UDR Enters Manhattan with $260.8M Purchase

UDR Inc. has been eying New York City for the last 18 to 24 months and with its recent agreement to acquire the 493-residence apartment community at 10 Hanover Square, the road has been paved for the multi-family REIT to make its debut in the city.

March 3, 2011
By Barbra Murray, Contributing Editor

Courtesy Flickr Creative Commons user morrissey

UDR Inc. has been eying New York City for the last 18 to 24 months and with its recent agreement to acquire the 493-residence apartment community at 10 Hanover Square, the road has been paved for the multi-family REIT to make its debut in the city. UDR will snap up the property from the Witkoff Group in a transaction valued at $260.8 million.

The 23-story tower, which last changed hands in 1997 when Witkoff acquired it as a 500,000 square-foot office building for a reported $15 million and leased it in its entirety to Goldman Sachs & Co. soon after, is quite a first catch. Converted to residential in 2005, the property, located in Manhattan’s Financial District and featuring nearly 42,000 square feet of retail space, produces a total monthly revenue of $3,000 per-unit. UDR is not sharing specifics about the occupancy level at 10 Hanover Square, but David L. Messenger, senior vice president and CFO of the REIT, told CPE that it is “extremely high.”

The cash portion of UDR’s payment for 10 Hanover Square will be just $4.5 million. The company will pay the remaining sum on the price tag through the assumption of a $192 million mortgage with a fixed rate of 5.93% and a maturity date in 2015, and the issuance of approximately $64.3 million of operating partnership units.

With the transaction expected to close following UDR’s undertaking of the existing loan on 10 Hanover Square, the REIT is within inches of achieving a major goal in its acquisition strategy. “In 2008 we sold off one-third of our portfolio and exited a lot of non-core markets,” Messenger said. “Our strategy is to own in areas with high barriers to entry, great job bases and a propensity to rent. Boston and New York were high on our list and last fall we bought two assets in Boston and we entered into joint ventures that increased our presence there. The New York purchase is the first of what we hope will be many.”

UDR is eager to take advantage of more Manhattan opportunities and it is not putting a cap on the total it plans to spend, he added. “Regionally, we don’t target markets based on dollar amounts–$500 million in New York is different than $500 million in Houston. What we do is look at the number of homes. The 493 homes at 10 Hanover Square are a great entry into the market, but they don’t provide an efficient operating platform. With more homes, you get more economies of scale.”