Interview with Brian Ray, Alchemy ABR partners

0:00 Speaker 1 Good morning. This is Mike Stoler for The Stolar Realist. They’d report people are developing properties in New York City. They’re building office buildings, they’re building residential rentals. Are they crazy or is it a good time to be there?

0:14 So today I have somebody who spend was my show sixteen years ago on one of my early shows called Young real Estate Leaders talk about the market. Sixteen years ladies, no longer young. I’m happy to have Brian Ray, who is a principal at Alchemy ABR Investment Partners. Thanks for being here.

0:33 Speaker 2 It’s great to be here on your show. Sixteen years later.

0:37 Speaker 3 I still remember being on with Will Silverman, who was the smartest youngster in the business, and now he’s one of the smartest veterans in the.

0:43 Speaker 1 Business right and he’s doing rather well. Yeah. So, as I alluded, who’s building an office building today on Billionaire’s Row?

0:53 Speaker 3 We are with our great partners at Kane International. We’re very excited. We actually haven’t closed the building where working through our final construction. We’re out for releasing, negotiating a nice lease hopefully.

1:05 Speaker 1 Now this is a formal location of a church.

1:07 Speaker 2 This was the Cavalry Baptist church.

1:09 Speaker 3 They sat on this site since the eighteen seventies and they eventually had built their own building, which included a hotel.

1:17 Speaker 1 That the Salisbury Hotel.

1:19 Speaker 2 Salisbury Hotel is a one star hotel.

1:21 Speaker 3 It would not recommend staying there back in the day and ended up taking the hotel back one hundred years ago. And after one hundred years of operating a hotel, it was time for them to capitalize on the markets. And the deal came to us through our great architects at FX collaborative ron Kaplan and Lo and behold. It worked

1:39 as an office building. We looked at as a condo. There was a lot of product in the market.

1:43 Speaker 1 I mean another condo in fifty seventh Street.

1:46 Speaker 3 Yeah, we really liked the idea that we were going to build them back at church. We gave them a great structured deal. So the church occupies a condo in the first seven floors of the building basically, and then we’ll have an office tower above that ten thousand foot plates.

1:58 Speaker 1 And how’s the leasing market.

2:00 Speaker 3 Leasing market for the upper end has been strong. We’re optimistic. We’re just really kicking off our leasing efforts.

2:05 Speaker 1 Now what floors to the leasing beginning on.

2:08 Speaker 3 So We started one hundred and sixty two feet, which is virtually the eighth floor.

2:12 Speaker 2 We have an amenity floor, and then we.

2:14 Speaker 3 Have beautiful outdoor terraces on about seven or eight floors, and all the floors overlook Central Park, so it’s.

2:21 Speaker 2 Just beautiful offering, very minimal columns.

2:23 Speaker 1 Modern design, hedge funds, our.

2:28 Speaker 3 Markets, hedge funds, private equity, family offices, law firms. We’ve had some incredibly strong interest from the brokerage community and we’re really starting our tour, so we’re getting some great feedback on the market.

2:40 Speaker 2 We’re very excited about.

2:41 Speaker 1 I think you’re one of the few office buildings coming to market at this time.

2:46 Speaker 3 You know, the office market is a paradigm. You know different types of markets. You have the B market, we owned buildings in that space, and then you have A product and an A plus product, which we’re building.

2:56 Speaker 2 So we’re very excited about what the future holds for us there.

3:00 Speaker 1 Okay, let’s turn gears and let’s go to residential. What are you doing in the residential market.

3:04 Speaker 3 We’re building our third building. We just finished the site on twenty thirty eighth.

3:10 Speaker 1 So let’s talk about the side. On twenty eighth, twenty third, eighth, twenty third and eighth Chelsea Canvas with Target and an Apple Bank Target.

3:18 Speaker 2 Apple Bank at the retail.

3:19 Speaker 3 We developed it with two wonderful families that have owned the site for a few years and they brought us on as their development partner, and we’ve exceeded our expectations delivered a beautiful building.

3:31 Speaker 1 Now, how many units did you have in this building?

3:33 Speaker 3 On? One hundred and ninety units has a small bit of units dedicated to an airs program which was part of the forty five X for seniors. We got some extra density for that, so incredible amenities, beautiful building, came in ahead of schedule, under budget. Most supportingly, the rents have remained very strong, so it’s a great building along.

3:54 Speaker 1 In front restrictions on the rent stable as apartments just.

3:58 Speaker 2 For the seniors, but we had incredble.

4:01 Speaker 3 I think we delivered a say twenty five thirty units for seniors and we had about sixty thousand applications.

4:08 Speaker 1 So let’s talk about the seniors. People want to know a little bit about it. What are the rents for the seniors.

4:15 Speaker 3 I think they’re about fifty percent of the market and the demand has been insatiable for that right but the city.

4:22 Speaker 2 Canceled the plan.

4:23 Speaker 3 Actually we were one of the first ones to utilize it and then the plan stopped in its tracks.

4:28 Speaker 1 So now let’s go up to the upper east Side. What you’re doing over there.

4:32 Speaker 3 We just bought two sites with our great partners at Carlisle. We’re out of the ground on our first building on eighty eighth and second that’s a fair.

4:41 Speaker 1 Market building, all fair market, all fair market.

4:44 Speaker 3 We had that under contract before the forty five X was even announced, and we’re excited about the offering. It’s under sixty units or south, but we’re still finishing exactly you know how it’s going to play out with our marketing efforts. But it’s great product. Lots of family in that neighborhood. I live in that neighborhood basically, you know

5:02 the east Side very well. So we’re very optimistic that we’ll have a really strong product for a long time.

5:07 Speaker 1 What about the other site that do your work on.

5:09 Speaker 3 We recently was announced closed on an assemblage on seventy seven seventy eighth and first early stages of what our.

5:16 Speaker 2 Design is going to look like.

5:17 Speaker 3 But that is utilized in the forty five X, and we actually were under contracted by that site before we actually.

5:25 Speaker 2 Knew about the program.

5:26 Speaker 1 So have you done this program? If it was only the four to twenty one a’s.

5:32 Speaker 3 It probably would have penciled. I mean, we were going to buy it regardless of the forty five X. But it really was a good opportunity for us. The way that the air rights were included and one of the buildings was an office buildings, it was a really compelling opportunity to utilize forty five X.

5:47 Speaker 1 So this is all going to be residential residential.

5:50 Speaker 3 Both projects have probably under three thousand square feet every retail.

5:55 Speaker 1 So you have two locations over there. Yes, yes, that’s Toto. Anything else in the residential in the market.

6:03 Speaker 3 We’re very active. We’re looking at a lot of different things. Alchemy on the condo side has a project that they’re working hard on getting done. Ken and Joel have another great project on the Upper West Side which you might have read about.

6:19 Speaker 2 We’re very active. We see a lot of deal flow. The challenging part, obviously is equity. We have very good equity partners.

6:25 Speaker 1 What about debt that is it’s still a little expensive.

6:29 Speaker 3 But we’ve had multiple offers on all of our projects, so debt is.

6:33 Speaker 1 Not really our so who’s providing it? Banks?

6:37 Speaker 3 Yeah, CEMBS, We’ve got a well this is stuff we’re building, so it’s not CNBS. But we’ve had a full gamut of interest on the construction side.

6:46 Speaker 1 What about insurance companies?

6:48 Speaker 2 Everybody’s looked at it.

6:49 Speaker 3 I’d say fifty groups or so looked at EIGHTYAH Street and we got some compelling offers.

6:55 Speaker 1 So where do you think there are opportunities for twenty twenty five going to the next five years afterwards, there’s.

7:01 Speaker 3 A lot of distress. You know, we own office buildings as well. We’re seeing you know, a lot of deal flow, but the capitals still trying to figure out if they want to buy office that just turning the corner. We’re starting to see some international partners that want to buy in New York City office. There’s opportunities to divert those office buildings,

7:19 some of them to residential, which at the talk of the town.

7:21 Speaker 1 So let’s talk about that since everybody is talking about the conversion of office buildings to residential and it’s not really worked. If you notice this week Metro Law said they’re having a problem downtown.

7:33 Speaker 2 We’ve looked at dozens and.

7:36 Speaker 1 That’s an existing building that they converted ten years ago.

7:39 Speaker 3 Yeah, we’ve looked at dozens and nine out of ten don’t work. They need to be ripped down. Most of the older buildings, a lot of the ones that have really come into players, some of the fifties, nineteen forties, fifties, sixties built product that are really stocky office buildings that have really dense bases, lots of columns.

7:55 Speaker 2 They don’t work as rental buildings.

7:58 Speaker 3 We’ve looked at some buildings that maybe the upper tower could be converted, so I think those are better opportunities where you have a tower that setback, but even then you have challenges with egress and some of the fire departments issues.

8:08 Speaker 1 What’s your thoughts about the conversion in the buildings like the Advisor Building, mcgroy Hill building, you know, and the possibility the Hemsley Building, because I.

8:19 Speaker 3 Think that those are great ideas. I think they are great locations. I think they’re epic, beautiful historic buildings. I think if anything’s going to work, it’s probably those. I think the ones you name could lay out and they have a cachet, but again, the older product has really tough loss factors. They’re inefficient, lots of columns, bad lighten air,

8:37 so I think it’s going to cost a lot of money to retrograde them. You might have to create you know, lighten air easements and access points throughout the building they let air in. There’s very deep apartments. You need light and air, and I don’t think you really have the opportunity on a lot of those older buildings to fulfill that.

8:51 Speaker 1 What about condo development.

8:54 Speaker 3 A lot my partners can and Joel speak to that more, but they’re seeing some great opportunities. I think there’s condom equity back somewhat. It’s been a challenge, you know, the capital markets on the dead side is there at least away from office, But I think on the residential side there’s a lot of interest. We actually spoke to some

9:11 lenders they would have preferred to do condo deals because they were able to quantify their exit on a per square foot basis, where you can’t really quantify an exit cap rate based on the fluctuations and interest rates of the last couple of years. So I think it was easier for a lot of lenders to look at condos,

9:26 and they’re all looking at the downside of rentals as condos, So our backup plan. It’s funny. Used to be we build a condo in the backup plan might be a rental. Now you look at building a rental on it. What’s the backup plan to do a condom? So I think the debt is interested in both. I think the equity

9:40 is starting to get interested in both. But I think we’ve had a lot of equity partners and a lot of lenders that have been on the sidelines, and people want to do deals.

9:47 Speaker 1 What about hospitality not really our sector.

9:50 Speaker 3 We’ve looked at a few things that include a hospitality component.

9:54 Speaker 2 I think it’s come back. I think you’ve had a lot of mergers.

9:57 Speaker 3 Every time I try to book hotel, it seems to be twice as much money as there was a couple years ago.

10:02 Speaker 2 So it might be something we should look into.

10:04 Speaker 1 What about retail?

10:05 Speaker 3 Retails are part of everything we do in New York City, so you know it’s kind of a niche. You know, these are one off. We’ve had strong interest in our fifty Sava Street office building retail from a lot of restaurant type tenants, and we’re excited about that. And I know the East Side Corridor has come back and sixth

10:20 avenues come back. A lot of these little sub markets have come back. But it’ll be interesting to see what happens to these neighborhood retail markets that have flourished once people start going back to the office because it’s midtown office markets.

10:30 Speaker 1 Read what about sent pricing.

10:33 Speaker 3 As somebody that lives in the zone like you, I think it’s not a great idea.

10:38 Speaker 2 I think it’s a challenge.

10:40 Speaker 1 What effect this is going to have on real estate.

10:44 Speaker 3 It’s interesting. We’ve looked at some offerings. It was funny when it was the buzz of the town six months ago. The brokers were saying, oh, yeah, it’s a great building, it’s outside of the zone, and then it went away.

10:53 So now it’s kind of a talking point again from some of the residential brokers.

10:57 Speaker 2 But I don’t think it’s fair for people that live within the zone like you and I.

11:01 Speaker 3 And we have to pay nine dollars to pull out of our garage just to get on the FDR.

11:04 Speaker 1 I know. I’m trying to explain to my my wife it’s nine dollars. She says, we’re in the zone, so we’re per I said, it’s not the best thing for us.

11:14 Speaker 3 Yeah, And I have kids in the neighborhood and we drive around, and we live in the city. And imagine telling somebody that lives in Scarsdale after, you know, pay to get out of their garage to go to shop.

11:23 Speaker 1 Okay, what about if somebody is in Fort Lee and has to come up with the George washing the bridge, pay the toll over there, and then also pay the congestion pricing.

11:33 Speaker 3 You know, it’s a tough equation. I mean, I’m not a politician, but it looks like they’re they’re looking for new ways to find money, and it’s really not fair to commuters.

11:42 Speaker 2 I think we all spend enough money getting in and out of the city.

11:44 Speaker 1 So what I’m saying is I think people should invest in New York City. Invest maybe with a b or alchemy. And I’d like to thank Brian for being here today.

11:52 Speaker 3 It’s great to be back. I guess I’ll see you in another sixteen years, hopefully.

11:55 Speaker 1 Sooner, hopefully sooner. Definitely see you next week.

11:58 Speaker 2 Thanks for having me.