rent 4 apartment

♪ [theme music] ♪ stoler: finding an affordableapartment in new york city is like finding a needlein a haystack, the rental market in new york city is on fire.the investment sales market is on fire. thefinancing market is on fire. thank god i'm not here witha fire extinguisher but the market is doing well. sotoday i've assembled this group of people to discuss theresidential rental market in new york city. my gueststoday include aaron jungries

who probably is the leadingguy in multifamily investment sales who is thepresident of rosewood realty. laurent morali who is themanaging director for acquisitions and capital marketsat the kushner company, is one of the most activeplayers. danny benedict who is the president of the benedictrealty. and then last but not least chad tredway whois the head of northeast for chase commercial termlending and probably one of the most active lenderstoday. so in your career

have you seen this marketas explosive as it is today? jungries: never, i've neverseen anything like it. i get deals where literally iget a deal in the beginning of the week and by the end ofthe week a deal will be signed. stoler: i mean i read astatistic yesterday that the study, for the month ofoctober, this october compared to last october sales formultifamily were a 151% higher and i still remember a yearago when i felt that sales were this way. now you're a veryactive buyer. how do you

see the market, how couldyou buy into this market today? morali: i think we focus on youknow off market opportunities, we tend to look for theareas, the neighborhoods of growth in new york city. severalneighborhoods in manhattan and brooklyn, astoria, queensand by working closely with them you know they'll callthe brokers and friends like aaron you know that's how wemake it we make it work in our ability to work quickly. stoler: here, here's thequestion. there are a lot of

bankers and there are a lot ofplayers in town but there are a couple banks who havecome to as they would say, have come to the top of themarket. chase has done and i think a great deal due tochad is they've really made a bigger mark over the lastyear. you as a borrower how do you see the banks today withregard to their financing. morali: i see new players in themarket, every quarter there's one or two new player, namesyou've heard before but they start being aggressivein multi-family. but what i see

is that as aggressive as theyare they are always very cautious and they stay focusedon certain underwriting criteria. you know theyare always going to look for the top sponsorship, the rightamount of equity in every deal. so you don't see the excessthat in my experience you saw in pre-2008. stoler: right becauseyou've come from a banking background youremember those days over there. how do you see it isa borrower today?

benedict: i rememberthe days when we walked out of a closing with cash in ourpocket because the banks would lend us a 110% of the closingcost and that's absolutely gone. these days are gone banksare much smarter in their underwriting and everydeal gets done now with a substantial amount of equity,i think that you're right chad has changed the mentalityor the entire outlook at chase because they are understandingthe market better and their adapting to the market, thatdoesn't mean that you're

over lending or that you'reputting your bank at risk it just means you're smarter andyou understand what the needs of the market are, we have a lotof lenders which are active and i think thatyou're right there are no, we don't see the gross mistakesand excesses that we saw in 2004, '05, '06 when theyjust wanted to grow their balance sheet and banks wherewere really chasing deals at numbers which make no sense. stoler: you've been in thismarket yourself, the bank

has been here originallythrough wamu, i mean everybody knows chase but how do you,how has the market changed and the underwritingand the borrower relationship changed over the last year? tredway: yeah you know chasehas been in new york city for over a decade, whichi think sometimes people are surprised to hear but whatwe've really done this year is focused on the borrower.right, so we want to talk to our customers, we want toknow what their plan is for

how they're going to build andmaintain wealth over time. i think the other thing is realestate is a really localized business, so we're out kickingthe tires, were with our borrowers at their properties.we want to understand how they see value and soi think we've really adapted to focusing on their needs andalso on the local market here in new york city. buti would say with all the lending that's going, on banks of havemaintained their underwriting standards so we're not seeingbanks really look at projects,

projections of all they'reunderwriting and we're seeing then stick tofundamentals that we think are favorable as wecontinue to grow through 2015. stoler: these propertieshave been transitioned over the last couple years. one personbought the property three years, they thought itwas going to be value added, now laurent is buying theproperty, it's already three years the last buyerhad changed it. how do you see, how do you how do you tellpeople is it a value added deal

the or is it that the rentsare going up on the market and you know whatgoes up just can't drop down. jungries: i think there reallyis a value added component they bought a deal from me inqueens, in astoria. and a few people had looked atit and they felt that they could switch the onebedrooms to two, and the two bedrooms to threebedrooms and they're going to do it, right, i mean that'stheir plan. and because a story is sort of like the eastvillage in manhattan,

it's funky and cool they'regoing to get these young people, it's right near thetrain who are going to move there and their rents aregoing to grow in line with the purchase price. stoler: why wouldn't you look atthat deal as a value added in astoria, you haveplenty of properties in queens, in the bronx. benedict: he didn't show itto me. he went straight to kushner with it. but i think thevalue-add is a very elastic

concept and it's becomeway too generalized today, when you think that newproperty which was built or which was leased up twoor three years ago is being marketed now as avalue-add deal, it's inconceivable and it makesabsolutely no sense. value-add is a deal whichhas excess square footage or air rights or you canconvert it to a conversion co-op to condo. stoler: well what basicallyaaron said if you can take

a one bedroom and make it a twobedroom, that i can understand it's a true value add but ican't understand that if the apartment's have alreadybeen configured. the only value-add is thequestion that the rents could increase over there. benedict: well the market, rentshave been increasing although i think that that, that conceptof the value-add having increases in rent iskind of, is very dangerous. we've seen increases in rentof 70% over the last five years,

70% and i'm not making- moststatistics showing but 70% since 2008. andpaychecks have not gone up 70%. they have not, they havenot gone, i don't know 15-20%. so there is a limit to how muchrents can continue to climb. and the value-add componentwhich is just a function of the rentals continuing to climblike it did the last few years is a very, very difficultand dangerous concept. stoler: but the populationthere is increasing, so even though these peoplesalary can't go there are,

there's being a transitionof new tenants moving in there, someone else is comingthere all these students are coming, all these other peopleand they need apartments. you know at one time peoplewanted to be you know anything that's in the transit orienteddevelopment i believe is selling well, right aaron? jungries: yeah. stoler: because you know theaccess to the train. the bigger question is ifwe're talking about like

brighton beach or coneyisland which is a distance from the city how are theydoing today? jungries: they're still rentingat higher rents than they thought they would get, thereare some young people and you also have a lot of the russianimmigrants some of their kids who are professionals are movingin, back into the neighborhood. the ones who are wildlysuccessful buy a house in manhattan beach or go to statenisland or go to long island. but the ones who areprofessionals and doing well,

making low six figures they areactually renting apartments in brighton beach, stillmainly an older population. so it's doing well. benedict: i think it's morefor a trickle down factor, as rents climb everywhere elsethan it has to climb everywhere else because you've got nowhereto go, but the percentage of increases in a place like thathas been a lot smaller than in many of the otherneighborhoods. stoler: now, how do you, chadlook at the five boroughs,

i mean everybody you knoweverybody loves manhattan, brooklyn has become thesecond love. and queens is probably the third love.correct. how do you look at the bronx and staten island? tredway: well you know so itell you first of all to danny's point which is right, is youknow high tide rises kind of all boats, i think rentsacross the board have been going up. manhattantends to be where we've done the majority of our deals thisyear, a lot of our borrowers

own properties in manhattan,we've seen brooklyn just become white hot. right. andso we've seen rents there rival what we see or even sometimessurpass what we see on the upper east side, which hasbeen interesting. but yeah in the bronx we've seen rentsincrease but definitely not the same levels that we've seenin brooklyn or in manhattan. i think some of that, someof the demographics there, the interesting thing therethough is our vacancy rate there is the lowest.

stoler: in the bronx? tredway: in the bronx. aswe look at our portfolio, while the appreciationthere hasn't been what it's been in manhattan and brooklyn. stoler: have the two of youbought properties in the bronx? morali: not recently. stoler: and why not? morali: because i thinkthat we find pockets of growth opportunities in manhattanand in brooklyn and i mean

for us we find there is noreason to go to the bronx if we can find those greatdeals here in manhattan or brooklyn or i wouldadd by the way jersey city, which i know is not oneof the five boroughs officially but one would argue that. stoler: i think you bringup an interesting thing, a number of years ago i wasspeaking at baruch and josh muss and i were on asimilar panel and i said jersey city the sixthborough and josh said it's

not the six borough, butin reality jersey city has become the sixth bar orreally the fifth borough because staten island,jersey city has the path, staten island's negativeyou know you can take the bridge or you could takethe ferry but they take time and they're also expensive,but i do believe the jersey city is a market. haveyou in your lending program gone to jersey city to lend? tredway: we are lending injersey city, i think people see

it as an extension of manhattan,it's a more affordable option. so we're saying our ownersgo there and we follow them to jersey city as well. stoler: what about youhave you i mean, you know you're pretty new york citycentric as opposed to. jungries: yeah, the fourboroughs. stoler: the four boroughs? jungries: right. bronx,i love the bronx very busy there. queens.

stoler: you don't think a placewith a new ferris wheel, the wheel and the citiesfirst discount outlet is going to do well? jungries: all the activity's inthe bronx, manhattan, brooklyn and queens so that's where istay. if the action comes to staten island i'mgoing to run there. stoler: so here's a question.we know who we have here as owners and borrowers,who else is coming here. are we having the people fromchina going into the multi

family business or do we seeing,i know galil real estate, a number of israeliinvestors have been here. where, who, who else arethese guys competing with today to buy property? jungries: you have chinesepeople who are coming here, absolutely. i'm selling a dealright now on the upper east side to a chinesefamily, they're in a 1031. you definitely have the israeliinvestors but most of the buyers are still guys like dannyand laurent who are local

funds or companies or familiesthat are buying it's still predominantly thosetype of guys. stoler: you know as opposed toplaying inside baseball because many people watch myshow from around the world, they may not understandwhat a 1031 was, who would like toanswer what is a 1031. benedict: a 1031 is a taxfree exchange where selling a property allows you to deferthe taxes on the profit you made by owning and sellingthat property and reinvesting

it in different property,so in essence you're buying, you're paying a lot of moneyfor the next property but you're using the irs's money or themoney you would have paid in. stoler: so why as an owner ifyou, if you might believe that you're buying in to a higherprice why wouldn't you pay the taxes and say look i may,i want to defer the taxes but you know what in the end itmay be more beneficial because i don't know whenthe market's going to reach the peak.

benedict: well because if theequity we invested originally in the first deal is only theearning you so much right now but you can sell it,multiply it by, by an incredible factor andreinvesting it even at a three or four cap, but it's tentimes your original investment so you're making30% on your money. stoler: here's thebigger question. this year the house and thecongress have been playing with a curtain ofquestionable tax deductions,

you know there was theexcess depreciation for the half a million dollars which nowthey're talking about fifteen year changes, what happens andi'm relating to acquisitions and also you, if the 1031 rulewas no longer there? aaron? jungries: that would be adisaster, because people wouldn't sell. or unlessthere was and death or some tax reason, thatwould be a disaster for the market, i think itwould have a major effect. benedict: that'd be thegreatest blessing in the

market because people likeus would be able to buy again and not compete withother buyers which are using in essence taxdeferred money to buy it. so i hope congress passesthe changes. stoler: so you're in favor of. benedict: yeah ithink it's been- stoler: but aren't you alsogoing to be paying for that. he just brought up the factthat you've made appreciation and you've done well.

benedict: we're long termholders, work our properties, maintain them well andafter a certain amount of years refinance them and we'reable to at this point at least hopefully thecongress doesn't change that, but get access torefinancing proceeds tax free. stoler: speaking of refinancing,how do you look at the, at the market i rememberbanks you know i heard from the beginning conversationthat banks are becoming you know they're not giving a 110%,they're not doing this.

but in a case that sincethe values are going up the prices are going up, certainpeople are able to cash out, in certain aspects, certainlenders, okay have this position that you don't wantthe borrower to have no money in the deal. howdoes chase look at this? tredway: you know i think againwe're very sponsor driven so we look at the whole pictureas we look at refinancing properties. but i tell you asdanny and other borrowers look for property, sometimesit's difficult to find something

to buy something to 1031into or something that's just on the market and so they'll takethe opportunity and refinance a deal with chase or withanother bank at a lower rate and recapitalize theirportfolio. but i think for us we look at the whole picture beforewe make a determination on how much equity we need inthe deal or who the borrower is. stoler: if we did the showseven years ago, which i did seven years ago youknow the funds were, were very involved andthey were out there, they were

very active and thenwhat happened was the funds who received a lot of theirmoney from state pension funds got penalized because theysaid you were being abusive to your tenants. do you seethe, are funds back into the, in the multi-family businessyes? jungries: yes, not as strongas they were in '06, '07 but they're definitely coming back. morali: i think they'remuch more conscious about all the regulations that come withnew york city residential

from the dhcr to j-51 andthey spend a lot more time on their due diligence,understanding their exposure than they mighthave seven years ago. stoler: where are thereopportunities in the five boroughs or as aaron saidthere are four boroughs, okay the fifth boroughmaybe be jersey city. where are the opportunitiesand are we talking about southwest queens you knoware we talking maybe where the you know the resortscasino is, is that a market,

or is the rockaways a marketor is parts of washington heights opportunities. what doyou see as opportunities and also as a banker how doyou feel about lending to those markets? danny? benedict: well i think theopportunity is not necessarily a geographic opportunity,you have certainly areas in neighborhoods which arecontinued, which are continuing to improve and you just takethe subway stops and go to the next stop where it hasn'tyet changed and you'll see

great opportunity. but theopportunities in every market, you can find opportunityin midtown manhattan. you just have to find theright opportunity and need for, the need for the seller tomove very quickly. there are opportunities inevery market, in a hot market, in a depressed market, youhave to just be there and be ready to, this is a game innew york which is played very quickly and anywhere andeverywhere else in the country you have 30 days or 45 daysdue diligence on a deal.

here you have three daysto sign and to put a hard deposit and you have not timeto, and 30-60 days to close, so the opportunityis your ability to move fast, to move quickly. stoler: so, but that'sinteresting because you're saying here you really don'thave that appropriate amount of time to do thecorrect due diligence, to make that decision.now if that's the case on the acquisition, how do, howdo you get the financing

done so quickly? tredway: so i'd say newyork is a market that you know speed is incrediblyimportant especially on purchases. but theborrowers that we tend to bank tend to have a verystrong sub market knowledge, they really know what they'redoing right, in the case of deals we look at, look atfor kusnher with laurent or for danny. i mean these guysknow exactly what they're doing and they have a visionfor the property.

there tends to bea reason why they buy, again the nice part is. stoler: so then as onemight say there's a question of faith in the borrower, imean the strength of the borrower is very important. tredway: right so theborrower makes the payment, the property doesn't. andso for us we really ensure that the borrowers thatwe've got understand their sub markets and what they're doing.

stoler: so here's a question,so somebody comes to you and they're from the midwestor they're from china or anything else and they, andthey know, they've heard about the amount of businessthat you do in the market. how do you vet that thisperson is a potentially good borrower, buyer foryou, you know maybe buying his property, buying the otherone and the deals going to close and he doesn't have arelationship with a chase or a signature or bankunited or somebody like that.

jungries: it's very hard. iprobably won't give them much leeway because if dannycame to me to sell a property or laurent did, i would takethat so seriously that i have to perform, so i probablywouldn't even, he probably wouldn't even get in thefront door i would have to see that he did a deal beforei would even give him the opportunity. stoler: in the same mannerhow do you, i mean look you know i got young guysover here, there are a

number of really guys whoover the last five years came out in nowhere andbecome big players you know, the madison boys, the benchmarkand others you know all of these people how, youhave to take a little gamble to make sure that the. jungries: well i actually sawthe icon there first portfolio, 35 buildings they were two youngkids in their mid twenty's. they came to me theyshowed me they were serious. stoler: they also had daddy'smoney behind them.

jungries: true, but that'ssomething right, or if it's a foreigner they have sometype of money behind them whether it's their family ora fund and they said the right things, they moved veryquickly that was key. and i gave them a very shortwindow, so if i give a foreigner who comes here and he wantsto get a chance and he moves quickly i'll takeit to the next step and- stoler: how do, you knowyou have money from a variety of sources of peoplebesides the family. how do you,

how do you, how do you reactso quickly for a deal that aaron has or anotherinvestment sales broker that you can move that quick? morali: well you know we valuethe fact that we're you know sometimes given the firstlook at a transaction and we have a very strong operation,an operating platform, we know what to look forin a due diligence and we know what matters, what doesn'tmatter and we're prepared to put our money hard, youknow very quickly.

we've done it recent in lessthan two weeks over the thanksgiving period, weknow what we're going to find we know what we'renot going to find and when we go hard we have a goodsense also of what it is we're going to be able to obtainfinancing wise based on our experience, we may getone or two phone calls to a friend and, but againit's all based on our experience in this market. stoler: here's anotherinteresting phenomena

which i think a lot of these youknow the let's say the smaller buildings had taxpayer,what we call a tax payer with a retail and apartmentsupstairs. today how does, how do lenders look at theretail for the downstairs and in their underwriting. tredway: yeah i mean it's justlike anything else, right so we're looking at cash flowand trends over time. stoler: but i think it'smore of this, my question is many of these olderbuildings may have had

tenants who have beenthere for years who were paying thirty dollars afoot or something like that and now you wouldlike, aaron was saying you know you've got a astoria,the neighborhood is getting better, long islandcity they never had anything in retail. how do you look atthose, i mean those, that is the real perhapsvalue add in multifamily as opposed tothe apartment rents. tredway: well you're rightand we're seeing retail

rents continue to increase,so for us we just want to make sure our borrower,borrowers will be able to withstand the storm if onecomes and so we distress some of these higher rentsto levels that we saw in the previous downturn,to ensure that we'll have enough cash flow and theborrower will be able to continue to make debtservice payments as we go through any cycle. benedict: i think the oldconcept that banks didn't

like that, didn't like theretail and thought it was more dangerous and weremore comfortable with the residential tenants isgone. i remember when i started six story walk upwas basically off limits for lenders, they took theentire six floor and discounted all of theserents, that's gone too. things have changed, themarket has changed, the market is different. youdo see bodegas in certain neighborhoods, which areswitching over to starbucks

and the rents triple. it'sthe old accepted norms from banks have changed with themarket. tredway: i'd also say to,you know the density in new york in some of theseneighborhoods is amazing so as we look at the spacewe just want to understand what's the reason that thisexists and do we think it's sustainable in terms of rentalrates as we go forward. stoler: one last question, whatabout cell towers i remember a number of years ago everybodywas taking cell towers.

now i do know that one of thelarge banks who does multifamily doesn't even takeinto consideration the rent on the cell tower atall, they call it zero, it's like the sixth story. howdo you look at cell tower rent? tredway: i think it depends,for us we're typically in a situation where the building cansupport our debt service without the cell towerincome and situations where we need it, i thinkagain it depends on the length of the tower's beenthere, the borrower,

to me it's a number of factors. stoler: as a seller, as aninvestment broker do people look at the cell tower theysay it's here, it's here, it could be here tomorrow. jungries: no, no, no mostpeople count it, in fact a lot of deals i'm doing nowpeople sell off the cell tower and they can be buying abuilding in the bronx for nine and a half times rent andthey'll sell the cell tower at twelve times the rent, sothey'll actually make a net

gain and reduce their price.i've seen that happen right- stoler: are wecondominiumizing the air now? jungries: i'm doing a deal,new york community is doing the loan on a deal, they won'ttake a cell tower at all, they won't say, it's not income,so the buyer is selling the cell tower and new yorkcommunity is allowing him to basically come in with 15% cashbecause he's doing typical 25% cash but he's sellingthe cell tower and in fact some people now useit as an advantage.

morali: it's like the solarpanels, solar panels in new jersey it's the same. stoler: you guys you know youguys have really provided me and my audience some goodinsight on the residential market. i'd like to thankaaron, laurent, danny benedict, chad tredway for being here.you can find us on facebook, linkedin and google+ andanything and i'll see you next week.