Trends Watch: New York City Real Estate
- Jan 21, 2021
EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies-Snyderman.
This week, Elana talks with Omar Slowe, Founder, Harpia Asset Management.
What is your outlook for real estate?
We share other real estate investor and operator concerns about short-to-intermediate term volatility in the commercial, office, and retail segments of New York City real estate. However, for the areas where Harpia is focused – small multi-family residential – we see encouraging trends, not only in the speed with which outer-borough demand rebounded (particularly in Brooklyn) after last summer’s stay-at-home orders were lifted, but also in what seems to be another structural improvement in long-term demand for boutique buildings and townhouses by those moving out of core Manhattan and smaller units in higher priced neighborhoods. We believe that this trend which has been underway for years will settle with more people looking for a “Goldilocks” fit of a primary urban residence that is more conducive to working more from home (with outdoor space, if possible.) This particular asset sub-class provides the relative defensiveness of NYC multifamily real estate, but with the outsized upside opportunity of renewing 100-year old housing stock for a growing upper middle class or luxury demand in the outer boroughs.
What are the greatest opportunities you see and why?
The conversion of distressed smaller development sites into fresh multi-family supply is the greatest opportunity we see. Especially through intervening in the distressed process (foreclosure, bankruptcy, etc.), value can be created without destructive competition for assets in a highly tax-efficient way. In most cases, we are able to significantly expand square footage using existing air rights. Often the areas where we operate are qualified opportunity zones (QOZs), which adds another layer to the overall value. Because everything we do is as-of-right, meaningful capital can be invested with exits usually in three years or less.
What are the greatest challenges you see and why?
That’s easy: capital and time! Capital because the opportunities are plentiful, and the effect on the community so powerful, that having ready access to capital can allow us to scale what we’re doing much faster. What is fascinating is that the more capital and scale we have, the faster we can move and the earlier we can disrupt the value destruction cycle, which benefits the owner and the community, and enhances our returns to our investors. It is a classic example of the old saying “Doing well by doing good.” Time because speed is a critical element to our ability to source distressed assets, and sourcing them at the right price and transaction structure. Speed and certainty of execution are both driven primarily by capital. We compete effectively against many operators who are not impact investors or who are less than scrupulous, but who have the singular advantage of more capital. In addition, more capital translates into more efficiencies of scale and operating leverage given this steep growth curve in our business.
What keeps you up at night?
Thinking about what I can do better. I care deeply about the communities where we operate. I grew up in Brooklyn and now raise a family here with my wife. It is important to me personally that we do this right. Not only because it makes for great investment returns, but because the positive effect on the community makes for even greater opportunities and maintains the wonderful way of life that we all enjoy here, and offers it to others. I’m resolute in my belief that institutional capital can be invested at scale in this strategy in a way that generates attractive returns and benefits these communities.
The views and opinions expressed above are of the interviewee only, and do not/are not intended to reflect the views of EisnerAmper.
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Elana Margulies-Snyderman is an investment industry reporter and writer who develops articles, opinion pieces and original research designed to help illuminate the most challenging issues confronting fund managers and executives.
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