Avanath said to pay $315M for 535 Carlton & 38 Sixth. "100% affordable" towers cost $370.8M to build. Includes "market-rate" units "adjacent" to arena?!?

We have some more news about the latest Atlantic Yards/Pacific Park transaction, the sale of "100% affordable" (but mostly middle-income) 535 Carlton Ave. and 38 Sixth Ave., which I reported on four days ago.

A posting yesterday, surely based on a press release, in the real estate platform Connect CRE, was headlined Avanath Snaps Up Brooklyn Apartment Portfolio for $315M:

Irvine, CA-based Avanath Capital Management, LLC has acquired a mixed-use portfolio containing two multifamily properties with ground-floor retail in Brooklyn for $315 million...

The portfolio, comprising 601 affordable and market-rate residential and commercial units, qualifies for New York City’s Rent Stabilization program. “This acquisition allows us to provide high-quality housing in an area of the country where market-rate rents are notoriously high and the demand for budget-friendly apartment homes is rising,” said Daryl Carter, founder, chairman and CEO of Avanath.

With 82,681 square feet of parking and 42,643 square feet of retail, the portfolio helps to diversify the properties under Avanath’s management, said Avanath president and CIO John R. Williams. Additionally, the buildings, adjacent to the Barclays Center, are the first Brooklyn-based properties to be managed by Avanath.

(Emphases added)

The sellers went unmentioned.

Was it a bargain?

Well, given that the units are all rent-stabilized, the rents are predictable, so the question is whether the price was a bargain--and that seems likely, though no documents have yet surfaced detailing the terms of the transaction, which could complicate things.

According to a 2/8/18 filing (excerpted above) to the Securities and Exchange Commission, Forest City Realty Trust (fka Forest City Enterprises) reported that 535 Carlton cost $168.1 million to build and 38 Sixth cost $202.7 million to build. Total: $370.8 million.

Note that Forest City Realty Trust was a 30% contributor to these buildings, within Greenland Forest City Partners, but after constructing three buildings together Forest City sold all but 5% of the project going forward. 

(Oddly, it looks like Forest City actually contributed only 25%--perhaps reflecting a development fee or other fee.)

Money for platform?

At the 70/30 split, the $315 million payment should result in $220.5 million for Greenland USA and $94.5 million for Forest City, since absorbed by Brookfield Properties.

Greenland Forest City is about to embark on a costly project to built a platform over the first of two railyard blocks, the first phase of which was estimated in 2019 to cost $200 million, but likely will cost more, due to inflation.

Greenland USA has to contribute 95%, while Forest City must contribute 5%. So this transaction seemingly could cover the costs of the initial phase, and more, perhaps part of the B5 tower, the first to be built over the Vanderbilt Yard.

At a neighborhood meeting earlier this month, Greenland USA's Scott Solish was asked how the platform would be financed. He paused, before saying, "Greenland will be financing the platform." This transaction seems the source.

Questionable claims

It's odd that the Connect CRE posting described the two buildings as "comprising 601 affordable and market-rate residential and commercial units," since all the apartments are supposed to be "income-targeted," aka "affordable."

Half the units are aimed at middle-income households earning up to 165% of Area Median Income (AMI), and another 15% aimed at middle-income households earning up to 145% of AMI.

Could it be that rents over $3,000--under-market for new construction nearby--are considered, in shorthand, as "market-rate"? Or is just another piece of sloppiness regarding this transaction?

Other sloppiness: the buildings are not "adjacent to the Barclays Center;" 38 Sixth flanks the arena, while 535 Carlton is a long block away.

[Updated] If these are "the first Brooklyn-based properties to be managed by Avanath," well, the company web site cites three portfolios in the borough:

• Brooklyn (148 units, acquired October 2015)
• Brooklyn II (46 units, acquired June 2016)
• Brooklyn III (195 units, acquired May 2017)

So, either that claim is wrong, or Avanath has a separate manager for these properties; these buildings are the first in Brooklyn to be managed by the new Avanath Communities.