Investors in a Brookfield Opportunity Zone fund that invests in New York and Connecticut real estate have been absolutely crushed, but don’t know why.
The fund, Brookfield Opportunity 71IV7, had an internal rate of return of negative 18.3 percent through the third quarter of last year. Since mid 2019 it had lost 71 percent of its value.
One investor in the fund told me the massive loss “makes no reasonable sense.”
Indeed, except for rent-stabilized housing, New York City real estate has bounced back since the pandemic. Even Class B and Class C office space written off for dead has recovered some value, thanks to return-to-office and office-to-resi conversions.
But the rise in interest rates alone wiped out billions of dollars in equity, and some individual properties have fared badly. And this Brookfield fund was apparently quite concentrated. It is said to have sunk $1 billion into just a few assets, notably a new apartment building in the Bronx and a mall in Connecticut.
The investor thought the Bronx property was a four-tower development at 2401 Third Avenue, but that doesn’t really track because that project appears to be doing well enough. It was able to refinance its construction loan in 2024, as The Real Deal reported:
“Ares Management refinanced construction debt secured by 460 new apartments at 2401 Third Avenue in the Bronx, and 410 new units at 1 Bell Slip in Brooklyn, both owned by Brookfield Properties. Brookfield has invested heavily in master-planned developments in New York, building 1,350 multifamily units at its Bankside campus in Mott Haven, and 1,200 new units at Greenpoint Landing.”
The report added, “Rents have held strong in New York. In Mott Haven, at 2401 Third Avenue, units list for $2,900 to $3,900 per month.” The housing lottery for affordable units at the 921-unit development’s four towers, dubbed Lincoln at Bankside (aka 101 Lincoln Avenue), launched in 2023.
Only five of the 145 units set aside for 130 percent AMI households are available, according to this listing page. However, Brookfield is offering four months of free base rent on a two-year lease and shows 95 available units.
That would put the vacancy rate at just above 10 percent, assuming the 921-unit project is complete. That’s not bad for a market-rate project in Mott Haven. It certainly wouldn’t explain the investment fund’s 71 percent drop.
However, there might be more vacant units than the 95 listed as available by Brookfield. And interest rates are much higher now than they were seven years ago, which has broadly devalued real estate. Operating expenses have probably risen more than market-rate rents in Mott Haven, and rents on the affordable units have risen below the rate of inflation.
Also, it’s quite conceivable that the fund’s Connecticut mall has tanked since 2019.
Could all of that add up to a 71 percent loss? Brookfield isn’t saying. Its press team has not responded to three messages sent over the past four weeks.
What we’re thinking about: Every new year is predicted (or at least hoped) to be the year that C-PACE lending gets going in New York. But it never happens. Meanwhile, developers in Texas, Florida, San Francisco and elsewhere are getting C-PACE loans like candy from a busted piñata. Why can’t New York lawmakers and bureaucrats make this possible in the alleged finance capital of the world? Send your thoughts to eengquist@therealdeal.com.
A thing we’ve learned: Next year, Con Ed will break out the portion of customers’ gas and electricity bills that goes toward property taxes.
Elsewhere…
While the Mamdani administration slams rent-stabilized landlords and praises resident-run housing, three developments in the latter category didn’t exactly shine in an audit by the state comptroller.
The auditors at Thomas DiNapoli’s office looked at the Mitchell-Lama projects Clinton Towers, Evergreen Gardens and Tivoli Towers and found problems with all of them.
Hazardous physical conditions cited included facade damage, broken self-closing and fire doors and units with mold, water damage and peeling paint. One commercial tenant — a day care center — had mouse droppings.
On the financial side, the affordable co-ops spent $114,000 on bonuses, holiday parties and gratuities over six years. Another $50,000 went to unknown expenditures.
All three developments spent $100,000 on vendors without notifying the Department of Housing Preservation and Development as required. “Evergreen contracted with five vendors with payments over $100,000 without receiving HPD approval and no evidence of competitive bidding,” the audit noted.
Clinton and Tivoli towers left some units vacant for four months or more, leaving $328,000 in rent uncollected.
These are not huge problems, but they shed light on the kind of oversight required for Mitchell-Lamas.
The main issue with this housing model seems to be that it is not sustainable without government support that other building types — rent-stabilized, for example — do not have. As Mitchell-Lama buildings wear down and require more capital investment, and tax breaks expire, their residents run to the government for money.
Last month, the Hochul administration said it would give Bay Ridge Towers $49 million, or $60,400 per unit. Jimerson Apartments in Brownsville got $39 million, or $92,600 per unit.
Closing time
Residential: The top residential deal recorded Thursday was $18.5 million for Unit 16B at the Aman, 730 Fifth Avenue. The Midtown unit is 3,600 square feet. This marks the second day in a row a sponsor sale in the Aman was the city’s top sale.
Commercial: The top commercial deal recorded was $23.6 million for 1057-59 Lexington Avenue. The Lenox Hill rentals total 20 units and over 20,000 square feet.
New to the Market: The highest price for a residential property hitting the market was $19.5 million for 123 East 61st Street. The Lenox Hill townhome is 9,200 square feet. Compass’ Ian Slater, Carlin Smith, Jennifer Regen and Michael Koeneke have the listing.
— Joseph Jungermann