USC creates $100M fund for condo-to-rental conversion strategy

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Seth Weissman’s Urban Standard Capital (USC) has launched a
$100 million investment platform to buy condo units from developers who need to
hit the 15 percent sales threshold to effectuate condo conversions.

 Initially targeted at
the New York City market, the fund would buy enough units at a market discount
to enable the sponsor to turn the remaining units into rentals until the market
recovers. 

The platform plays to the New York State condo conversion
laws where, in order to convert an occupied rental into a condo, a developer
needs 51 percent of the current occupants to buy their apartments.

“This change makes converting an occupied rental practically impossible,” said Weissman. “Our platform provides a solution to sponsors who need to generate cash flow today and want to maintain optionality to sell units at higher prices in the future.”

SETH WEISSMAN

Weissman said he has spoken with numerous sponsors who want
to rent out their completed units now to bring in cash flow but have not been
able to reach the 15 prcent sales threshold due to COVID-19.

“This is problematic because they would otherwise need
to hit the 51 percent insider sales threshold in the future, which is nearly
impossible,” added Weissman.

The investors expects to buy around 50 units at a 30 percent
discount of pre-COVID pricing. It would then rent the units out, but ultimately
would sell them.

“The cash flow from the rental income would be largely
sheltered from depreciation and the capital gains would be long term,” explained
Weissman, whose firm has seen a surge in developers looking for new loans to
pay off their construction loans and carry the projects without sufficient
sales to achieve the threshold needed.

“Many condo developers are sitting on product they can’t
sell at the moment,” added Weissman. “Many developers would like to go rental
instead of selling at today’s discounted prices to the extent there is a bid.”

By selling a portion of their units to Weissman at a discount,
they will be able to meet the legal threshold that allows them to rent out the
remainder and generate cash flow.

While USC plans to start the fund with $100 million, Weisman
said it may allocate additional funds “depending on the depth of the
opportunity.”

“We encourage qualified sponsors with assets and/or projects
under distress to contact us so that we may help create a partnership and help
them get through these times,” he added. “We want more than anything
to help play a positive role in the future of New York City.”

Celebrity broker Ryan Serhant said the new fund will save many
developers from defaulting on their loans.

 “Urban Standard’s
condo investment platform solves a critical problem for developers in New York
City who simply need to buy time,” said Serhant.  “There is increasing confidence in the
market as buyers factor in the vaccine and anticipated Biden stimulus
package.  Urban Standard’s condo strategy
will allow developers to carry their projects to the market recovery which is
clearly on the horizon.”

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