Gaia Real Estate curtailed investment throughout the pandemic, preferring to watch New York City asset prices sink low enough to warrant a wager that they had hit bottom.
As of last week, Danny Fishman is done waiting.
The Gaia CEO picked up three neighboring multifamily buildings at 50-58 East 3rd Street in the East Village for $49.5 million. That’s 14 percent less than when the portfolio last changed hands in 2016 for $58 million.
The purchase is part of Gaia’s three-year strategy to snap up distressed residential buildings in a long-term bet on the city’s recovery. The East Village acquisition is the Manhattan-based firm’s inaugural purchase in the plan. Fishman said the properties’ discount was a big part of their draw.
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Within Gaia’s other investment markets, which span Atlanta, Houston and Florida, the prices of multifamily properties have popped, pushed up by spillover demand from a hot housing market that drove building values up and capitalization rates down.
“On the other end, in New York, we see distress,” said Fishman. “Maybe for the first time in years we see that returns on multifamily are higher than in the Sun Belt. It’s very attractive.”
The buildings at 50-58 East 3rd Street, which abut New York University’s eastern border, have historically housed college students and young professionals. Both demographics flocked back to New York over the spring and summer of 2021, pushing up rents.
The deep discounts also reflect risk, which Fishman sees as a product of recent policy changes.
This April the state raised taxes on the city’s higher earners, a drain on returns for an investor like Fishman.
A few of the buildings’ units are rent-stabilized, which precludes substantial rent hikes under the state’s 2019 rent law. The state’s eviction ban is likely to be extended, leaving landlords vulnerable to unpaid rents and reliant on a rent relief program that fumbled its rollout.
Fishman noted the possibility that the city’s next mayor could be more sympathetic to real estate than its current one, Bill de Blasio.
Gaia is focused on picking up more resi buildings, especially those with unfinished construction or vacancies — opportunities for the firm to buy low, improve and rent higher. The firm’s search will encompass the New York metro area.
“You don’t bet long-term against New York,” Fishman said.