NEW YORK — Apollo Real Estate Advisors LP is looking to make a $1 billion bet in the New York metropolitan area in the next three years.
To do that, executives at the real estate investment management firm are getting creative, starting with investing in formerly subsidized rental housing that is being converted into for-sale residential units.
"This is the first time we are converting the units to for-sale product and further providing reduced prices to tenants so they are better able to afford their units," said Richard Mack, managing partner with the New York-based real estate investment management firm.
Usually, Apollo has bought these properties and offered them as rental units, he explained.
In January, Apollo linked up with a non-profit housing developer, Housing and Services Inc., hedge fund Ramius Capital Group and Morgan Stanley Mortgage Capital Inc. in a $100 million deal to convert to co-ops two 19-story formerly subsidized apartment buildings in the Soundview section of the Bronx. Apollo and Ramius invested some $80 million in equity to buy former owners out; Morgan Stanley provided debt. The plan is to offer the co-ops at affordable prices to existing tenants, he said.
Many New York property owners purchased their buildings through federal programs in the 1970s and 1980s. Now these properties are becoming available. Owners of federally and state rent-subsidized properties are allowed to opt out of the program, which requires vacant units be rented to low-income households at affordable rents, after 20 years.
"While we certainly will be looking at other transactions nationwide, the bulk of what we will be doing is in New York because there is more (rent-stabilized residential property) here than elsewhere in the United States," Mr. Mack said. "New York is one of the few places with a very large stock of rent-stabilized housing."