Investment Sales: What are investors looking for in property? by Shallini Mehra

Shallini Mehra, Besen & Associates

In light of the current challenging climate for both rent stabilization and development, it’s no surprise that investors are showing a greater appetite for buildings with preferential rents, a good number of free market units and value-add opportunities. 

The delta between the preferential rent and legal rent represents the amount by which a landlord can legally raise the rent upon lease expiration. Based on market rents, the condition of the apartment, and vacancy trends, landlords will raise rents within this range while keeping in mind that a consistent paying tenant is worth keeping. If the tenant does not want to pay the increase, then upon vacancy, the landlord can renovate and seek a new higher legal rent which reflects the vacancy allowance increase and the allowable increase from any apartment renovations. 

Buildings filled with a majority of free market units have higher rents in place. Interested investors look for buildings, where the units have not been recently renovated or opportunities to reconfigure and add value (e.g. two bedroom to three bedroom; duplex into the basement).  

I recently started marketing a package of 29 free market occupied apartments located across seven co-ops and three condo townhomes in the Bronx. There is a tremendous opportunity for an investor to renovate the units upon vacancy and sell to an end user for 35-40% more than the original purchase price.

While long term projections are important, there are many changing factors  (interest rates, neighborhood appreciation, rent stabilized rates, etc.), and hence, it is important to evaluate the near-term growth potential and ensure that cash flow is achievable.

Shallini Mehra is an associate broker at Besen & Associates, Inc., New York, N.Y.