Robert Stolarik for The New York Times

The Silverstone Property Group is renovating two buildings it recently acquired at 162 and 164 East 82nd Street.
“When we bought it, the rent rolls were about $300,000, but after renovating the apartments and pushing up rents, it is now generating $1 million,” said Jordan D. Vogel, co-founder of the company with Aaron Feldman.

Benchmark is pursuing an increasingly popular strategy in New York City’s investment sales market: the acquisition of small walk-up buildings across Manhattan. While walk-ups have never been the most glamorous buildings in the city, demand for and sales of these buildings have reached new highs recently.

There were 71 sales of walk-up buildings in Manhattan in the second quarter of this year, compared with just 33 in the second quarter of 2009, according to data from the brokerage firm Eastern Consolidated. In the first half of this year, sales volume for these multifamily properties reached nearly $640 million, a 205 percent increase from the $210 million reached in the first half of 2009.

The popularity and rising prices of walk-ups are owed in no small part to Manhattan’s incredibly tight rental market. Rents have been surging for the last several years as New Yorkers remain skittish about buying homes and mortgages remain difficult to obtain. In June, for example, the average rent was $3,443 a month, according to Citi Habitats, the highest figure since the firm began tracking data in 2002.

With rents rising, the fact that many Manhattan walk-up buildings have tenants with rent-regulated apartments offers landlords the possibility of a very large increase in profits when these units are deregulated and shift to market rates. There is also upside potential to raise rents in the market rate units if landlords renovate a walk-up building, many of which have not been modernized in decades.

There are about 40,000 rent-controlled and one million rent-stabilized units in New York City, with complex rules regulating them. In the case of rent stabilization, the leases can be renewed and the rent increased at a rate determined annually by the city’s Rent Guidelines Board.

In some cases, rent-regulated apartments can be deregulated when a tenant dies, and landlords are not reluctant to gauge a building’s prospects by taking note of tenants’ ages, said Adelaide Polsinelli, a senior director at Eastern Consolidated. “A landlord will look at a building and if it has, say, 100 units and 30 of them are occupied by tenants who are in their 50s or 60s, they know the end could be in sight,” she said.

Lenders, who remain risk-averse in this economy, like buildings with rent-regulated units because “the rents are already the worst-case scenario,” Ms. Polsinelli said. She added that mortgage rates for these properties can be as low as 2.9 or 3 percent, compared with as much as 5 percent for offices and 8 percent for new development. She has brokered several of these deals in the last year, including last month, when she represented the seller of two five-story walk-up buildings at 521 and 523 East 12th Street for $10.9 million.

Many of Manhattan’s walk-up buildings are also ripe for renovation, work that could allow for substantial rent increases, even among market rate apartments. The Silverstone Property Group, for example, recently acquired two buildings at 162 and 164 East 82nd Street and is completely renovating the common areas and the market rate units to increase the rent rolls.

“We think that there are a lot of potential tenants who are coming out of high-end rental buildings with doormen and elevators that are looking for a similar feel but at a more affordable price,” said Martin Nussbaum, the company’s founder.

To capture this market, Silverstone is renovating the 82nd Street buildings with marble tile, crown moldings, sophisticated intercom systems and amenities like a basement laundry room and gym. It is also upgrading plumbing and electrical work, and providing market rate units with stainless steel appliances and recessed lighting.

“It is very capital-intensive for the first two years or so. Then, hopefully, we will see a significant increase in rent,” Mr. Nussbaum said, adding that he acquires only buildings that have a minimum of 50 percent free-market apartments and where the leases are to expire within a year of acquisition.

Another reason that investors like buying walk-up buildings is that they “operate more efficiently and at a lower expense level than an elevator building, while the market rents are not that much less,” said Peter Hauspurg, the chairman and chief executive of Eastern Consolidated. According to Citi Habitats, a one-bedroom in a walk-up building in Manhattan rented for an average of $2,602 in July, $366 less than a similar size unit in an elevator building.

Buying a walk-up can also be a better alternative than acquiring a small office building, Mr. Hauspurg said. In an office building, the landlord has to provide a new tenant with tenant improvement allowances, pay the brokerage fee, offer some free rent, “and then if the small business went out of business, you have to replace the tenant with all the same expenditures,” he said.

In a walk-up rental building, on the other hand, “there is no brokerage fee because the tenant pays it and no down time because any apartment will rent within 30 days if it is priced right.”

But acquiring walk-up rentals in Manhattan can be very difficult right now because of fierce competition among buyers. “I have toured 240 properties, made offers on 80 and bought only 16, so my batting average is terrible,” Mr. Vogel said. “Today there is a plethora of buyers, debt is at its all-time low in terms of rates and it is hard to find deals.”

Michael Forrest, the chief executive of Forrest Partners, started his company in 2007 but has not made an acquisition since 2009. “I was waiting to see if there was going to be any discounts or deals during the recession, but I never really saw pricing drop, so I sat on the sidelines,” he said. “I didn’t want to be the guy who bought a property and six months later the prices bottom out.”

Forrest Partners owns six buildings on the Lower East Side with a total of 100 apartments and nine stores, “and if I want to buy more, I realize I’m going to have to pay up,” he said.

While interest rates are low, banks are requiring investors to put significant equity into deals. At 156 Sullivan Street, for example, Benchmark invested $8.2 million to acquire the building and complete the renovations, but the bank financed only $2.9 million of that total, Mr. Vogel said.

“In 2007, you would have done that deal and put in just $500,000 of equity,” he said, adding that in the three years since the company was founded, Benchmark has invested $75 million in equity to acquire and renovate its portfolio of 16 properties.

Still, investors are crowding into this market. “It is an extension of the enormous capital that wants to be in Manhattan; I have never seen such a flood as in the last few years,” said Mr. Hauspurg of Eastern Consolidated. “Buying a walk-up building is a way for new investors to dip their toe in the pond without spending hundreds of millions of dollars and still get something with a lot of upside and not much downside.”

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