Multifamily properties a hot commodity for real estate investors

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Multifamily properties have always been considered a profitable investment in the Rochester area, and recent activity indicates the sentiment may be growing even stronger.

More than two dozen apartment buildings — from older brick structures in the Park Avenue and Monroe Avenue neighborhoods to sprawling garden-style communities in Webster — have sold in the past six weeks.

The total price is around $85.5 million, with six different buyers completing either single-property purchases or large package deals.

“It used to be the only transactions in Monroe County were being done were by Bob Morgan,” said Peter Hungerford of PH Realty Capital, which has offices on Park Avenue in Rochester and in New York City. “Sellers would say, ‘I’m going to wait for Bob Morgan (the former prominent developer) to come along and he’s going to give me this huge number.’ As the 800-pound gorilla in the room has changed, the players have also changed.”

Those transaction numbers don’t include APEX, the upscale student housing community near Rochester Institute of Technology that sold earlier this month for $161.5 million to Harrison Street Real Estate Capital LLC of Chicago by New Jersey-based developer The Michaels Group.

“That could very well be the largest single-asset sale I’ve seen in my 35 years in the business,” said Joe Rowley Jr., co-founder of Anchor Real Estate Advisors of Rochester. “Those are numbers I’ve never heard of.”

Reliable returns are one reason multifamily has remained a hot commodity while some sectors of the commercial real estate market — such as office — face uncertainty as the COVID-19 pandemic continues.

Cost per unit coupled with what the landlord can charge for rent creates consistent returns, especially when occupancy rates historically have hovered around 90 percent, Rowley said.

“It’s always been a very favored asset class,” he said. “Appreciation has been pretty consistent. You can increase rent and increase value.”

And it’s one sector of the industry that has built-in stability.

“Regardless of what is happening with the economy, people always need a place to live,” said Ami Notis, regional manager for Excelsior Communities.

Excelsior Communities has been at the forefront of acquisitions. In the past nine months, the firm has purchased two communities in Webster — the 100 units of the Preserve at Wood Creek and the 104 units at Bradford Hill — for $31 million.

In December Excelsior bought The Brock near the College at Brockport for close to $16 million and plans to turn what has been a 114-unit, 401-bed student housing facility into an upscale apartment community.

Excelsior also will soon close on the Medical Arts Building on Alexander Street with plans to create a live-work-play community.

The firm has implemented significant changes at other properties in the portfolio, including conversion of the former Normandie Hotel on Alexander Street from an outdated, ignored property into high-end units.

“The American dream was to own a house, but as of late we’ve seen somewhat of a shift in attitude,” Notis said. “People don’t want to worry about plowing, about cutting the grass, about their water heater or their HVAC.

“If you give them great service, a great place to live and a great environment, it gives you an edge.”

A New Jersey firm bought 13 properties from Pennsylvania-based Morgan Properties in January, including The Barrington on Barrington Street, East Avenue Apartments and Westminster Apartments. Total cost: $33.6 million. Morgan Properties obtained the buildings when it purchased majority ownership in the lion’s share of the Bob Morgan portfolio in 2019.

Also this month a partnership involving Tickle Real Estate of Rochester and a California investment team bought seven properties in Rochester — three on Monroe Avenue, three on Wellesley Street and another on Wilmer Street — for a combined $5.6 million from Monroe Avenue Associates LLC, according to records filed with the Monroe County Clerk’s office.

“Any listing that is coming on the market sees a lot of activity right away,” Rowley said. “There are multiple buyers, no question.”

Hungerford has been investing in Monroe County real estate for 10 years and said Rochester’s job market keeps multifamily an attractive investment. His firm owns approximately 700 units, and expects to close soon on another property.

“Rents are driven by one thing and that’s jobs,” Hungerford said. “The job market in Rochester has a lot of depth and breadth, and that’s why it’s very easy to think about Monroe County on a 30-year time frame.”

Hungerford bought Country Manor in Webster for $29.8 million in December and said he will invest “several million dollars” in the next two or three years to upgrade units.

“I’m a value-add investor,” he said. “I’m looking for poorly managed properties, properties with problems I can fix. The Webster property was on the verge of bankruptcy.”

Some investors may also sense inflation will push interest rates higher.

“Interest rates have been low so as investors see them start to creep up, they may be moving on properties now,” Tom Salviski, managing broker at Tom Properties LLC, of Rochester.

There also may be investors who need to reinvest capital gains or earnings from a 1031 Exchange to avoid paying the taxes now, Salviski said. Reinvestment always fuels the commercial real estate market.

And multifamily in the area provides cost certainty.

“Rochester has always been a blue chip, stable market,” Salviski said.

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