Deal Book 44-46 Purves Street
In 2012 during my time in Grad School, the university let me play Real Estate Developer for the first time and sent me off in the world to try and make a deal. This is the first time I sought out my own development site, researched zoning, determined the highest and best use, sourced construction loans, talk through the deal with brokers and created a full development deal book that was reviewed by industry experts brought in by the University.
This site was on sale in the spring of 2012 at $130/buildable SF. I was going to create a project that would bring a unique residential loft product to this market at prices affordable to those who were working as local artists or at Silvercup Studios. Not super luxury, but a great location, and no subsidy needed from the city. 57 units, and a total development cost of close to $13 Million, $387/SF after construction cost (yes, I realize now, that number was not realistic) .
But alas, most investors do not take on the risk of ground up development for mediocre returns to satisfy a social mission, without some incredible incentives or upsides. Which is why I believe the current owners waited out the LIC market, and will now deliver this product at rents 20% higher than what I proposing.
Here are some photos of my ideas:
This is what actually happened:
Fast forward a year, and the site is purchased, allegedly by an investor who plans a hotel. Deal goes quiet for a couple years, I research online every once in while and found nothing promising.
In 2015, the same owners scratched their hotel plan (LIC was completely over saturated with this product type), and envisioned a residential building that gave some honor to my my original idea. They’ve modified the plan to include a retail space on the Thompson street side, and fit about 33 residential units with a Purves Street lobby.
Now that I have solid experience with these deals, there are many aspects of my original proposal that I would change. Here are a few:
- Construction costs at about $210/SF, they would realistically be upwards of $400/SF at that time
- Operating expenses, too low, would bump them up to 45% of stabilized revenue
- Exit cap rate today would conservatively land at 5.5%, and this would have balanced the increases above and leveled the returns.
- Rents underwrote them at an average of $46/sf/yr, for a high end product they are likely upwards of $55/sf.
I’m excited to see the Jewel Liton, LLC venture develop this site, I cannot wait to report on the construction as it develops.
Want to see this student project and related return metrics? Link below:
Source: Gousse Guide Book