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Deals & Dealmakers

Multifamily investors believe affordable is key word, even when it comes to luxury

James Nelson of Cushman & Wakefield sat down with Arik Lifshitz, from DSA Property Group, David Shorenstein, from Silver Shore Properties, and Danny Fishman from GAIA ,to discuss their current projects, their business strategy and pricing in the city.

James Nelson: Please tell us a little bit about your company and your current holdings.
Arik Lifshitz:We are an owner/operator, mostly a family office, although we do partner with outside individuals and institutions, as well. Most of our holdings are in New York City, specifically Manhattan, Queens, and Brooklyn. Recently, we started buying in Miami and we also have investments in Jerusalem, Israel.
David Shorenstein: Our portfolio currently consists of 70 mixed-use and multifamily properties in Manhattan, Brooklyn and Queens. Most of the properties are in Brooklyn. We are an owner/operator, and we started in 2010.
Danny Fishman: GAIA, which was started in 2009, has around 17,000 units and office buildings. The majority of the units are in Texas, and we have four buildings in Manhattan with around 500 condos.

Pictured l-r: Arik Lifshitz, James Nelson, David Shorenstein, Danny Fishman
Pictured l-r: Arik Lifshitz, James Nelson, David Shorenstein, Danny Fishman

James Nelson:What is your typical business plan?
Arik Lifshitz: I think you have to be flexible, in any market, but certainly our primary focus is to buy and hold. We look to add value and hold our properties for the long-term. We try to recoup our equity via a refinance, and then hold properties for cash flow. The goal being to own a building for free, getting all your equity out and then holding it forever.
David Shorenstein: We always say everything is for sale if the price is right. We will take advantage if there is an opportunity where we can exchange up into a bigger property that has more upside.
Danny Fishman: We are typically value-add. We do not want to do core. Most of our money is coming from institutions that are long-term. We also have a lot of high-net worth families that can be long-term or short-term, who invest with us. They are looking to build their wealth and keep it.

James Nelson: What is a typical capital stack for you?
Arik Lifshitz: Each deal is different, but we keep it simple. Generally, we get a loan from a conventional bank, around 70 percent LTV these days, and we fund the rest with equity.
David Shorenstein: Most of the buildings that we have bought have a lot of deferred maintenance, or a lot of vacancies. We usually take out hard money on most of our deals that are calculated on a loan-to-cost ratio. The business plan is completely funded upfront for the first 12-18 months, including an interest reserve, giving us about 12-18 months to turn the property around to refinance or potentially sell.
Danny Fishman: We are very similar. The first loan comes from a conventional bank, with 60-70 percent. We do not use our hard money or mez, all the rest is straight equity.

James Nelson: I find it interesting that you have been active here in New York, but you are also buying large multifamily portfolios in the South and Southwest. What type of return do you stabilize at, and how does that compare to the business proposition here in New York?
Danny Fishman: We look for value-add properties in the multifamily asset class. Recently, we bought a 1,400-unit portfolio in Houston, Texas, and found that there is huge upside when there is no operator. Now we are stabilizing on this type of asset in the seven to eight cap range.
David Shorenstein: We mainly look at the price per square foot. We are comfortable at paying a low cap rate, especially when we put in a significant amount of equity, and plan on holding the property for the long term.
Arik Lifshitz: Our strategy is less numbers-oriented and more a question of whether the property is going to improve in value. Value-add could mean a hands on property improvement like nicer renovations, a physical expansion, or a reposition; but it could also mean investing in a neighborhood that is improving.

The investors agree there are still untapped NYC neighborhoods.
The investors agree there are still untapped NYC neighborhoods.

James Nelson: Where are you seeing pricing compared to a couple years ago?
Arik Lifshitz: Some properties have doubled over the past couple of years. Valuations have gone up so much over these last five years that we do not see how we can place our money and bet that prices will continue to go up after the date of purchase.
Danny Fishman: Our segment is what we like to call accessible luxury or affordable luxury. Not everyone is looking for a $20 million apartment. People who want an apartment for $800,000 to $1.2 million are our clientele. I am not so optimistic on the ultra-ultra-luxury.

James Nelson: The average price of a building in Manhattan is now $1,500 a foot, and the average price in Brooklyn is $300 a foot. Do you think that there is still a lot of upside in Brooklyn?
David Shorenstein: I think there is a lot of opportunity, because there is always the next neighborhood. Williamsburg is already more expensive than parts of Manhattan, but you just keep going further out where there are tons of opportunities in all these new, under-retailed areas.
Arik Lifshitz: The average Brooklyn price may be $300 a foot, but in the areas of Brooklyn we look at, it seems more than double that. While we do not really go further east than Bushwick or Windsor Terrace for various reasons, I do think there is no question that these untapped neighborhoods will continue to improve.
Danny Fishman: We bought in Harlem, it worked well, and I believe in Harlem. I do not feel that the gap between Brooklyn and Manhattan justifies the risk in Brooklyn.

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