Urban Standard Capital, a New York-based real estate private equity manager, has launched a targeted $100m fund to acquire condo units in the city and potentially further afield.
The Covid-19 pandemic has slowed condo sales, Urban Standard’s founder Seth Weissman told REFI, making it difficult for sponsors working to convert existing apartment units into condominiums in New York to achieve the necessary sales for their projects to be approved. A 2018 New York State law mandates a sponsor must sell 15% of the units in a proposed conversion before the project gets the green light, he explained.
“Many condo developers are sitting on product they can’t sell at the moment,” Weissman said. “[Meeting the 15% threshold] will enable sponsors to rent out the remaining unsold units in the interim to generate cash flow.”
The company is raising capital from institutional and high-net-worth investors to acquire unsold units at, Weissman estimates, a roughly 25% to 30% discount on market value. Urban Standard will then rent the apartments out for the near term and generate current income, before pulling the trigger on sales once the market recovers. “The cash flow from the rental income would be largely sheltered from depreciation and the capital gains would be long term,” Weissman added.
Although the fund’s initial target is $100m, Urban Standard could expand the strategy with additional capital from its base of high-net-worth and institutional investors. Initially, the fund could acquire 50 units.
The platform fits in with Urban Standard’s community-based approach to lending and investing, and where Weissman taps into the firm’s existing debt and equity clients to generate investment ideas and source opportunities. Indeed, the firm’s lending business saw numerous inquiries from sponsors who needed to refinance construction loans on condo projects as well as hit their 15% sales threshold.
In addition to its latest fund, the company invests via a trio of discretionary private equity funds focused on the credit, value-added repositioning and ground-up development spaces. The company has been an active lender at a time when banks and other institutions have taken a step back, Weissman added.
On the lending side, Urban Standard originates loans of $5m to $15m. For value-added deals, the company buys properties of eight to twenty units with need for renovations or lease-up. Weissman, who previously worked at Perry Capital and Goldman Sachs, started his real estate business as an equity investor, completing value-added deals in the Manhattan and Brooklyn markets. About five years ago, Urban Standard moved into lending on the same type of assets.
By Samantha Rowan for REFI