It probably seemed like a good idea at the time: Invest in the kinds of small, outer-borough rental buildings that are not flashy but ubiquitous.
But such housing has proved in many cases to be a losing bet for The Related Cos., sometimes in spectacular fashion.
In the past few years, the globally famous and usually deft firm — best known for snazzy condo towers, swanky hotels and skyline-altering megaprojects such as Hudson Yards — has been forced to unload nearly two dozen of these signature properties in Brooklyn and the Bronx at massive losses, at times settling for about a quarter of what was paid a decade earlier.
Plans for the properties, which were technically owned by a Related affiliate backed by public-employee pension funds, were perhaps undercut by recent pro-renter laws that have limited cash flows from multifamily sites. High interest rates have made it tougher to refinance mortgages, also a possible factor. The well-known landlord’s relative inexperience in this slice of the rental market may have also played a part.
In general the fact that a developer that’s among the best capitalized in the world would dump sites instead of hanging on may be a sign that Related was a bad fit for the sector.
“This was a niche they were not capable of dealing with,” said Fred Slater, a real estate accountant who has worked for decades with rental landlords. “But you’ve got to give Related credit for taking the loss and getting out, because so many big shots are unwilling to say, ‘It’s not for us.’”
Unloading, but at a cost
Related, which controls $60 billion in assets worldwide, according to its website, can probably afford a couple of soured deals, especially with smaller-scale projects.
And to be fair, Related still owns the majority of the nearly 100 rental properties purchased for hundreds of millions of dollars starting in 2013, according to a Crain’s analysis of public property records. And the firm actually did manage to score a profit on a batch of rentals that it sold along the way, the analysis found.
But for a seasoned player active in New York since the 1980s, and whose roots are in nonluxury affordable housing, the misses are notable. And they’ve recently piled up. Since 2020 the Stephen Ross-founded, Jeff Blau-helmed firm has suffered losses of between 10% and 70% on the sale of about 20 rentals, from low-slung postwar complexes in the Soundview section of the Bronx, to mixed-use sites on bustling blocks in Williamsburg, to stoop-lined Italianates in Prospect Heights.
Building size doesn’t seem to have mattered. In fact, the developer offloaded 141 Meserole Ave., a tiny 4-story prewar site in Greenpoint, to Long Island investor Elliot Sohayegh for $2.6 million, more than 40% less than the $4.6 million Related paid in 2015.
And hip surroundings couldn’t reverse fortunes: In November at 181 Havemeyer St., a 6-story prewar corner site with 25 apartments and retail storefronts in Williamsburg, landlord Palladium Property Group paid Related $5.3 million, more than 70% below the $18 million Related had paid eight years before, according to the city register.
Fire-sale-style transactions have also led to Related shedding Nos. 315, 319, 323 and 329 Lincoln Place in Prospect Heights; 196 Sackett St. in Carroll Gardens; and a collection of sites on Colgate, Wheeler and Watson avenues in Soundview in the Bronx, the analysis found.
More regulations for renters
The most logical explanation for Related’s dramatic exit is the recent sea change in laws affecting rent-stabilized tenants, which apply to some of the Related properties.
In a bid to protect renters from unreasonable increases, the Housing Stability and Tenant Protection Act of 2019 made it harder to raise rents on empty units once rent-stabilized tenants vacate; it also became tougher to pass on the cost of renovations through rent increases.
And market-rate tenants got their own pro-tenant boost in 2024 with the state’s passage of “good cause” eviction protections. Landlords had previously snapped up rental buildings with the expectation that they could jump rents quickly, a proposition that is now more in doubt.
Related could have possibly based its whole business model on deregulating units, and bailed out when that approach became hard. And there’s evidence from other players to support that take.
In 2016, as part of a wider Bronx push, Related bought six buildings on Decatur Avenue in the Norwood neighborhood that reportedly were entirely occupied by rent-regulated tenants for $12 million. Two years later the firm unloaded them to Taconic Investment Partners for nearly $20 million, a notable profit. But in 2023, well after the new renter laws had kicked in, Taconic offloaded the well-kept walkups for just $10 million, a major loss.
“Taconic is a great operator, and they did nothing wrong,” Cushman & Wakefield agent Eric Roth told Crain’s at the time, adding that high interest rates, which began their spike in 2022, had also driven up the cost of refinancing a mortgage on the properties, a hurdle also likely faced by Related. “It was a perfect storm.”
But there is not a lot of evidence to suggest Related aggressively rehabbed buildings with the intention of squeezing new revenue out of them, as some critics said was the case with the huge portfolio of prewar walkups owned by Kushner Cos. in the East Village.
In fact, investors who have purchased some of the Related sites say there’s little evidence any notable upgrades were undertaken. Also, unlike with Kushner tenants, who accused their landlord of trying to evict them by creating unpleasant living conditions, there does not seem to be a long trail of court clashes clouding the Related properties.
More likely, some analysts say, is that a big fish like Related had trouble fitting into the smallish pond that’s the rent-regulated submarkets in Brooklyn and the other boroughs.
Prewar walkups that have stood on blocks for a century often depend on a personal connection with superintendents to, say, fix lights or adjust plumbing. Filing a repair order with a massive company, which might offer a response only after a few days, could breed bad vibes.
“Managing a rent-stabilized building involves a lot of details, requires lots of hands-on attention to ensure proper compliance,” said Nathan Obtsfeld, the managing principal of Palladium Property, which besides 181 Havemeyer also recently purchased Williamsburg properties 164 Havemeyer St. and 442 Lorimer St. from Related at similar discounts. His properties are about 70% market rate, 30% rent-stabilized.
“I don’t think Related was really doing anything wrong,” he added. “It’s just that corporate management of these types of buildings does not usually work.”
In contrast, the Carlyle Group, a global private equity firm that has been gobbling up small prewar rental buildings in Brooklyn in recent years, often teams with smaller firms on these kinds of buys, such as Manhattan-based Greenbrook Partners, others explained, though Caryle also tends to zero in on buildings unencumbered by rent-regulated tenants.
Branching out
The losses may not just hurt Related’s bottom line but could also sting the city’s police officers, firefighters and teachers.
Several of the rental buildings were purchased by the investment entity Related Fund Management, which was founded in 2009 to target buildings reeling from the Great Recession. It was once an arm of Related (it’s not uncommon for big development firms to invest through affiliated investment funds) but since 2016 has apparently operated independently.
In 2013 Related Fund Management stockpiled a pool of money, the NYC Related Superstorm Sandy Rebuilding Fund, which included more than $300 million from the city’s five pension accounts, according to data from the city comptroller’s office. The biggest chunk, or $156 million, came from teachers, data shows; city employees kicked in the next largest piece, about $80 million.
Related contributed $10 million to the enterprise, which was intended to both rebuild flooded homes and also invest in properties for displaced New Yorkers, according to news reports from the time. It was also supposed to generate returns for city workers of as much as 12%, Comptroller John Liu said at the time.
Early investments for the company were in Astoria, near the East River at 11-15 Broadway, which cost $34 million in 2013, and 30-50 21st St., for $26 million. Related flipped both rental sites for double-digit profits two years later, the analysis shows.
But the Sandy focus didn’t last long. By 2014 Related had renamed the fund with a more neutral moniker, NYC Asset Investor #2, while also possibly giving it a broader mandate. Investments that followed were in areas far from Sandy’s wrath, such as in Bronx neighborhoods including Castle Hill, Norwood and Bedford Park.
And entire enclaves seem to have been targeted, such as a long row of prewar buildings on Carpenter Avenue near Woodlawn Cemetery in Wakefield and along Bolton Street by the Bronx Zoo.
Even though many of the entities that bought the properties were hidden behind shell companies, the Crain’s analysis was able to uncover the myriad Related deals by examining entities whose names contained variations of the word “Sandy,” as in 2012’s Superstorm Sandy.
How much daylight exists between the fund and the firm is unclear. And as a private company, Related doesn’t have to adhere to a high level of transparency in terms of financial reporting that could help untangle the two. A Related spokeswoman declined to answer detailed questions about Related Fund Management, whose managing principal since 2009 has been former investment banker Justin Metz even as Related was considered its parent.
Likewise the signature appearing on many of the properties’ deeds in recent years has been that of Matthew Becker, a Related senior vice president. And the spokeswoman conceded that some Related executives are Related Fund Management investors too. In any case, it’s probably fair to describe the lines between the two groups as blurred, analysts say.
Still, the Sandy fund seems to have fallen far short of its initial goal. By the end of June 2024, the rate of return for NYC Asset Investor #2 had plummeted a hefty 17%, according to quarterly reporting from the comptroller’s office, one of the sharpest declines of the dozens of funds that tap pension money.
To be sure, most Related funds have ended up in positive territory through the years, the expected performance of that kind of investment over a long haul. But the one tied to the Brooklyn properties and the like has tanked.
The Related spokeswoman, Kathleen Corless, had no comment about the fund’s performance and emphasized that the fund and not Related is behind many of the money-losing Brooklyn rental deals.
Of course, losses can become gains where taxes are concerned. Whether overtly or through its affiliate, Related could be unloading properties for a song to offset profits elsewhere, analysts say. That may just deepen the sense of mystery about what went wrong for a firm with $60 billion in assets and successes.
“It is quite possible they have done well. Losses are not always losses,” said Slater. “There are so many things involved that you cannot really ever know.”
