You are given $10 Million along with a very specific set of instructions.
- You must invest every penny in Manhattan real estate.
- You could spend all of it on 1 property or you can divide the money amongst as many different properties as you want.
- You may purchase any property type as long as it’s in Manhattan.
Your investment horizon is 7 years and your portfolio will be evaluated at the end of that window. How would you invest that money?
Marie Espinal and Jeff Adler
We have written in prior articles this year about how opportunistic our current environment is from both a valuation and mortgage rate perspective. The pandemic (as terrible as it is) will undoubtedly also be responsible for having created an opening to invest in a market that has had a rising tide since 2009. Over the last 20 years we have watched New York City rebuild its confidence alongside market values following each catastrophic event it has faced ( 911 , 2008 meltdown). Nowadays everyone is summoning the power of the crystal ball to glean perspective on whether to buy now or wait ——- I will answer by quoting one of our favorites: “ Could I begin life again, knowing what I now know, and had the money to invest, I would buy every foot of land on the Island of Manhattan.” John Jacob Astor
It’s a fact that land is certainly scarce, but I think JJA would agree that at the moment real estate in Manhattan is open for the taking. Or sit back idle and wait for history to repeat itself! NYC is progressive, industrial, a financial Mecca, a haven for all, elites and self mades. It will always come back. As for what to invest in given a gift of $10MM? I would personally hone in on condominium product in the 2 to 3 bedroom space (inventory categories needing the most absorption), with a focus on low carry and steep discount – for me this would be in areas that are either still considered on the fringe or still having room for being developed. This strategy is likely to yield the highest appreciation and the ability to redeploy assets within a 7 -10 year horizon. That said, there is not one singular approach, property class/ conduit for investing in real estate. In my view, it’s more about jumping in and not sitting on the side lines, than how much or what property type you invest in. As long as you are getting the proper guidance, with a sound outlook you will still look back and say: I purchased during an unprecedented time, at astronomically low rates, and I am going to HOLD! 😊
In a nutshell – I am a very strong believer in Manhattan and I think the vibe and energy of it is irreplaceable. Even though current times bring with them some very major challenges to the city (and not only Covid-19), I really think that once some more certainty will be in place in terms of the pandemic and the solution to it, as well as the political map for the coming years, the city will revive, and actually will reinvent itself in a better way. It will take time, but as the horizon you gave is 7 years I feel very comfortable that even in a pessimistic scenario – Manhattan will recover fully by then. I am a big believer and an expert in the residential world – so I would probably spread my investment between small Multifamily properties, in top locations, as well as 1 or 2 condos that will be bought at the right price given the times ahead of us.
Mortgage Finance Director
I won’t comment on specific property types since it’s not necessarily my area of expertise, but I wanted to make a point, nonetheless.
Ten million dollars is 20% of fifty million dollars. I would use the money to make down payments on $50 Million of inventory and I would mortgage the rest. Rates are as low as they have been in history, so I would leverage that to make an even bigger investment in the most sought-after real estate market on the entire planet. Who doesn’t want a piece of Manhattan at a 15-20% discount when borrowing money has never been so cheap?
There are just under 100 single and multi-family townhouses for sale in Upper Manhattan with a median price range between 2-3M. I would look to purchase 4 quality turnkey properties that could be rented out immediately for fair value. I would upgrade the outdoor space (s) and perhaps do a community outdoor experience for all renters in the house if an opportunity existed for that.