Every Market Challenge in a Single Deal......

Last week we sold?103?Kingston?Avenue in Crown Heights for $1,000,000. It was a?bank?owned?7,500 SF corner mixed-use building, fully rent-stabilized. While the price point is not particularly note worthy, the?challenges we faced and the lessons learned are important for anyone looking to buy, sell, or broker a building in NYC.

Here are the issues faced and the effect they had on value.

Bank?Owned?- Everyone loves bidding on?bank?owned?properties because?banks are unemotional and motivated. However, with that comes a short ownership timeline, meaning historical paperwork (DHCR / Expenses / Collections, etc.) are not easily accessible.?Banks have what they were given as far as due diligence, and the market needs to work with limited information.

Violations?- Buildings coming out of foreclosure tend to have been neglected during the transition. Our building had 300+ violations. This naturally translates to cap ex without the ability to increase rents. Some investors suggested a $15,000, $5,000 and $1,000 price credit for every C, B, and A class violation respectively. You should weigh your violations before going to market.

AEP and CONH?- These two programs will eliminate 90% of your buying pool because only those with thick skin and experience know how to navigate the process and effectively price the risk into a deal. More and more buyers will start to get comfortable with the process, but these programs are a clear example of how over regulation is making it impossible for boutique owners to do business in NYC.

Collections and ERAP?- Establishing your legal rent and collecting your legal rent are two different things. Buyers and?banks are increasingly sensitive to collection reports and proof of deposits. Because our building was a foreclosure and tenants had outstanding ERAP applications, residential collections were below 50%. Buyers will make a calculation as to how long it will take them to stabilize the cash flow and budget in lost rent.

Environmental?- Our retail was previously a dry cleaner, which required some environmental homework. This can scare off certain groups and may be worth tackling ahead of going to market. While the soil in Brooklyn almost always has some elements of metal contaminants, the remediation suggestions by the state or rarely that costly. Most the time it involves air quality control and ventilation which should not kill a deal.

Lease Extensions?- Always have a simple lease abstract done for a mixed-use building. Extension language is really important to buyers and just because your retail lease expires in 3 years, doesn't mean the tenant doesn't have a right to extend. Know the Extension Option language and make it clear to buyers so they don't re-trade down the line.

Vacant Rent Stabilization?- It used to be more valuable to have a vacant RS unit because it represented an opportunity to grow rents. Now it means a discount to account for lease out costs, which many times includes renovation to make habitable, or a down rent to account for warehousing the unit. Our building had a 1,200 SF vacant unit at a legal rent of $1,350. The buyer can either budget $25,000 to clean up the unit, or warehouse at a reduced gross rent.?

While every listing has its?challenges,?103?Kingston?will be memorable. I give a lot of credit to our team for remaining persistent. A seller fails in this market when they run out of options, which is why it is so important for us to have multiple offers from motivated buyers. I don't blame buyers for having a hard time getting to a closing table these days, but as a seller rep broker, we need certainty of closing which means always having a back up plan.

Give us a call if you have any questions about?103?Kingston?or if you own similar buildings with similar issues.

All the best,

DJ and Team

[email protected]

Call or Text - 914-584-7422