Leaving New York City

[Gregmal]

https://austonia.com/line-204

 

That kind of thing aint stopping. NFLX is crushing it utilizing a studio in New Mexico!

[dwy000]

so much for the great exodus I guess.  Record population in NYC with increase in all boroughs.

 

New York City’s Population Booms — But Not for Everyone, Everywhere - THE CITY

[Spekulatius]

6 minutes ago, dwy000 said:

so much for the great exodus I guess.  Record population in NYC with increase in all boroughs.

 

New York City’s Population Booms — But Not for Everyone, Everywhere - THE CITY

Narrative violation!

 

I hope @D33pV4luefinds a new place. Seems easier to leave NYC than coming back - the opposite of a roach motel.

[Gregmal]

@LearningMachineposted some interesting data although I dont see it anymore. But besides that, are any of the NYC is back crowd actually investing in anything relevant to this? I see a ton of cheerleading and yearning for it, like people are trying to will it to fruition, but the bottom line is its by and large, category wide, been a shitty investment space. I own CLPR because its really cheap and MSG stuff because its irreplaceable, but after the "everything" rally started to fade earlier in the year, I haven't really noticed this stuff catching. Of course, that doesnt mean we arent right around the corner from a huge inflection and period of outperformance, but I dont see it. The talk and whatnot reminds me of the same stuff around the B-malls and non class A office space. I had a friend who was constantly pumping CBL and WPG and outside of a small trade here or there I never really found comfort owning them because the narrative wasn't getting fixed and the fundamentals were mediocre at best. It seemed every time he came to me with a "see malls arent dead" piece the share prices were the same or lower than the last time. And my thoughts were always like "yea, ok malls arent dead. The Simons are fine(the same way you're fine if you own One Vandy or a giant new FB leased asset), but everyone else is kind of in no mans land.. and more importantly, your universe of potential investors is limited and your multiple is going to continue to be shit"....so, what fixes the structural issues with respect to investing in NYC? Why in the world would the common investor, or even the REIT focused one want to deal with all the headwinds when they can get better returns with less risk and less headache elsewhere?

 

I say this in the context of looking for investments, which is the only thing that matters to me. Its great if we get back to $3000 studio apartments and whatnot, but if the market is just perpetually going to ascribe crap multiples to this things then who cares and why bother? Ive wanted to play around with ALX, but same thing. If its just going to hang around in mediocrity, ignoring positives until things deteriorate more and then its gets penalized for that, then whats the point? Honestly outside of a few folks, most of the NYC crowd I know is cheering from the sidelines. 

Edited August 25, 2021 by Gregmal

[thepupil]

have about 6% in NYC via ALX and CLPR. VNO/PGRE are flirting with interesting in my opinion, but not quite there.

 

I don't think ALX or CLPR will go up or outperform over a short time horizon. 

 

 

Edited August 25, 2021 by thepupil

[LearningMachine]

@Gregmal, you're too fast :-).  Below is what I had posted.  I had removed it as I realized I was getting into multiple topics here.  Reposting the topic on geographical growth differences.   I'll find another relevant thread to post the other topic. 

 

7.7% population growth in New York from 2010 to 2020 (over 10  years) is actually just close to U.S.-wide population growth of 6.3%.  

 

Here is where the real growth happened from 2010 to 2019 (over 9 years) according to  https://www.census.gov/newsroom/press-releases/2020/pop-estimates-county-metro.html.  2020 Census results are consistent with this.

 

 

These numbers are pretty much all pre-covid. 

 

Wonder where the growth happened post-Covid, and if Covid just caused acceleration of existing growth rates above.

 

Wonder if you can just follow where builders are piling up orders for new construction to see where growth is.

 

It will take some time for builders to build and folks to move to their new homes. 

 

Edited August 26, 2021 by LearningMachine

[Gregmal]

Haha I look forward to your skepticism so when I see it I pay attention. Interesting to see all the Sun Belt on those lists......thought for sure we'd see some blue coastal cities....

 

Anyhow, on NYC...once again, its simple. Show me the motherfuckin money! If I claim tech stocks are on fire...I can point to FANG or QQQ and its decade of returns. If I say Sun Belt is ripping, I can give you a chart for MAA or the head to head of CUZ vs other office stocks. Where's the green paper trail? For some reason I keep hearing about this NYC renaissance and yet no one can point me to a damn thing thats NYC-centric thats really done that much better than a modest investment alternative. To boot I own things that should be sensitive to a NYC recovery and they've been underwhelming. If there's a real recovery multifamily should be the first to go, and it hasn't. Maybe someday. 

[Spekulatius]

Population growth doesn’t meant that real estate in those growing areas necessarily does well. It means that there are jobs in those areas and that you can build houses there.

 

You have the best growth in real estate prices where supply is constraint. that’s places like the Bay Area or NYC. I lived in the North Bay in CA from 1997 until a few years ago and since then, prices for single family houses have roughly tripled while population has remained flat.

 

What happens in those areas is that lower income people move out and higher income people move in.

 

 

As for NYC, I am not really all that optimistic on office. There is plenty of supply from the Hudson area for example and probably not that great demand. There is no pure play multifamily housing play for NYC that I am aware of.

 

For suburban Boston, there is NEN, but it has pure liquidity , as well as quirky owners  and is a partnership.

[thepupil]

6 hours ago, Gregmal said:

Haha I look forward to your skepticism so when I see it I pay attention. Interesting to see all the Sun Belt on those lists......thought for sure we'd see some blue coastal cities....

 

Anyhow, on NYC...once again, its simple. Show me the motherfuckin money! If I claim tech stocks are on fire...I can point to FANG or QQQ and its decade of returns. If I say Sun Belt is ripping, I can give you a chart for MAA or the head to head of CUZ vs other office stocks. Where's the green paper trail? For some reason I keep hearing about this NYC renaissance and yet no one can point me to a damn thing thats NYC-centric thats really done that much better than a modest investment alternative. To boot I own things that should be sensitive to a NYC recovery and they've been underwhelming. If there's a real recovery multifamily should be the first to go, and it hasn't. Maybe someday. 

 

 

EQR and AVB are up 64-80% from 10/30/2020 (pre-vaccine) CPT and MAA are also up about 60%. EQR and AVB are up moderately (8-14%) while MAA/CPT are up 44-51% from 12/30/2019.

 

I actually think the fact that EQR and AVB are up from pre-covid is evidence of a lot of optimism regarding cities, just not as much optimism as the sunbelt. I don't think any of them are very "cheap", but the market is certainly seeing a degree of optimism in urban multifamily (rents are also spiking).

 

So there was a very sharp/dramatic recovery in urban multifamily. I recall EQR getting as low as mid to high $300's/unit and now its $510K/unit (up from $500K / unit as of 12/2019). MAA has gone from $190K / unit pre-covid to $160K at the low to $260K now. On a long term basis, it's not clear to me which I'd rather own. 

 

I think one thing you're doing is comparing huge and liquid and well managed (CPT/MAA/CUZ) to idiosyncratic family companies (ALX, CLPR/Dolan co's/ or NEN) which makes no sense to me; if you want to compare CUZ to VNO/SLG or EQR/AVB to MAA/CPT, to make your point (which you can) then that makes sense.. ALX is a cash box and bloomberg building bond, it's not gonna do what the market does (up or down, recall it went down 15% when VNO/SLG/PGRE went down 50% (this is the actual Q12020 performance numbers). that it hasn't recovered is not evidence of lack of belief in NYC's recovery, it's due to unique security specific things. The MSG/Dolan entities also have other drivers (like the Sphere) and near term timelines regarding re-opening. 

 

EDIT: EQR and AVB are like 10-20% NY but the closest we have to a proxy for urban multifamily 

 

 

Edited August 26, 2021 by thepupil

[Gregmal]

Yea maybe my comparisons were put together lazily. I posted earlier the 3 year on VNO vs HIW/CUZ which IMO is fair as is CLPR vs APTS as both are basically highly levered MF with optical issues for investors. 

 

For sure a lot of the asset classes with respect to coastal have and will continue to recover. Part of the appeal in AIV is the mix of exposure. Maybe I'm too dour on urban office which converts into skepticism of the primary NYC based public market investing options. Its also clear the divergences(similar to tech vs brick and mortar) started before covid and accelerated since..rather than this being some new or temporary phenomena. 

 

All I'm looking for is a way to skin the cat or something to put on the radar so when we see a real pulse you can hit it. As Spek mentioned, perhaps there's just not really that great of an option. MNPP funny enough is probably what I consider best positioned but good luck with that for obvious reasons. The perfect asset IMO for some sort of gentrification or economic recovery would be multifamily or specific types of retail RE. I wouldnt touch any office with a 10 ft pole. 

[BG2008]

@gregmal  I think you are missing one of the best opportunities in $CLPR and I want to jokingly call you a village idiot for some of the commentary about recent price performance.  Look, I bailed on $LAACZ right before it popped.  It was mostly because I was just clipping a coupon for 3-4 years and there were little price gain.  The same can be said about $CLPR. They IPO at $13.50 which is the right price, but then ran into that pesky rent law in 2019 and Covid.  Also it wasn't a great acquisition environment in 2016-2017.  But they built scale.  The NOI is now $60-65mm in run rate but likely going to $80mm when recovered.  Sometimes value stocks just don't work for a few years.  Then they get scale (GRIF/INDT) and numbers start inflecting (LAACZ) and the negatives clears and people start to actually like a stock.  You trade more than I do.  I am more of a long term and tend to focus more on a single company at a time.  The $LAACZ K-1s were just killing me.  So I bailed last year and what do I get the stock goes to over $3,000.  I think $CLPR is on the verge of comping double digits in NOI and FFO for the next 2-3 years.  The results may look at Sunbelt rental growth in the next 1-3 years.  This is my gut feel.  Go on Twitter and just lurk on some of the commentary.  People are getting into bidding wars on rentals.  Apartments are going over ask.  Renters are paying for broker fees again.  No one is given out concessions anymore.  I suspect that $CLPR will trade at 12x P/FFO when stabilized at $80mm of NOI.  You get 5% yield to wait for that to happen.  The best is that you got EQR and AVB working already.  The market is telling you that they believe in coastal high price rentals.   Now you got a smaller market cap trading at 4.7% cap rate but with a ton of room to grow rent and FFO.  If you are worried about overall market cap rates etc, may be long CLPR and buy some cheap OTM puts in EQR and AVB.  It's a way for me to hedge out market and interest rate risk.   

 

Regarding the population.   NYC was already at 7.9mm population in 1950.  Yes, that's right, 7.9mm in 1950 some 70 years ago.  It went down in the 1970s to a low of 7.1mm in early 1980.  So that population growth in the last decade is actually very impressive!!  How is this possible?  Well, when you are literally on an island (Manhattan, Statement Island, Queens and BK are geographically part of Long Island), you can't freaking build outwards like a Dallas, Tampa, or Phoenix!  NYC is like Harvard as in there are only so many slots here for the best and the brightest.  Yes, I know I sound super elitist, but 20 years in a the RE business on the private side, you start to appreciate all the people that comes through NYC each year.  It is an impressive roster of Ivy, Stanford, MIT, every year.  Having an Ivy degree in most industries is mere table stakes.  It does not set you apart.  Oh, you went to school in Ithaca or Boston.  Who gives a rats ass?  Are you any good?  Give me a stock pitch in 2 minutes or GTFO.   

 

https://data.cityofnewyork.us/City-Government/New-York-City-Population-by-Borough-1950-2040/xywu-7bv9

 

Regarding leverage.  First of all, they went through 2020 and didn't go broke, that should tell you something.  They did a cash out refi of $100mm IIRC around May 2020. That's just baller.  People say "Geez that leverage is ridiculous"  First of all, if own 4% cap rate assets, 50% LTV is 12x NOI approximately.  So if you think the run rate NOI is $80mm, that $1.0bn of non-recourse mortgage is about 50% LTV.  Also, nothing comes due till 2027 IIRC.  So this thing can't break until then when you will likely have rent growth and maybe $90-100mm of NOI.  The bigger REITs just want 6-8x debt/EBITDA for MF assets.  But these are scrappy and competent family operators.  So they put 50% LTV which allows for better long term compounding.  

 

Replacement cost - 20 years in this biz.  Let me tell you something, it gets harder and harder to build in NYC.  When I bought my first property, it was $250/sqft all in including land, construction, time cost, and developer profit.  Today, it probably cost $150/sqft for the land and $300 for construction, plus time and developer profit and there are less land now.  If you want to build anything, you buy a lot with a house on it, tear it down and risk pissing off the neighbor and getting into law suit.  That's why the only thing you build in NYC are $2,000-10,000/sqft luxury condos.  This portfolio trades at $400/sqft.  This is absurd!  Their Tribeca was bought for $1,200/sqft IIRC and their cost in their Dumbo building was $1,500/sqft.  Flatbush Garden is probably only worth $300/sqft and is half of the portfolio.  If you just blindly say the non-Flatbush is $900/sqft and the Flatbush is $300/sqft,  you get a blended $600/sqft and you buy it at $400 today.  I'm ball parking it.  But debt is $300 and you get to buy $300/sqft of equity for $100 or so.  Do I want to bet that replacement cost goes up in NYC in 5, 10 years, you bet your sweet ass I do!!! If anything construction cost goes up probably 2% more each year in NYC than elsewhere.  To summarize, you're buying at roughly 30% off market price on an unlevered basis and you get to put 50% LTV on it.  The discount to private market EV is 30% and the discount to equity is likely 60-70%.  I feel like we are sitting on one of the best bargain and people just don't appreciate all the nuances of NYC multifamily dynamics.  Generally, you get a shot at buying cheap in NYC every 10 years or so.  The last time things were this cheap was in 2009.   

 

Cost arb - Now that the Sunbelt rent is getting pricey.  The arb of living in Tampa or Dallas is getting tighter.  So if you are a 25 year old smoke show or a tech dude, do you chose Tampa and pay $2,000 for a 2 bed or do you pay $3,500-4,000 for a 2 bed with a friend?  Yes, you save a bunch, but you have to live in Tampa! 

 

Optionality - $CLPR has $100mm of cash (roughly) and they are developing 1010 Pacific Ave and they own 500k to 1.0mm of development rights in Flatbush Garden.  1010 Pacific will likely add $6mm of NOI and $4mm of FFO.   They own some air rights near Central Park West.  The Amish market tenant went broke.  So there is no rent income there.  If they lease that space, it is likely $50-100/sqft even though NYC street level retail has been absolutely obliterated. 

 

Just writing this out gets me a little pumped.  I actually really like it when the common sentiment is negative or not understanding all the nuances.  

 

@gregmal I love you bro.  You're like the brother from a different mother!  Your post on APTS and some of the sunbelt exposures opened my eyes to a lot of the trends in the industry.  I should have paid more attention to it.  I totally missed $NXRT with my measly <1% allocation.   But it may just be $CLPR's turn.  I can see a situation where $CLPR trades to $20/share, but it will take 2-3 years.  I think they can actually raise dividend to $0.60 in the long run and after 2-3 years of comping double digit NOI and FFO growth, market may actually want to pay 3% yield for it.  At 300mm market cap, no one wants to own this thing.  At a $1bn market cap, it will be in every institution's book.  Don't believe me, look at $INDT!!   

 

Lastly, management said that new leases on their Tribeca is averaging $78/sqft.  This is 10% more than Pre-Covid average.  The rate that younger kids flooded back into NYC after Covid should tell you something.  My brother-in-law was chomping to move out of my FIL house.  He is super happy to get a place with 3 of his friends in a duplex 4 bed near Barcaly's Center.  He's living life now.  If he waited another 2-3 months, he would have been shit out of luck.  That's how NYC operates.  1-2% vacancy is the norm.  When it got really bad, it was only 5-6% vacancy and people thought it was the end of the world.  But going from 1-2% vacancy to 5-6% meant 20% rent drops.  But closing that gap also means that rent spikes like crazy.  In the 7-8 years after GFC, apartment rent in NYC was up probably 4-5% a year.   Local dynamics matters a lot as one area's rent spikes, it drives people out of the neighborhood further away from Manhattan.  

 

  

 

 

 

[Gregmal]

Haha good stuff BG, appreciate it. Some of the sentiment is justified and there's also some stuff that I just throw against the wall playing devils advocate to really see what sticks or where the stronger arguments are. Oddly enough, it seems consensus the CLPR is indeed the best way to play this. Hence I've owned it. Just curious outside of CLPR what folks think is the best way to play a recovery, because outside of CLPR, IMO the options suck. 

 

I also got kinda amped about CLPR reading your stuff LOL. Had a brief thought of like "yea lets put 10,000 more shares on margin"...Have it small right now at about 3% and would generally have it much bigger but its kind of my general take that covid created a perfect storm for what is and will continue being the golden age of small cap real estate investing. Anyone who says they cant find stuff worth buying is crazy. Look across the board at stuff like CLPR, like MSGE, or AIV, ALCO, FRPH, PCYO, JBGS...just to name a few. Just kind of stupid risk/rewards that all skew highly favorable with very minimal long term impairment risks at these valuations. So for me its just a shuffling game, although focusing on a couple specific works too. 

 

 

[BG2008]

I think with $CLPR, I recommend buying some puts in AVB and EQR.  I do this across the board.  I own INDT in size and buy puts in PLD.  It is to hedge out overall market and sector risk and interest rate risk.  After that I can see a small chance that Delta variant causing issues.  But everyone is masking up in NYC and went to dinner last night and they asked for the vaccination proof.  I know this will piss off people. But it probably also mean that Delta may surge less in NYC.  When they regulate your rent, asking for proof of vaccination status comes with the territory.  I am personally for it as it will make me and my kids safer. But this may open a can of worms more than I would like to get involved with.  So let's just stop the debate there and focus on $CLPR's fundamentals.  The other dynamic is that $CLPR is a family controlled company.  So far they have been good people.  I spoke with a long term holder and he told me they have been straight.  But I just want to point out the >50% ownership.  That's kind of sums up all the important risk factors that I can think of.  If Delta becomes a huge deal, I think the puts in AVB and EQR will help.  Frankly, if it goes to $6 or 7 again, you can create your own share buyback.  

 

I agree that I am less enamored with ALX or VNO or PGRE as it's been almost 2 years now and we are not back to the office.  As @thepupil said these young kids want to go to NYC because they want to "get paid and get laid."  Just giving credit where credit is due.  

[Spekulatius]

5 minutes ago, BG2008 said:

I agree that I am less enamored with ALX or VNO or PGRE as it's been almost 2 years now and we are not back to the office.  As @thepupil said these young kids want to go to NYC because they want to "get paid and get laid."  Just giving credit where credit is due.  

Here is what my goto expert wrote on these matters:

 

 

@BG2008 Thank you for your compelling writeup for CLPR. I don't own it, but it seems interesting. I think hedging with puts on large liquid names or ETF's is a good idea.

 

I think getting a new major who hopefully helps to reduce the crime problem is also a nice catalyst. I am only involved in this  - "you know who, too illiquid to mention deep value stock", but so far I have been only cashing dividends and  no capital gains.

 

Maybe it works out like KYZN (had only a very small position there), you never know. The more liquid names will move much sooner, I am sure.

[BG2008]

I think I know your too illiquid to mention deep value stock. It's not for me due to family dynamics and illiquidity.  That's a hilarious take.  The Brighton Beach take is "do you want to mess with the Russian mobs" 

[lnofeisone]

As someone that dated girls in south Brooklyn (Seagate, BB, and Manhattan Beach), Manhattan Beach is where you want to be. Brighton Beach is like APTS...the potential/value is there but the management is taking their sweet time to get where we all want to end up. 

[Gregmal]

No love for Westchester? And I'd definitely mess with a chick from Brighton before Staten Island. Staten Island chicks you've seen one, you've seen them all. Actually, if you've seen one second of the old MTV show Jersey Shore you've seen them all. 

[LC]

3 minutes ago, Gregmal said:

No love for Westchester? And I'd definitely mess with a chick from Brighton before Staten Island. Staten Island chicks you've seen one, you've seen them all. Actually, if you've seen one second of the old MTV show Jersey Shore you've seen them all. 

 

Speaking from extensive experience, Westchester is not the place you want to be. It. All. Sucks. 

 

 

[BG2008]

You know it's a bunch of dudes talking real estate when the conversation revolves around which neighborhoods has the best dating prospects.  God forbid someone starts talking about depreciation.

[Gregmal]

Theres always the strip club index. There is virtually a 100% correlation with strong RE trends and the quality of the strip joints in the area. Vancouver has been world class for the last decade in both. Honorable mentions NY, Vegas, Miami. 

[cubsfan]

^ HA, HA - now that is what Howard Marks would call "2nd Level Thinking" !

[Spekulatius]

15 hours ago, Gregmal said:

Theres always the strip club index. There is virtually a 100% correlation with strong RE trends and the quality of the strip joints in the area. Vancouver has been world class for the last decade in both. Honorable mentions NY, Vegas, Miami. 

Could mean we are close to the top, to borrow from another thread.

 

 

Not related to housing, but there was a lively strip club scene during the heydays of the telecom boom in Ottawa in 1999/2000.

Edited August 27, 2021 by Spekulatius

[Gregmal]

With a little bit of inspiration from @BG2008, a few calls, and some additional datapoints, Gregmal has determined those 10,000 shares aint gonna cut it. If this fucker decides to trade below $8 tomorrow, adding 20,000 shares are gonna be in order, maybe more. 

 

[fareastwarriors]

On 8/26/2021 at 11:08 AM, LC said:

 

Speaking from extensive experience, Westchester is not the place you want to be. It. All. Sucks. 

 

 

lol...

 

 

Dub P

White Plains let's gooooooo

[Gregmal]

Yea IDK, but having grown up around the ilk, Westchester and Bergen County were kind of always regarded as the places people who made lots of money working in NYC went to raise families if they valued having a yard, a good school system, and a place where your kids could congregate safely in the town center/parks. And this was back when NYC was safe LOL