Kushner unloads more East Village multifamily

Kushner Companies is clearing out of the East Village.

The firm sold five apartment buildings to Penn South Capital for $41 million, sources told The Real Deal. The properties include two buildings at 170-174 East Second Street, plus 325 East 10th Street, 23 Avenue A and 49 ½ First Avenue.

Neither Kushner nor Penn South responded to requests for comment. A Marcus & Millichap team led by Joe Koicim brokered the deal.

The multifamily sale is Kushner’s third in the neighborhood in as many months. The firm unloaded six East Village properties to David Gleitman’s Targo Capital Partners for about $58 million in late December. In November, Kushner sold 504-508 East 12th Street to Sabet Group for nearly $20 million.

Penn South, headed by Parag Sawhney, paid a pretty penny for the five-building, 79-unit portfolio: $969 per square foot. Manhattan multifamily buildings fetched $794 per square foot on average last year, according to a report by Ariel Property Advisors.

The portfolio’s low-rate, assumable financing likely sweetened the deal. The buildings back a $36 million CMBS loan Kushner took out in 2013. The debt matures in five years and has a fixed rate of 3.8 percent.

A low, locked-in rate is like gold given the huge rise in rates since March 2022 and the Federal Reserve’s vague guidance on when it will make money cheaper again. Fed Chair Jay Powell on Wednesday said a March cut was “probably not the most likely case,” the Wall Street Journal reported.

Kushner’s East Village exit was over a year in the making. The firm started shopping 18 buildings concentrated in the Manhattan neighborhood in late 2022. Since 2018, it has turned its focus to building a suburban apartment portfolio that spans Maryland, Virginia, and the firm’s home state of New Jersey.

Low occupancy, though, likely played a hand in Kushner’s most recent sale.

According to servicer commentary on the portfolio’s CMBS loan, the buildings weathered a surge in vacancies during the pandemic. Occupancy rebounded when renters flocked back to the city, scooping up so-called Covid deals.

But the surge in rents through 2022 drove another round of turnover. Nearly 70 percent of tenants moved out that year, according to DBRS Morningstar. As of September, occupancy was 70 percent.

Penn South is a value-add investor, its website explains, and vacancies offer an opportunity to renovate and raise rents. The just-sold properties were last renovated in 2013, according to Morningstar.

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