Investor eyes condo projects struggling to hit key sales threshold

Urban Standard Capital wants to buy 15% of units needed to make offering plans effective

Urban Standard Capital president Seth Weissman
Urban Standard Capital president Seth Weissman

One unintended consequence of New York’s 2019 rent law overhaul is that developers who want to switch new condo projects to rentals as a Plan B are required to sell the majority of those units to their tenants if the market improves in order to revert the project to condos.

Many developers say that makes those conversions virtually impossible, but one investor sees an emerging market in buying enough unsold units — at a nice discount — so developers can avoid falling under that new requirement.

“We’re telling a developer, what this does is it buys you time and it buys you optionality,” said Urban Standard Capital president Seth Weissman.

Weissman’s company has a new $100 million investment platform for bulk-buying residential condominiums at projects where developers are struggling to hit the threshold of units in contract — 15 percent — to have their offering plans deemed effective.

Once the plans are deemed effective, the developer and Weissman can rent the unsold units out and wait for the condo market to rebound before putting those units up for sale.

That had long been the playbook for developers when sales markets were bottoming out, but things changed when New York state made sweeping revisions to the rent law in 2019. One element of the overhaul required developers who are converting rental apartments into condos to sell 51 percent of those units to tenants.

Real estate experts believe the intent of the law was to discourage predatory landlords who would buy buildings and drive out rent-regulated tenants in order to convert apartments to more profitable condos. But they say lawmakers overlooked the impact on condo projects that had been approved prior to the law and now want to fall back as rentals.

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Once a condo developer starts renting out units instead of doing sales, Weissman said, it voids the project’s offering plan. If the developer decides that in two or three years they want to return to the sales plan, they have to file for a new offering plan, which will be subject to the 51 percent rules.

Urban Standard’s platform is designed to help developers avoid that situation by buying enough units to hit the 15 percent sales threshold necessary to get the original plan deemed effective.

Weissman said there are some 300 condo projects across the city that are still trying to get to the 15 percent threshold to get their plans deemed effective. The company is targeting projects where it can buy blocks of up to 50 units roughly in the $2 million to $3 million price range, and will look to buy at a discount of 25-30 percent from pre-Covid prices.

The platform is backed by family offices and foundations, Weissman said, groups that have a longer-term timeline than other types of investors seeking quick, high returns.

Although Weissman touts the platform is a win-win for his investors and condo developers, there is one ripple. Once Urban Standard owns a block of 15 percent of a condo project’s units, it essentially becomes a competitor to the developer — and one with a lower cost basis who can undercut the sponsor.

Weissman said part of his agreements with sponsors include a timeline for when he can release his units, and it’s a deal he feels many will be willing to make.

“Most developers we speak with aren’t in the business of trying to make a profit at this point,” he said. “They’re trying to recover as much capital as possible and move onto the next thing.”