The Real Deal New York

Investors choose to spread wealth

A growing number of wealthy NYC buyers are buying mulitple, smaller units, bucking the trend toward large trophy apartments

October 01, 2014
By E.B. Solomont

Investors with $10 million to $15 million to spend have no shortage of New York City real estate to choose from. As of the middle of last month, there were 218 apartments listed in Manhattan in that price range, according to the real estate website StreetEasy.

But a growing number of well-heeled buyers are spreading their wealth among several apartments, instead of buying a single trophy unit, according to brokers. Those brokers said that some investors are taking advantage of the city’s strong real estate market, while at the same time hedging against any future softening.

For example, Blu Realty Group’s CEO Alon Chadad said he recently represented a client with $40 million to spend. Within a week, the client — who was visiting from China — dropped more than $20 million on several properties, including a three-bedroom apartment in Midtown ($4 million), two retail condos ($5 million each) and a four-bedroom unit on the Upper West Side ($8 million) that the client plans to use personally.

“They’re coming in to spend that much money,” said Chadad, who has another client from Israel looking to spend $15 million on multiple one-bedroom units or retail condos.

Jacky Teplitzky, a top broker at Douglas Elliman, said owning a trophy apartment can be a good investment when the market is strong, but in recent months she’s advised her investor clients — those looking to rent out units — to mix up their holdings, because the inventory of large luxury units is poised to grow.

“I say to them, ‘Maybe you should divide the risk. Think about not putting all your eggs in one basket,’ ” she said. “You have more people that can afford $7,000 a month than $25,000 a month.”

Teplitzky recently represented a client from Brazil who paid $1.5 million for a one-bedroom on the Upper East Side and $2 million for a two-bedroom in Gramercy. “They definitely wanted to diversify their risk, so they went to different areas and different sizes,” she said.

According to Tracie Golding, an agent at Stribling & Associates, a growing number of investors want one- or two-bedroom units instead of apartments with three-plus bedrooms.

The reasons vary. For those who were burned during the recession, it’s to minimize risk in case they don’t immediately find a tenant.

“They feel if they buy a one-bedroom and a two-bedroom, and one takes longer to rent out, then they’re at least receiving rent on one property,” said Golding, who estimated that 50 percent of her clients are investors.

Other investors believe a diverse portfolio boosts their chances of securing a high return. “If some [apartments] don’t appreciate, others will have appreciated, versus putting all their money into one apartment and taking a chance,” Golding said.

Dylan Pichulik, chief executive of property management firm XL Real Property Management, said in the past few months his clients have also mixed things up in terms of the location of their investment properties.

“They’ll buy an apartment in a neighborhood like the West Village that won’t give them the highest return on an annual basis, but it’s a prime neighborhood,” he said. “Then they’ll go to a neighborhood like Bushwick and be a little bit more speculative.”

One of his clients, for example, recently bought five apartments, all priced between $1 million and $2 million, in the Financial District, West Chelsea, the Upper East Side and in Midtown. Now the client is looking in Brooklyn for further investments.

Chadad said the strong market has prompted some of his clients to buy several units on one floor of a building, with the intention of renting the apartments for several years and later combining them and selling if prices and demand for large units continue to rise.

Chadad said he recently brokered a sale at Extell’s Rushmore on the Upper West Side, where his clients spent $5.5 million on two units, combined them and then sold the larger 3,600-square-foot unit for more than $8 million.

Teplitzky said she guides investors to buy in buildings with low common charges or tax abatements in place. She also recommends buildings without tons of amenities. “You rent them for the same rental amount, but your expenses are less,” she said.