Toomey said during an earnings call this morning.

“The properties that we’ve acquired — the three properties happened to be from
three families and we believe, we’ve realized the capitalized and the operational
inefficiencies in those properties,” Toomey said, according to a transcript from
financial firm Morningstar.

UDR hired advisory firm Georgia Malone & Company to represent them in the
purchase of Rivergate after the commercial brokerage firm brought the off-market deal to UDR, but UDR bought 10 Hanover without a broker (note: clarification appended). Alcock would not
disclose whether a broker was used at 21 Chelsea.

They will be flexible as to their use of brokers, he said.

“I think it is possible we will have other brokers on other properties. It’s possible
we will do deals direct. It is possible we will buy deals that are marketed, on
behalf of the seller through, typically through the larger national brokerage firms,”
Alcock said.

The potential for upside was underscored at Rivergate, where the company
has signed 20 leases in 13 days, at an average increase of about $500 per unit
over in-place rents. (However, 46 of the 706 units are rent-stabilized, company
spokesperson Andrew Cantor said.) The company plans to spend $40 million to
$60 million to rehabilitate the building, and raise rents by an average of about 35

At 10 Hanover, newly-signed leases have effective rents about 14 percent higher
than rents before the company took over, officials said during the earnings call.

UDR officials expected a large turnover at Rivergate, in particular.

“When we do a more higher intense re-grade we expect almost to turn 100
percent of the residency over and so, I think the people at Rivergate are probably
over the next three years going to get enough rent increases that it will push a
substantial number of [them out],” Jerry Davis, senior vice president of property
operations, said during the earnings call.

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