19 ways to make money in real estate

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19 ways to make money in real estate

Interest rates are up, and the retail and luxury markets are down. But despite predictions for a lackluster 2017, there are still plenty of ways to buy, sell, build and borrow your way to big bucks.

 

 

 

BUILD

 

1. MIDDLE-MARKET RENTALS

Yes, there is a glut of luxury rentals sprouting up on Manhattan’s West Side, in Long Island City and in downtown Brooklyn. But elsewhere, demand is strong and supply is short. “Neighborhoods like Midwood and Prospect Lefferts Gardens in Brooklyn and Harlem in Manhattan don’t have a lot of newly built rental product and are great places to build at the right price point,” said Jeffrey Simpson, CEO of Greystone Development. Developers used to rely on 421-a tax abatements to help finance rental projects, an incentive that expired at the start of 2016. But land prices have begun to fall recently, making some market-rate rental projects feasible again, Simpson said. A revised 421-a program, reportedly in the works in Albany, would be an added bonus for those who buy land now.

2. RETAIL SPACE IN TRANSIT HUBS The retail market has taken a hit as high rents prompted an uptick in vacancies and a spate of price cuts. But retail space connected to mass-transit hubs is still a sure bet, as record ridership ensures a steady supply of customers. Susan Fine, president of Oasis Development, recently spearheaded construction of a 16,500-square-foot mini mall—dubbed Turn- Style—in the Columbus Circle station, then leased the space to an eclectic mix of food and fashion tenants. The $14.5 million project has done well, and Fine said Metropolitan Transportation Authority leaders want to build out more stations. “They have a mandate from the governor to monetize their assets.”

3. MID-MARKET CONDOS The top of the condo market has softened, but jobs are up and crime is down, meaning demand for housing will continue to grow as long as banks continue to lend. “Housing for the middle of the market is going to be stable and strong,” said Boaz Gilad, head of Brookland Capital, especially in places like...

 

4.BUSHWICK

Where Gilad just finished selling spots in a 21-unit building at prices that ranged from $400,000 to $700,000. Land prices have skyrocketed the past two years, but he suspects they will return to more reasonable levels, spurred in part by the impending 18-month shutdown of the L train, a bummer for locals but a potential buying opportunity for savvy developers.

5. …AND THE SOUTH BRONX

The New York Times recently named the once-desolate neighborhood one of 52 places to visit around the world. The Chetrit Group and Somerset Partners are building more than 1,500 apartments in what they are dubbing the Piano District. The state’s economic- development arm has taken notice and late last year issued a request for proposals to develop a 13-acre rail yard adjacent to Chetrit and Somerset’s site.

6. AFFORDABLE HOUSING

While it involves more red tape and lower returns than, say, high-end condos, affordable units are virtually guaranteed to be leased in perpetuity in a sector of the market that is not subject to the same ebb and flow that besets others. In 2014 Mayor Bill de Blasio put a record $7.8 billion into the city’s 10- year capital plan to fund affordable-housing construction, so there is plenty of work to go around. Market-rate firms such as HAP Investments have already heeded the call. A year ago the company created an affordable-housing arm with the aim of diversifying its business.

 

7. BIOTECH LABS

The tech industry surprised the real estate sector when it began gobbling up millions of square feet about a decade ago. So what’s the next sleeping giant? Lindsay Ornstein, a principal at real estate services firm Transwestern, says it will be biotech. “It’s definitely poised to grow in the city,” Ornstein said. In December the city announced it will provide $100 million for a new applied-life-sciences campus at an undisclosed location along the East River. Meanwhile Alexandria, a real estate development and investment firm that caters to the life-sciences industry, is aiming to break ground on a third office building on its East Side campus— once it lands an anchor tenant.

 

8. IN CONSTRUCTION

The industry posted a record 147,100 jobs last year, and developers are still facing wait times of up to two years for certain types of projects. However, spending on construction, which hit $43.1 billion, is expected to dip slightly in 2017. Some jobs are more lucrative than others. The International Union of Operating Engineers Local 14 has a near monopoly on crane operations. Members of this exclusive club can earn up to $500,000 annually.

Photo: Buck Ennis

Construction job numbers are up—but the city doesn't have enough safety managers to oversee all the sites.

9. AT A REAL ESTATE TECH FIRM

Nearly all major investors in property technology (aka proptech) said they expect to match or exceed their investments in 2017, according to a recent survey by tech accelerator MetaProp NYC and the Real Estate Board of New York. MetaProp co-founder Zachary Aarons predicts flashy technologies such as virtual reality residential marketing will expand, while many other behind-the-scenes processes, like lease management, are ripe for innovation. “You’re going to see a lot of boring, a lot of sexy and not much in between,” he said.

 

10. AS A SAFETY MANAGER

Site safety managers, who need 10 years of experience before they can get a license, are required at all buildings topping 10 stories, and at the moment there simply aren’t enough of them to go around. Inspectors’ salaries run into the six figures, but instead of paying them outright, some developers offer stakes in projects instead. “We fly under the radar,” said Michael Arvanites, president of the Safety Professional Association, “but nothing big gets built without a site safety manager.”

11. IN REAL ESTATE LITIGATION

New York City real estate has always been a litigious industry, but as the market goes through a correction and some projects become distressed, the environment can turn even more hostile—which is good news for lawyers. Demand will also remain high for construction attorneys as the city has failed to stem the rise of accidents on jobsites (as of June 2016, accidents were up 62% year over year), and the state’s scaffold law holds contractors automatically liable for any fall-related injury.

BUY

12. RENTAL BUILDINGS

Even though a rush of new rental construction has softened the high-end market, many investors will look to grab existing multifamily units. New York City’s continued population and job growth— and the fact that nearly three-quarters of city residents are tenants—means there will almost always be upward pressure on rents. “The proof is in the pudding,” said Adam Hess of Brooklyn investment brokerage TerraCRG. “Companies like Blackstone and Related are the smartest guys in the game, and they’re making big bets on multifamily.”

 

13. MIDTOWN OFFICES

Park Avenue, long the city’s most prestigious office corridor, has lost out to newer development as big tenants such as BlackRock have decamped for places like Hudson Yards. But investing in midtown office buildings still looks like a good bet if president-elect Donald Trump follows through on promises to cut corporate taxes and unwind financial regulation. That could allow financial-services firms, Manhattan’s largest set of office tenants by volume, to grow again after years of contracting. “Smart money will continue to invest in some of the larger, well-located office buildings that have big floors that can attract financial firms,” said Paul Glickman, a broker at JLL.

14. CO-OPS Condo development has boomed in the city, but few investors have paid attention to the quiet but lucrative business of buying residential co-ops. Real estate investor Myles Horn has made a career of purchasing blocks of sponsor units, usually at 30% or 40% of their market value. To win the cooperation of the co-op, Horn often offers to make lobby, hallway and elevator improvements as part of the work, which in turn boosts the value of his units. “It’s a very good business,” Horn said, “especially in a down market, because you get to buy the units at a big discount.”

 

15. ALONG FUTURE TRANSIT LINES

A recent study by residential-listing website Street- Easy found that rents on Second Avenue have shot up nearly 30% over the past five years in the run-up to the subway extension. “We have represented investors who purchased property near the Second Avenue line starting in 2009 and 2010,” said Leo Leyva, co-chair of the real estate practice at law firm Cole Schotz. “They’re seeing a 25% jump in property values now that the subway is finished.” Leyva said buyers are already looking at other East Side properties that will be in the range of future segments of the line. Another project that could create an upside is the Brooklyn-Queens Connector, a streetcar system proposed by the mayor.

16. LUXURY CONDO DEBT

High-end condos are poised for distress. Super towers continue to rise in places like Billionaire’s Row, but sales of these ultra-pricey pads have stalled. The upcoming oversupply will allow investors to buy portions of a high-end project’s debt, either at a discount or low enough in the capital stack to take control at a discount. 

Photo: Peter Burka

Richard Mack, co-founder of the Mack Real Estate Group, plans to provide luxury developers with cash infusions in return for sizable ownership stakes that will ensure him profits even if the units are sold with steep price cuts.

17. WITH A PARTNER

Buying New York real estate still requires huge amounts of capital. One workaround is to partner with owners who bought when prices were a fraction of what they are today. “I’m seeing a lot of demand among real estate investors to partner with longtime real estate owners,” said Martin Polevoy, a co-head of DLA Piper’s real estate practice. Such partnerships allow investors to bring the cash to reposition or redevelop a property, then profit on the upside without being saddled with the costs of having bought the property in today’s heated market.

 

18. SPECIALTY LOANS

Banks have pulled back on lending, especially for land deals and properties that are being upgraded or redeveloped. The dearth of financing has opened the door for providers of alternative financing—both senior mortgages and mezzanine debt—who can easily net returns of 8% to 12%. Josh Zegen, a managing principal at Madison Realty Capital, a firm that did about $1 billion of specialty real estate financing deals in 2016, estimates he’ll do more of such loans this year. Even if banks start lending again, real estate values have fallen in recent months, meaning most banks will be unwilling to refinance, because that debt may be worth more than they feel comfortable lending against a property’s new value. Lenders like Zegen can step in with pricier replacement debt to take the place of the capital the banks won’t lend.

19. YOUR (BROOKLYN) HOME

Kings County median home prices have continued to surge, reaching a record of $750,000 at the end of 2016. “We don’t really know how much room there is for growth in Brooklyn,” said Jonathan Miller, head of appraisal firm Miller Samuel. “But the market suggests there is plenty.”