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Carlyle Group Builds Empire of Small Brooklyn Apartment Buildings

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Photograph illustration of Carlyle’s David Rubenstein and Jason Hart (illustration by Kevin Levon for a real deal)

Flying under radar, The Carlyle Group joined together a $ 500 million portfolio of small apartment buildings in Brooklyn.

With sources Genuine.

This is one of Wall Street’s biggest moves into the mama and pop landlord territory and is a rare approach for companies that raised $ 8 billion in real estate funds in December.

Carlyle often buys these buildings one at a time and writes a $ 2 million or $ 3 million check common to small investors who dominate space.

“In general, these owners are small and medium-sized operators who chew what they can chew,” said Michael Tortorici of Ariel Property Advisors, a commercial brokerage firm. “I rarely see people trying to build a large portfolio.”

A Carlyle spokesman declined to comment. People familiar with the company’s strategy said it targets certain types of buildings that fall under the city’s 2A / 2B tax designation. This will limit property tax increases to 8% or less per year. These properties have less than 10 units and most tend to be free markets to avoid strict restrictions. It was imposed on owners by the 2019 Rent Stabilization Act.

In addition, operating costs are relatively low due to the lack of equipment such as doormen and elevators.

According to Rich Velotta of Raven Property Advisors, a commercial brokerage firm, this type of high-margin, predictable investment is an institutional investment that is willing to withstand the tedious task of building a large portfolio in one small building at a time. It’s becoming more and more attractive to the home.

Besides, he said there was no easy alternative.

“If you’re like Carlyle and want to make a lot of money, it’s hard to find a large apartment complex with unstable rents in a market with limited supply in Brooklyn and Manhattan. “Bellotta said. “It probably comes from the function of need.”

Will be smaller

Such small buildings have traditionally been a foothold for new landlords.

“These are often a sort of gateway for new investors,” said Tortorici. “They aren’t that big financially or operational, so people try to fix them before selling and moving up.”

Carlyle’s US real estate director Jason Hart and principal Wonjun Kim made a big move in the space in December when they partnered with landlord Greenbrook Partners on a portfolio of about 45 buildings.

Greenbrook, led by Greg Furnier, was recently shopping in Brooklyn and received unnecessary attention.Tenants of a Greenbrook-owned building on Park Slope Shouted a foul Last year, when the landlord refused to renew a rental contract for a free market apartment.

Bradlander is currently working to organize a meeting of all tenants to protest Greenbrook.  (Getty)

Brad Lander opposed Carlyle’s partner, Greenbrook. (Getty)

This move happened when Wall Street was enthusiastic about buying a single-family home.At the time, Bradlander, a member of the city council, and Charles Schumer, a majority leader in the US Senate, Public blame Green Brook.

Lander, the city’s current auditor, said he had never heard of a similar complaint in a building owned by Carlyle. But he “focuses on making short-term profits at the expense of long-term renters … accelerating the crisis of affordability and stability of housing throughout our city” of private equity investors Opposing the infringement, “Elimination of good reason.. “

Greenbrook did not respond to a request for comment. Immediately after the initial negative promotion, the company said it would discuss renewal of the lease with the tenant. (In May of this year, Mother Jones released an extensive survey of the company, “How Private Equity Pilled America.. This publication identified a relationship with Carlyle in three dozen of its properties, TRD The analysis revealed a much larger bet. )

After partnering with Fournier, Carlyle bought his own building throughout Brooklyn and several in Queens. This month, the company landed a $ 500 million mortgage from Invesco, secured by real estate.

Carlyle may be the biggest name to play a 2A / 2B building, but it’s not the first. And investors are paying more attention to space.

High Point Property Group led by former Naphtali Group Executive Drew PopkinHas been collecting these small buildings since 2017.

Highpoint recently launched a portfolio of 146 20-building buildings in Chelsea, East Village and Cobblehill / Brooklyn Heights, with prices approaching $ 300 million, sources said.

The Meridian Investment Group’s marketing materials dealing with the sale emphasize the benefits of the building and “unique protection provided only by New York tax class 2A / 2B properties”.

Protection premium

Carlyle seems willing to grind fewer deals than its peers, who tend to grow.

For example, Blackstone is charged $ 930 million in June on 76-story 8-spruce street A rental tower in Manhattan, KKR has spent about $ 1 billion over the past two years buying a relatively large new building in Brooklyn with the Wrublin family Dalan Management.

Carlyle signed an agreement in March to buy an 18 million-square-foot net rental property portfolio from iStar for $ 3 billion, but transactions in New York are more modest, except when viewed as a whole. did.

October company Paid $ 34 million Buy 40 units of Loft Building in Clinton Hill. In November, we purchased 175 new rental buildings in Queens. 22-22 Jackson Avenue For $ 85 million.

Carlyle plans to build a three-story building. Self-storage facility A property purchased at Crown Heights for $ 13 million in 2020.

It’s not clear what the company is preparing for its tax-protected portfolio. Some observers speculated that the company may have adopted a typical private equity roll-up model of building a portfolio and selling the line.

Blackstone and KKR have also launched unlisted REITs that allow private investors to purchase their portfolios.

Shimon Shkury, president of Ariel Property Advisors, said investors are becoming more interested in the 2A / 2B building.

“They are protected by tax classes, so there is a premium that investors are willing to pay,” he said. “You know your taxes will remain stable for the foreseeable future, and in an inflationary environment like today, they can also be considered inflation hedges.”

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