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Hot in Spots
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Business New Haven
11/16/1998
By: BNH
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Steve Witten is president of Witten & Noletti, a commercial real estate firm that specializes in investment real estate. The firm has recently been involved in the sale of several major apartment buildings and complexes in Connecticut. According to Witten, his firm's transactions account for up to 70 percent of the larger multi-family transactions in the state.
What are some notable recent New Haven-area transactions?
In New Haven we sold Center Court , a 13-story building on Center Street with 74 units, as well as the Taft [on College Street], which has 198 units. We sold Executive House, which is probably the premier class A apartment building in Westville. That sold about a year ago.
How would you describe the investment market in greater New Haven?
The market is very strong [now] if you look at the evolution of the recent market we had which was extremely strong in the middle to late '80s. It crashed literally overnight in 1989. There was a period from 1990 to '94 or '95 in which the only properties that were trading hands were REO [real estate owned] or that were foreclosed by local lenders as well as some of the larger institutional players. The bulk of the sales now are more conventional arm's-length transactions. The market rebounded in 1996 and has been hot since. The smaller properties - properties from ten to 40 or 50 units - were soft, but that market has blown wide open in the last nine months or so.
What other factors have influenced the market?
The other component that added to enhancing value has been Real Estate Investment Trusts [REITs]. The larger REITs discovered us in the last nine to 12 months. The REITs have discretionary equity and buy at what we would consider nominal 'cap' rate. Traditionally, we might look at a property and we compare this investment to an alternative investment. We expect that this investment has to generate at least a ten-percent 'cash-on-cash' return. If we put up $100,000, we expect a cash return of $10,000 before the benefits of tax consideration or appreciation. Because of the REIT's ability to borrow on very nominal spreads, the costs of funds is very low. If the properties generate anywhere between eight to 8.5 percent, these are solid returns for these guys, historically. This changed about three weeks ago - dramatically. The global economic crisis has effected borrowing costs.
What else is driving the markets?
What we are seeing in New Haven and throughout New Haven County is that the buyers of the existing stock of real estate are buying on their perception of their ability to add value. We're seeing almost across the board as properties change hands, you see the new owner come in and add an amenity package.
What is the financing and stability on the smaller properties?
With properties that require financing from $1 million to $5 million, you have some local players that are very dominant. They include People's Bank, New Haven Savings, to a lesser degree Liberty Savings and Fleet.
How good is the market from the standpoint of landlords?
In the early '90s we had a high level of vacancies and collection loss. In many cases tenants weren't paying because the properties were going in foreclosure and they weren't getting the same level of service. In the past 18 months we are seeing occupancy levels extremely strong in most of the urban and suburban areas. We've seen collection losses diminish dramatically. We are again seeing properties with a healthy waiting list.
Is the market there for more residential property in downtown?
A few years ago we realized that the true B- and C-quality office buildings could no longer compete, and were functionally obsolete. In one building, the old Lincoln Building [on Chapel Street across from the Green], the lower floors were kept retail but the upper floors were converted to apartments. The premier renovation going on now is the Liberty Building [on Temple Street] across from the Omni Hotel. That building is being converted to 123 luxury rental units. They'll have that place fully occupied in nine to 12 months. The Taft is the only 'doorman-style' building in New Haven, which is atypical for an urban market..
Can 227 Church Street, the former SNET headquarters, get converted to luxury apartments?
I don't see it. If you look at the available pool, can you absorb 123 units, sure. If you look at a building as large as the SNET building - 250, 300 units - you're talking about a huge chunk..
Can the market absorb the renovation of all this Class B and C space?
I think the market can absorb 20, 30 units here and there. One of the problems in New Haven is that while some businesses are prospering, we really aren't bringing a tremendous amount of new business in.
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