The Stoler Report with Michael Stoler: Jeffrey Znaty

0:00 Speaker 1 Good morning. This is Mike Stola for the Solar Real Estate Report. What’s happening in the rental and the condomitium market in New York City seems to be doing well, and I have an individual who’s very active in the market today. His name is Jeff Zanity, who is the managing partner at King’s Capital LLC. Thanks for being here,

0:18 Thanks for having me, Mike, So in a short comment, what’s happening in the market with regard to condos, since you seem to be rather active in that market.

0:28 Speaker 2 Yeah, recently we’ve shifted from more rentals to condos. It’s been a active, active market lately. I can tell you that some markets such as downtown Manhattan and North areas of Brooklyn have been i want to say hot, or have been very active. I’m seeing recently that there’s more cash buyers and people want quality, whether it’s quality, neighborhood,

0:49 quality product. So I’ve been seeing a lot more activity on the condo side, and that’s where our focus has been lately.

0:54 Speaker 1 In the purchasing of properties and converting them to condos, converting or ground up. So, for example, I know you’re doing some things in downtown Brooklyn, why don’t you tell me about that.

1:06 Speaker 2 So recently we acquired a vacant brownstone in Brooklyn Heights one thirty eight Jerrolomen. The building was an eleven unit building vacant, and besides dealing with the best and highest use, there’s also some challenges today is in paperwork and dealing with legalities to renting out unit. So we ended up going the condo route where we’re converting the building from

1:30 eleven units on a five story building to three primary residences.

1:34 Speaker 1 Oh so it’s going to be three out of eleven.

1:37 Speaker 2 Out of eleven, and it’s a five story building, there’s going to be one duplex, the garden with the second floor. The third floor is going to be a simplex, and then to use the rooftop, we’re going to have the fourth and fifth floor as its own apartment.

1:49 Speaker 1 It’s a walk up or an elevator, so walk up.

1:51 Speaker 2 But you know, there’s no product in some of these neighborhoods Brooklyn Heights, soho green Point. And if you deliver a good product and you have that home type of feeling, it’s a different type of buyer than the normal tower or glass type of amenitized building.

2:07 Speaker 1 Now what amenities are you providing. I mean, you don’t have much space to provide them much amenities.

2:15 Speaker 2 It’s less about amenities, more about finishes the layouts and also maximizing space. So we’re going to be utilizing the roof try and create some sort of wellness feel, maybe with a cold plunge or something that’s more suited for you know, family that want to have outdoor space along with the garden space, where you try to maximize the

2:37 look and feel of that home type of buyer.

2:40 Speaker 1 Now, what are you doing in park slope?

2:42 Speaker 2 So park slope is interesting. We’re actually doing a project now in South park Slope and what we found recently is there’s a lot of owners that have property that need help maximizing the property, whether it’s through development or repositioning.

2:58 And we’re doing a joint venture on two different properties. One is on twenty third and fifth and one is on twentieth and fifth, so not exactly prime park Slope mic but as they call Greenwood Heights or South Slope right, and we’re doing a ground up development. One’s a twenty five footer four units, and one’s a fifty footer which

3:19 is ten units, and we’re just trying to capture the need and demand of the market for that neighborhood.

3:24 Speaker 1 So what do you think these units would be selling for.

3:27 Speaker 2 I think we underwrote about eleven fifty a foot. But you know, one thing that we don’t do with our underwriting is there’s a lot of trend in terms of where the market’s going a year or two years out as the project is finished, and I think we’re going to see a little bit higher than twelve hundred of foot.

3:43 But only time will tell.

3:44 Speaker 1 What effect has tariff said on your business.

3:48 Speaker 2 Tariffs have had some effect on the business. I’ll tell you the biggest challenge when it comes to development is really the finishes. You know, it’s not necessarily the labor. It’s not necessarily the land cost. If you want to do very nice products such as certain stone or certain type of tiles, importing from Italy, it can get pretty expensive.

4:07 Speaker 1 What about labor courts today?

4:10 Speaker 2 You know, luckily I don’t deal with anything that involved prevailing wages or more than ninety.

4:14 Speaker 1 You don’t have ninety nine units right now.

4:16 Speaker 2 So right now we’re okay. But I can tell you that, you know, labor is still pretty steady. Luckily, you’ve been okay with that part.

4:26 Speaker 1 Let’s talk about the Hell’s Kitchen project that you were working on.

4:30 Speaker 2 We just finished two projects there. One was on forty eighth and ninth. It was an old dormitory from the Bank of China and the Bank of China owned this thirty eight thousand square for the building on forty eighth and ninth. About a year ago we actually completed another building across the street three point fifty six was forty

4:50 eighth and the building was a complete gut We gutted the building down to the studs. There were some structural issues, and we turned into thirty nine new primary residences Edward Rent. It may shock you a little bit. We’re getting about forty seven hundred dollars for two bedrooms. They’re about sub six hundred square.

5:10 Speaker 1 Feet those That building is elevating.

5:13 Speaker 2 Elevator, right, elevator, rooftop. There’s a courtyard for some of the residences, gym and storage.

5:22 Speaker 1 How are you doing on you getting financing for some of these projects?

5:26 Speaker 2 Study, you know a year ago was quite challenging. And what I mean challenging is it was very costly. And I think right now there’s a lot of these debt shops that have popped up over the past three years as people were shifting from equity to debt. There’s been more competition, which has been good for us as operators.

5:44 But I could tell you that it’s still not there yet. But we’re seeing a good demand in financing. And the number one thing for us is just keeping a good relationship with our existing lenders so we can start to the next project as we finished the first.

5:58 Speaker 1 Or are you’re doing something down in the Soho area?

6:02 Speaker 2 We are, And this was also another interesting project. The debt broker gave us a call and relate a property that one of his clients had in contract or was signing a contract. New York is a very small place mic and a lot of the good players end up seeing each other often throughout the years, and I knew

6:21 the person he had an angle and how he was going to convert the building from office to condos. The properties three ninety two West Broadway on Broadway and Spring West Broadway and Spring and converting it to we’re converting it now to four primary residences about thirty five hundred square foot units, targeting about twenty five hundred dollars a

6:41 foot per unit. Where the penthouse is going to be a duplex, hopefully targeting three thousand.

6:47 Speaker 1 Great, that would be wonderful. With regard to Burrows, you’ve done a lot of Brooklyn and Manhattan. How about Queens.

6:57 Speaker 2 We haven’t anything that clicked yet in Queens, you know, like areas of Long Island City and Astoria. But prime areas of Brooklyn have really been our forte We come from Brooklyn. We started out in Brooklyn. Brooklyn has exploded in the past handful of years. I think certain areas in Brooklyn actually went up in COVID then going down.

7:17 So we’ve been more active in Manhattan. But Queen’s is cool.

7:23 Speaker 1 Queen’s is pretty good. Have you thought about the Bronx.

7:26 Speaker 2 We have thought about the Bronx, but I think we’ve thought about it more in a low income type of affordable housing play. It’s been a little bit challenging working with the city with their regulations and how they go through their process. Hopefully that eases up with the new administration, and if it does, we’d love to jump into the

7:43 affordable housing.

7:44 Speaker 1 What about Article elevens?

7:47 Speaker 2 Article eleven hasn’t been too much of a problem for us. Were able to navigate usually through management and through the asset management, so it’s been a little bit of a challenge years ago, but I think we’ve been really good in terms of the size of our buildings and you know the requirements they have for us.

8:07 Speaker 1 Where are buyers coming from, I mean investors?

8:10 Speaker 2 For you, you know, international is still a big play. I can tell you that there are some international buyers coming either to park money and condos. I spoke to a Chinese developer recently in Queen’s and they’re pumping out a lot of EB five money.

8:27 Speaker 1 But for us, it’s.

8:28 Speaker 2 Been really local buyers, finance tech people that really want to have a home. So we’ve been seeing a lot more people have fluent these days, making more money and they just want to have an upgrade to their life and they’re living.

8:43 Speaker 1 So how do you look at twenty twenty six.

8:46 Speaker 2 Twenty twenty six is going to be extremely busy. We are just starting out and it’s January as we’re recording this. We haven’t even finished the first quarter. And I can say that as rates do come down, I think volume is going to pick up. We’ve been talking to a few brokers recently where we’re in a good place as

9:04 a seller, but I think as rates come down a little bit more, you’ll see the volume pickup, which will eventually relate into cap rates.

9:13 Speaker 1 So where do you see cap rips? So we just sold the build a multifamily since that’s the area of the YEA.

9:19 Speaker 2 We just sold the building with Avis and Young and we did a building a project on twenty ninth in Park And I’ll shock you and I shocked myself. We actually sold it over a six cap And you know, at the time rates were somewhere in that six and a half percent range. I think the five year treasurer

9:38 is close to four percent. Right right now is about three point eight, but it’s still close to six percent. I mean, I think if we have another rate cut, we may see this get closer to the mid fives.

9:50 But I think volume needs to pick up before we start getting that low.

9:54 Speaker 1 You have an expertise in retail. How do you see retail?

9:59 Speaker 2 So I just read an article yesterday that there’s more openings this year on pace for retail than the past five years. So I think retail is exploding in a few different ways. Obviously, on the F and B side, it’s huge demand. New York City lives on restaurants and hospitality in that end, and we’re also seeing a lot

10:22 more experimental, experiential type of retail. So some of these retailers are creating cafes or creating ancillary parts of their retail stores to create an experience in their retail. So I think retail is hot, but I also think they’re very selective now. They want foot traffic, they want some sort of hook to that block, and there has to

10:45 be something about it, whether it’s a neighborhood, whether it’s co tenancy. It’s a very much specific need for retailers.

10:52 Speaker 1 Specific you have retail tenants, what are you looking for in a retail tenant?

10:59 Speaker 2 Experience, liquidity, and not just being fast paced guys to sign and take on the next space. They want to be able to really maximize their profit because end of the day, you’re a partner with these retailers, and if they’re not successful, you’re not successful. And dealing with releasing or legal cost can be costly and timely, So you

11:21 got to pick your tenant correct. We actually just signed the least today on West eight and McDougall. It’s a bookstore tenant that is going to be playing off the NYU type of clientele, and it’s really about how their financials are, how they operate their business, and what are their goals in terms of profitability.

11:40 Speaker 1 Hey, i’d like to thank you for being here. I hope that you’ll be back on my show later in this season, and I’m certain that you’re going to be doing well.

11:49 Speaker 2 Thank you, Jian, thanks for having me