Harlem Investment Analysis Captures Upside in Changing Market

Investment Opportunity in
Harlem, New-York, NY

Initial Overview & Analysis

June 2012

The approach…
In order to provide an initial opinion regarding the investment
opportunity in question, I reviewed:
• The invetment opportunity in view of Harlem’s Real Estate
Market trends and recent figures;
• As a general reference - Yields and recent years capital
appreciation of U.S. residential REIT’s, which offer exposure to
similar type of properties.

Prepared by: Tomi Deutsch (C.P.A., EMBA) tomi@imagine-inv.com , June 2012 2

Harlem Real Estate Market

Trends & Figures

3

Harlem Real Estate Market - Trends

http://www.trulia.com/real_estate/Harlem-New_York/5131/market-trends/ 4


• The median sales price for homes in Harlem for Mar 12 to May 12 was
$243,000. This represents a decline of 65.8%, or $467,000, compared to the
prior quarter and a decrease of 59.2% compared to the prior year.

• Sales prices have depreciated 66.6% over the last 5 years in Harlem, New
York. Average listing price for homes on Trulia in Harlem was $784,924 for the
week ending Jun 06, which represents an increase of 2.9%, or $21,948
compared to the prior week and an increase of 2.6%, or $19,976, compared
to the week ending May 16.

• Average price per square foot for homes in Harlem was $271 in the most
recent quarter.


Harlem Real Estate Market - Figures
Residential

Multifamily Month in Review: Northern Manhattan, April 2012 http://arielpa.com/newsroom/report-MFMIR-Apr-2012-N-Man
7

Harlem Real Estate Market - Trend
Residential

Northern Manhattan Fundamentals Report - comprehensive overview of the retail, rental and condo market Released February 2012
8
http://arielpa.com/newsroom/report-ArielPA-NM-Fundamentals-2011

Residential - 2011

9

Harlem Real Estate Market - Trend
Average Retail Asking Rents Per Sq. Ft.

10

Average Retail Rents Per Sq. Ft.

11

Market figures vs. the investment opportunity
Residential
MARKET INVESTMENT Upside potential ~
Rent regulated OPPORTUNITY Status vs. current
Rent stabilization market value
Average Rents $ 16-17 $ 16 ?
Per Sq. Ft.

MARKET INVESTMENT Upside potential ~
OPPORTUNITY Status vs. current
market value
Average Sell $ 174 (1) $ 158 (3) Below market
Price Per Sq. Ft. $ 271 (2) $ 85 – 203 (4) value

(1) Multifamily Month in Review: Northern Manhattan, April 2012 http://arielpa.com/newsroom/report-MFMIR-Apr-2012-N-Man
(2) http://www.trulia.com/real_estate/Harlem-New_York/5131/market-trends/
(3) According to the OFFERING MEMORANDUM/Excel spreadsheet
(4) According to the adjusted calc. (see also annex A)

12

Market figures vs. the investment opportunity
Retail
Location MARKET INVESTMENT Upside potential ~
OPPORTUNITY Status vs. current
Average Retail Average Retail market value
Rents Per Sq. Ft. Rents Per Sq. Ft.
116th st. $ 54 $ 53 ?

125th st. $ 84 $ 23 Below market
value
According to the gatherd data, it seems as if the upside potential exists only re. the
retail space on 125th st.

As a result, should the rent be adjust to the abovementioned
average market value then the Gross Potential Commercial Rent
would increase by an additional $167,750 p.a. (compared to an
estimated increase presented in the pro forma of $68,132)

13

U.S. residential REIT’s

Yields & Capital Appreciation

14

Largest residential REIT’s by Mkt. Cap
June 15, 2012

Div. - Yields
2.2%
2.8%
14.9%
3.4%

In the past 3 years those REITs gained 68.25 – 182.66 % in capital appreciation

http://finance.yahoo.com/echarts?s=EQR+Interactive#symbol=eqr;range=20090617,20120615;compare=avb+agnc+udr;indicator=volume;charttype=area
;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;
15

Vanguard REIT Index ETF (VNQ)
Fund Summary
• The investment seeks to provide a high level of income and moderate long-term capital appreciation by tracking the performance
of a benchmark index that measures the performance of publicly traded equity REITs. The fund employs an indexing investment
approach designed to track the performance of the MSCI US REIT Index. The index is composed of stocks of publicly traded equity
real estate investment trusts (known as REITs). It attempts to replicate the index by investing all, or substantially all, of its assets in
the stocks that make up the index, holding each stock in approximately the same proportion as its weighting in the index.

• It pays dividends on a quarterly basis. Beta (3y): 0.95

• . erformance Overview
P
Year to Date Return (Mkt): 13.77%
3-Year Total Return (Mkt): 32.47%
Yield (ttm)²: 3.27
²As of Apr 29, 2012

• In the past 3 years it
gained 93.65% in capital
appreciation (more than
doubled the S&P 500)

http://finance.yahoo.com/q?s=VNQ
http://finance.yahoo.com/echarts?s=VNQ+Interactive#symbol=vnq;range=20090615,20120611;compare=^gspc;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;
16

Summary
Inspite the fact that it seems that the investment opportunity in
question has an upside potential and that some of the figures
indicate that the properties were acquired below market value,
further consideration and clarifications are required in light of:
• Various assumptions taken (including aspects concerning the
refinance);

• The suggested distribution terms and preferences;
• Yields and recent years capital appreciation of U.S. residential
REIT’s, which offer exposure to similar type of properties.

17

Harlem Investment Analysis Captures Upside in Changing Market

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