Situated in the rapidly expanding Brooklyn neighborhoods of Prospect Heights, Crown Heights, Williamsburg and Bedford-Stuyvesant, the acquired properties include 115 rent-stabilized units, 79 free-market units and four commercial spaces. Rents in these properties average from $1,700 to $2,500. These amounts represent approximately half the cost of rental comps in the Brooklyn submarket.
At one time, Brooklyn was regarded as a genuinely cost-effective alternative to high-priced Manhattan. However, the Borough of Churches has carved out a more recent reputation as the second-most rent-burdened borough in New York City. Monthly rents in Brooklyn currently average from $3,000 to $5,500.
“This portfolio presented an attractive opportunity to double our footprint in one of the most dynamic markets in the nation,” Irvine, Calif.-based Avanath Capital Management president and chief investment officer John Williams told MHN.
“This is our third affordable housing acquisition in Brooklyn in partnership with Oak Tree Management. Based on the success of our previous investments in this region, we understood that this portfolio offers tremendous long-term value.”
Brooklyn is experiencing rapid revitalization and economic growth. This activity fuels rent growth, which in turn contributes to ongoing affordability hurdles across the metro, Williams added. “From an investment standpoint, as rents soar in the New York City metro area, there is a unique opportunity to cater to the demand for more affordable housing options by preserving the existing stock of affordable units,” he observed.
“Overall, this acquisition advances our mission of preserving and enhancing affordable housing in supply-constrained markets with strong growth fundamentals.”
Avanath usually targets mid-teen returns for its affordable housing investments. Limited supply and unmet demand for more affordable housing options in the market combine to deliver an opportunity to generate attractive yields by providing quality affordable units, Williams said. “Through property level improvements and hands-on management, we plan to maintain high occupancies and enhance asset quality without sacrificing affordability, resulting in stable cash flow and strong risk-adjusted returns to our investors,” he continued. “Providing quality housing at a discount to new construction, we are also delivering enormous value to the Brooklyn community.”
Significant competition existed for the Marcus & Millichap-marketed portfolio. However, the size of the transaction eliminated many smaller buyers from serious consideration.
“Given prior purchases in Brooklyn, Avanath is a well-known entity in this space with a solid track record, ready access to capital and an ability to close,” Williams said. “All [were] factors which enabled us to emerge as the right buyer in this transaction.”