A boutique investment firm based out of New York City had an active summer.
In early July, Prospect Acquisitions bought 2 multifamily buildings in the West Village; a few months earlier, they purchased a mixed-use property in Chelsea.
Ilya Tolmasov and Danny Arnel, the founders of Prospect Acquisitions, have spent the last decade searching for just these kinds of off-the-radar opportunities.
Their business model is simple: they take run-down, neglected properties and redevelop them into luxury apartment buildings, repositioning old units into high-end residences to pave the way for rent increases. It’s a classic move out of the multi-family investor’s playbook, and it works.
In the past few years, their firm has assembled an impressive portfolio by focusing on value-add deals in prime New York City. Now, with mortgage rates at a 20-year high and an influx of distressed properties flooding the market, Prospect knows it’s the time to buy. The company is preparing a $100m fund to capitalize on the opportunity.
We sat down with the founders of Prospect Acquisitions to get the inside scoop on their origins, the Prospect model, and where they’re taking their firm in the future.
Cold Knocking
The pair met in 2014 when they were hired by Massey Knakal (Cushman & Wakefield) to work at the brokerage’s newly opened townhome division. They were assigned to Park Slope, Brooklyn, an upscale area where established brokerage houses had been entrenched for decades. Without any neighborhood presence, they needed a novel approach in order to compete.
While the competition was focused on traditional calls and mailers, the brash brokers took to the streets to get directly in front of owners. They went door to door of every townhome in Park Slope and offered owners free property evaluations. The goal was to have as many face-to-face meetings as possible. “While others were cold calling, we were cold knocking,” jokes Arnel, who recalls canvassing Brooklyn in the middle of winter.
The system worked. The duo ended up with more listings than anyone in the area.
After cutting their teeth in Park Slope, the pair was hungry to move on to bigger game. So Tolmasov got in touch with Rosewood Realty Group’s Aaron Jungreis, one of the city’s top brokers in the multi-family space, and convinced him to bring the team on board. “Rosewood is a place where big deals get done, and things move quickly,” says Tolmasov.
That’s where the two young brokers learned the beauty of “off-market” deals, what metrics to look for in valuing properties, and how to recognize a building’s potential. They were able to look at any multi-family deal in NYC and determine its value.
Most importantly, they learned what buyers look for.
Buy Buy Buy
It was time to strike on their own. “The end goal was always to own in New York,” says Arnel. “Once we understood the multifamily game, we felt ready to jump in.”
The pair founded Prospect Acquisitions to build their portfolio and started buying bank foreclosures, with a focus on three and four-family homes that needed major overhauls.
The buildings were unpredictable: most had been neglected for years and were in complete disrepair. On many occasions the homes didn’t have heat, running water or electricity–not to mention squatters. They learned that nothing is easy, but everything is doable. “When you overcome the worst, nothing scares you anymore,” says Arnel.
The work was intense, but investors were happy with the cash flow and were eager to keep the engine running. Prospect went on a buying spree, scooping up as many homes as they could get their hands on. If the deal made sense, they would quickly pull the trigger. They bought over 20 buildings in just two years. The team then shifted its focus to bigger multi-family deals, but they were hesitant to pay a premium for the larger buildings.
That all changed in 2019 when New York State enacted legislation that made it much tougher for multifamily owners to raise rents. The law greatly reduced the worth of these buildings, with property values dropping from 30% to 50% overnight. Soon after, COVID hit and this one-two punch left the city reeling. Vacancy was on the rise as swaths of people fled, moving to suburbs and out of state.
While the conventional wisdom told buyers to get out of NYC, Prospect saw these developments as a once-in-a-generation opportunity to buy properties well below their true value. Knowing they would never see these prices again, Prospect pounced.
Think Big
Their first major purchase was a mixed-use building (12 apartments and 4 stores) back in their familiar stomping grounds of Park Slope. Rents in the free market units were so low that it was impossible not to see the upside.
They capitalized on this success with more purchases throughout prime Manhattan, Brooklyn and Queens.
“We like to invest in no-brainers,” explains Tolmasov. “There’s no trophy for complicated deals.”
A recent example of a Prospect deal was the purchase of a mixed-use building in Chelsea. Long-term landlord Craig Charie decided to sell, but only under a few strict conditions: the buyer needed to close within a month and have no contingencies. Prospect was the perfect buyer.
“In all of my transactions, this has been one of the smoothest and most enjoyable. It was a pleasure to have a transaction with Danny and Ilya,” says Craig Charie, the seller of 251 W 18 St.
Build Up
Since founding Prospect Acquisitions, Tolmasov and Arnel have honed their buying strategy, focusing on off-market deals and relying on their knowledge of the market to find the diamond in the rough.
Of course, there’s more to the business than numbers. Success or failure in real estate transactions is often shaped by personal interactions. “It’s a people business,” says Tolmasov, “you have to love meeting people and building relationships over the long term.”
With these qualities in mind, Prospect has built a talented sales team whose sole mission is scouting out these deals to add to their growing portfolio.
“Our focus is on the essentials,” says Arnel. “The job is to hunt.”
They’ve come a long way from knocking on doors, but the dogged determination to find and close the right deals has only gotten stronger.
Prospect Acquisitions is launching a $100m fund focused on value-add properties in prime Manhattan and Brooklyn.
If you’re an accredited investor or would like to learn more, please contact info@prospectacq.com or visit www.prospectacq.com.