New York City Apartment Buildings to Sell for $1.75 Billion in Record Pandemic Deal

Rising rates have started to pinch profits because buyers have to pay more to borrow money. Other commercial-property sectors are showing their first signs of cooling in more than a year.

Still, bidding was strong for the six towers on Manhattan’s Upper East Side, according to people familiar with the matter. The winning bid will produce initial return rates on the buildings ranging from 3% to 5% for the buyers, according to people familiar with the matter. That return is much lower than other commercial-property types and comparable to what investors were paying for New York rental apartments before interest rates began to rise, analysts said.

The towers were built between the 1960s and 2018 by Sheldon Solow, a prominent New York developer, and all have doormen. One-bedroom apartments in the buildings recently rented for prices ranging from $3,900 to nearly $7,000 a month depending on the unit and building, according to listing website StreetEasy. About 15% of the 1,700 units have their rents regulated by New York City.

New York housing has rebounded strongly after an initial exodus of New Yorkers at the beginning of the pandemic caused home-sale prices and rents to plummet. Luxury-home sales hit record levels last year, and the median rent for a Manhattan apartment climbed to $4,000 a month for the first time in May, according to a Douglas Elliman report. 

Many leases in the six-building portfolio were signed during the pandemic, when rent prices were depressed, and the new owners have room to generate revenue by raising rents. That bullishness contrasts sharply with investor attitudes toward New York office property, which is suffering higher vacancies due to the popularity of remote work.

John Pawlowski,

residential-property sector head for real-estate analytics firm Green Street, said the residential market, particularly in New York, is holding up better than other sectors. Debt financing is still available, even if it costs more.

“People are still going to need apartments; there’s still a lot of demand,” Mr. Pawlowski said. “We’ll see what happens in the economy, but 2022 and 2023 should be very good years for apartment landlords in New York City.”

Residential landlords are better positioned than others to weather rising interest rates, since housing is a necessity that people can’t easily give up and 12-month leases allow for rent increases, analysts said. Still, if inflation triggers a recession and higher unemployment, rental landlords will feel the effects, Mr. Pawlowski said.

“People will start moving back in with their parents, doubling up with roommates to save on monthly rent costs and negotiating with their landlords for smaller rent increases,” he said.

Mr. Solow, who died in 2020 at age 92, founded the Solow Building Company more than 50 years ago. His most famous building was the Midtown office tower at 9 West 57th Street, known for its sloping façade. Mr. Solow’s company has been taken over by his son,

Stefan Soloviev,

who formed the holding company Soloviev Group last year. 

Black Spruce, a real-estate investment company, was founded in 2009 and now owns more than 4,000 apartment units in the greater New York City area. Orbach, also founded in 2009, is a private real-estate developer with a focus in affordable housing and a portfolio of more than 6,000 apartments across the U.S.

Black Spruce and Orbach teamed up earlier this year to buy the Murray Hill luxury apartment towers known as the American Copper Buildings for more than $800 million.

Write to Kate King at [email protected]