Here’s the math behind Clipper Equity’s deregulation strategy

Company discussed plans in recent investor presentation

TRD New York /
Nov.November 02, 2018 04:05 PM

From left: 10 West 65th Street, David Bistricer, 107 Columbia Heights in Brooklyn, and 1955 First Avenue (Credit: CityRealty and Google Maps)

Brooklyn-based real estate investment trust Clipper Equity believes there’s high growth ahead at its portfolio of rental properties in Manhattan and Brooklyn.

The David Bistricer-led company, which went public on the New York Stock Exchange last year, detailed its latest round of plans to deregulate units and capitalize on gentrification trends at several of its residential projects, according to an investor presentation filed Friday.

The presentation listed multiple properties where they plan to deregulate units and boost rents , including 10 West 65th Street, which Clipper bought in October 2017 for $79 million. The company is in the middle of renovations to bring 11 market-rate apartments online, and it will also get back 40 dorm units currently leased to Touro College at the end of January. The project includes 53,000 square feet of air rights, and Clipper hopes to make 80 percent of apartments in the 82-unit building market-rate and 20 percent rent-stabilized.

In the investor presentation, Clipper Equity noted it had completed major capital projects at the largely rent-stabilized Flatbush Gardens in Brooklyn as well, and the company is “continuing to move rents closer to market rate” values of $30 or more per square foot.

The 59-building complex contains 2,496 rent-stabilized apartments across 21 acres in Flatbush, and Clipper purchased it in 2005 for $138.2 million. Rents have gone up by 76 percent since then, from $13.25 per square foot to $23.38 per square foot as of the end of September. The complex represents 38 percent of Clipper’s portfolio.

At Aspen Apartments at 1955 First Avenue on the Upper East Side, Clipper said there is an opportunity to increase rents by improving the building’s property finishes. The 232-unit building is 97 percent occupied at an average of about $36 per square foot and split between 55 percent of units going for market-rate values ($44 per square foot) and 45 percent subject to low- and middle-income restrictions.

And at Tribeca House on 50 Murray Street, the firm has finished its major capital projects and sees “significant remaining upside from moving rents to market.” The current residential rents are at about 14 percent below market rate—$69 per square foot as opposed to $80 per square foot—while the retail portion of the building is even more discounted at $51 per square foot compared to $250 per square foot. Currently, just 21 percent of the building’s apartments are going for at or above market-rate rents, and Clipper maintains that Tribeca’s retail streetscape “has dramatically improved” despite the sector’s well-publicized struggles. Clipper Equity won an appeal against tenants at the building earlier this year who argued that the landlord illegally deregulated their units.

The firm is also almost done repositioning 107 Columbia Heights in Brooklyn, which they purchased vacant in May 2017 for $87.5 million. The company expects to start leasing the 159 units in the first quarter. Market rents in the area go for between $65 to $75 per square foot, according to the presentation.

Overall, Clipper’s multifamily properties are 97 percent leased, while its office and retail properties are both 100 percent leased, according to the presentation. The company pegged its enterprise value at $1.474 billion, and disclosed to investors that its total debt was $883.7 million.

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