Annals of anonymous analysts, NYC real-estate edition

By Felix Salmon
August 16, 2011
4,700-word article on the complex dynamics at 55 and 61 Delancey Street, in downtown Manhattan.

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Back in April of 2010, Elizabeth Dwoskin of the Village Voice, with the help of two reporter/translators, put together an excellent 4,700-word article on the complex dynamics at 55 and 61 Delancey Street, in downtown Manhattan. There was a new landlord, Madison Capital, which was better than the old landlord, but was still harassing rent-controlled tenants. There was a lot of mutual incomprehension between the mostly-Chinese old tenants and the mostly-white new tenants paying market rate. And nobody really had a full grasp of the facts.

So it’s a bit weird, 16 months later, to find the NYT’s Michael Powell put together something much less nuanced and much more one-sided on the same issue — with one of the worst abuses of the “analysts say” construction I’ve seen in a long time:

Madison Capital bought these two tenements, at 55 and 61 Delancey, in 2008 for $20 million total. (The same buildings sold for $6 million in 2003.) The tenants of the 45 apartments, predominantly Chinese and Dominican, generally pay $1,000 or so each a month. Newer arrivals, N.Y.U. students and post-college kids, pay $3,000 or so. To turn a profit, analysts say, Madison needs a minimum of $6,500 per apartment.

Which leads suspicious souls — I plead guilty — to suspect Madison’s real long-term play is to demolish the tenements and build one of those blue-glass condos where no one ever thinks of putting up a curtain.

Powell doesn’t mention that the buildings come with eight retail units, housing glamorous market-rate tenants like the Berkli Parc cafe and James Fuentes gallery. I’m no expert on retail rents on Delancey Street, but let’s be conservative and put them at $5,000 each, for a total of $40,000 a month. On top of that add $6,500 per apartment in residential rents — the “minimum” that Powell thinks Madison needs to make a profit on the buildings. The total comes to a nice round $4 million per year.

I really don’t think you need to be making $4 million a year in order to turn a profit on a $20 million investment. Let’s say that Madison took out an 80% mortgage at 5% interest: then its annual interest payments would be about $800,000. Add on a couple of hundred thousand dollars in management costs, and you’re still talking about costs in the $1 million range for the two buildings. That’s a quarter of the kind of money that Powell thinks Madison needs to turn a profit.

And frankly it’s pretty silly to think that Madison wants to tear down two perfectly good old tenements and replace them with glass condos — especially since it would be much easier and cheaper to take the existing buildings and convert them to condos over time. At a purchase price per apartment in the $400,000 range in what is now one of the most overheated property markets in America, there’s definitely potential profit there — and it’s a lot easier to sell apartments to their existing tenants than it is to try to vacate two huge buildings with 53 different tenants so that you can tear them down and build something else.

I would dearly love to know the identity of the “analysts” Powell talked to in order to get his crazy $6,500-per-apartment estimate. What’s the minimum qualification needed to be considered an “analyst” for the purposes of the NYT? On the basis of this article, simple numeracy would seem to be lacking.


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