Got $1 M.? Here’s an Idea

Massey Knakal chairman Bob Knakal has one word for New York property investors post-boom: Transportation.

“The closer your property is to a major transportation system, the better,” Mr. Knakal said Monday. “Any areas that are in or around transportation hubs in the boroughs will be good investments in the future.”

As the epochal financial crisis shakes the chaff from the wheat, it will leave in its wake opportunities for property investors with the foresight to capitalize, literally and figuratively. Purchase prices on manifold smaller properties citywide will likely drop and the sorts of buildings that may not seem the soundest investment now could pay in spades later on—just like in the boom that recently passed.

The trick is planting that seed now that sprouts into a million-dollar baby.

Take Upper Manhattan and Brooklyn apartment buildings, including the most pedestrian: the walk-ups. If an investor bought a middling 5,000-square-foot Upper Manhattan walk-up apartment building in 2004, he or she would have paid about $650,000 for it, based on the prevailing norms of the time (a Massey Knakal-Miller Cicero report from the summer put the 2004 median price per foot at $130). The investor would have been able to sell this average walk-up four years later for over $1 million—a gross return of at least 35 percent.

These numbers suggest a return on investment still reliable by any reasonable measure in American cities and as much a motivation as any to seize the opportunity presented by the financial crisis, and get in at the basement. And ride toward the top.

“In New York City, most sectors will be strong,” said investment sales broker Jon Caplan of Cushman & Wakefield of the city, post-bust. “I anticipate that the recovery, once it kicks in, will be fairly strong.”

The safest option, of course, may be to go with a sure thing, a thoroughbred in a muddy track. Like midtown or some choicer area of Manhattan below 110th Street, where the median price per foot for walk-up apartment buildings leaped 82 percent since 2004, rising to $599 by mid-2008.

But for someone with, say, $5 million or $10 million, that market may simply be out of reach, especially considering the sclerotic credit markets. Where else, beyond the established Manhattan neighborhoods, can a modest investor look to park their cash and earn a modest return?

Mr. Knakal is bullish on downtown Brooklyn and Jamaica, Queens, two outer-borough neighborhoods that sit at the nexus of several public transportation systems: Virtually every single subway line runs under downtown Brooklyn, and Jamaica Station is a major regional hub that connects the L.I.R.R., the subway and the AirTrain to J.F.K. (And let us not forget the Second Avenue Subway, now snaking its way from East Harlem to the Financial District.)

That same theoretical 5,000- square-foot walk-up apartment building would, at $204 a foot, cost probably just a little over $1 million in Jamaica, according to Massey Knakal’s most recent Queens data. In a few years, if the price nudges to $250, the building would then be worth $1.25 million, a tidy and not impossible profit for the buyer.

Or, take the Bronx, where middling walk-up apartment buildings still, albeit barely, trade for under $100. At $99 a square foot, the 5,000-square-foot hypothesis costs a little under $495,000, a fraction of what it might command in Manhattan and Queens. If prices claw their way up to $140 a foot, that same building is worth $700,000. Gross profit: $200,000.  

Of course, the natural question for the smaller property investor: Will the next few years birth the sort of bullish returns as the now echoing boom?

Probably not, but as the financial crisis sorts itself out and the credit spigot gets turned back on, analysts are predicting a return to propertied prosperity in New York; just don’t expect it to be so Gilded Age-y this time around.

Got $1 M.? Here’s an Idea