Distressed Acquisition and Mixed Use Residential Rental Development Opportunity, Westchester NY

26-Apr-2021

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An eternal optimist, Liu-Yue built two social enterprises to help make the world a better place. Liu-Yue co-founded Oxstones Investment Club a searchable content platform and business tools for knowledge sharing and financial education. Oxstones.com also provides investors with direct access to U.S. commercial real estate opportunities and other alternative investments. In addition, Liu-Yue also co-founded Cute Brands a cause-oriented character brand management and brand licensing company that creates social awareness on global issues and societal challenges through character creations. Prior to his entrepreneurial endeavors, Liu-Yue worked as an Executive Associate at M&T Bank in the Structured Real Estate Finance Group where he worked with senior management on multiple bank-wide risk management projects. He also had a dual role as a commercial banker advising UHNWIs and family offices on investments, credit, and banking needs while focused on residential CRE, infrastructure development, and affordable housing projects. Prior to M&T, he held a number of positions in Latin American equities and bonds investment groups at SBC Warburg Dillon Read (Swiss Bank), OFFITBANK (the wealth management division of Wachovia Bank), and in small cap equities at Steinberg Priest Capital Management (family office). Liu-Yue has an MBA specializing in investment management and strategy from Georgetown University and a Bachelor of Science in Finance and Marketing from Stern School of Business at NYU. He also completed graduate studies in international management at the University of Oxford, Trinity College.

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Projected capital structure: $98MM ($24MM equity ($13.3MM needed for site acquisitions), $74MM debt LTC 76%)

231,000zsf (120 residential units 96k nsf / 175 hotel keys 60.5k nsf / 18k nsf retail / 415 parking spots 35k nsf)

This is a distressed off-market private equity commercial real estate development opportunity that requires a Sponsor with local knowledge and construction expertise to build a large mixed-use residential rental development on time and within budget.  A Sponsor can acquire ten existing properties (four properties are distressed assets) on .6 acres to demolish and build an eleven story 250,000sf residential rental and hotel tower with retail and parking space.  

The property is situated in a prime corner location that is strategically located within walking distance to a transit station for easy access to midtown Manhattan.  This development will have incredible views of the NYC skyline and waterfront views. 

Control of Land and Current Status:
The former Sponsor spent millions assembling this site and conducting due diligence – Phase 1 / Phase 2 studies, appraisal, architect designs, zoning analysis, and land entitlement along with in-contract PSAs.  The former Sponsor became financial distressed and lost this development site due to lack of funding to close on PSAs and to close acquisition financing.  This is a rare shovel-ready investment opportunity for a new Sponsor who recognize the intrinsic value of this development site and has the local expertise and the financial capacity to complete this project. 

A new Sponsor will be able to build a politically-endorsed mixed-use property strategically located in the downtown business district, and in the path of growth for residential and retail space.  This development has strong political support and has already received a re-zoning/variance to increase the current as-of-right sf from 121K sf (original appraised as-is land value at $15.6MM, $129sf) to an as-of-right re-zoning/variance of 250K sf (current appraised land value at $22.6MM, $90sf).  

The approved re-zoning has already instantly increased the value of the acquired assemblage.  The re-zoning has also increased the height limit for this assemblage compared to the surrounding properties, and therefore provide superior air and light amenities to future residents and hotel guests.  In addition, the development of a sizable underground parking garage provides a very valuable amenity to local residents and captive demand from regular transit commuters.   

Investor Equity, Debt Financing, and Investment Tax Credits: This is a large 210 x 165 28,000sf development site that is shovel ready (previous Sponsor had already assembled the ten properties with in-contract PSAs) and was far along in due diligence, design and pre-development planning.  This is an off-market opportunity because the assemblage is not marketed and multiple owners of the existing properties are passive long-term holders. 

A new Sponsor can quickly close on the distressed portion of this shovel-ready development site for $10MM (a -15%+ discount from original PSAs) and also acquire the remaining not-distressed parcels to obtain the full assemblage for only $12.85MM (-18% discount to original PSAs) while the total assemblage is deeply undervalued at a -68% margin of safety to the intrinsic value (officially re-zoned/variance land value) of $22.6MM.

This development project has full political support of the town council who are pro-development and want to encourage long term investment in the community with the rehabilitation of the commercial district and also the creation of much needed residential housing rentals.  This site is also approved for $100MM in industrial development agency construction funding.  The large development will bring hundreds of high paying construction jobs and may qualify for employment credit.  This site also qualifies for opportunity zone investments.  Construction can be completed quickly in 12-18 months.   

Value Proposition in The Northern Frontier – The property is located in a high population density area between the affluent communities of Manhattan, NYC and Greenwich, CT.  The development boom in this northern frontier is attracting young professionals due to easy access to Manhattan while offering the value proposition of more spacious suburban living.  

Long-term economic forces and housing demand in Westchester County and Hudson Valley continue to strengthen as demand for affordable housing is expected to rise dramatically in the next five to 10 years in the NYC Metro area.  Westchester County has the highest median family income in New York State ($100,863). Over the last 10 years, incomes grew faster in Westchester County than anywhere else in NY (24.6 % for the county, versus 18.9% for the state overall.)

Economic Trends Favor Affordable Rentals as a Long-Term Investment NYC Metro is a leading educational hub with at least sixty-three academic institutions which draw demand for affordable rentals from students, faculty, and visitors.  There are sixteen higher educational institutions located in Westchester County.  

With a severe housing crisis in NYC, the shortage in affordable housing stock has created a strong long-term need for affordable rentals.  As a mega-city NYC benefits from many positive long-term economic forces such as diverse job creation, student population growth, and business travel which will continue to lead to strong rental demand.   

Current Land Valuations: The development site was originally appraised as-of-right at $15.6MM (121K sf, $129sf).  Appraised land valuation after re-zoning/variance is as-of-right at $22.6MM (250,000 sf, $90sf).

* This site qualifies for opportunity zone investments, and possibly also for 421A, EB-5, and employment tax credit

Project Valuations:

Can acquire land at $12.85MM / Hard costs $74MM / Soft costs $10.6MM

Using current market comps we can project the following:

175 hotel keys: 80% occupancy x $199 ADR = $$159 RevPAR + R&B = GI $15.73M / NOI $6.352M

  1. apt units: 1-bedroom ($2.4k-$3k rent) and 2-bedroom ($3.4k-$4k rent) = GI $4.685M / NOI $1.75M

415 Parking Spots:  $18rsf x Occupancy 98% = GI $2.67M / NOI $1.59M

18k sf Retail: $35rsf = GI $630K / NOI $478.8K

Total Year 5 Stabilized NOI: $10.2M at 6% Cap Rate = $169.6MM MV or $166MM MV based on sum of parts

Investor ERM: 6x, IRR: 56% (Assumption: 7.5% IDA rate on $74MM & $13.3MM equity needed)

Time line:  ASAP *shovel-ready.  Construction can be completed in 12-18 months.  This asset is a deeply undervalued distressed off-market investment opportunity on a prime corner lot next a major transit station ***

Oxstones Real Estate, www.Oxstones.com  CRE@Oxstones.com

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