New York City Pensions to Fund $250 Million Apartment Venture

For New York City’s pension funds, there’s no time like now to invest in new apartments.

The two largest retirement systems -- covering public school teachers and municipal employees -- are teaming up with developer Hudson Cos., to allocate $250 million for construction of middle-income housing in the city and surrounding suburbs, the developer said.

The pensions will commit $243.75 million of that equity, which will be leveraged to build as many as 10 projects or 2,000 units, said Joe Riggs, principal at Hudson. The partnership has so far identified two possible sites, one in Brooklyn and the other in Westchester County.

“It’s always the right time to build new housing -- especially housing that’s affordable,” Riggs said. “We see an opportunity to acquire development sites on a reasonable basis for the first time in a long time.”

New York City’s famously high rents have plunged during the pandemic as workers stay remote and find little reason to pay a premium to live near the office. The price declines are making urban housing more accessible to tenants of lesser means, but they’ve also damped developers’ enthusiasm for planning new market-rate projects now. That’s created an opening for those who seek to build affordable units, according to Riggs.

“Land is less expensive than it’s been in many, many years because the rental market is suffering right now,” he said. “Our investment strategy doesn’t rely on booming rents, which is why we feel good about proceeding even with these headwinds.”

The joint venture must use at least 70% of the funds to build new housing, according to terms of the deal. The remainder may be used to acquire and renovate existing units. Projects may range from all rentals to lower-priced co-ops and condos, Riggs said.

For rentals, the partners plan to develop, manage and generate income from the properties for about 10 years before selling them. New York City projects would likely have about 30% of units designated as affordable to middle-income tenants, with the rest available at market rate -- a balance that’s been used traditionally to make them profitable, Riggs said.

The partnership “creates an innovative new fund to generate sound financial returns for our pension systems while developing critical new housing throughout the region,” Yvonne Nelson, head of real estate at the New York City comptroller’s office, said in a statement.

This is the second joint venture between Hudson and the city retirement system. In 2013, all five New York City pension funds invested a combined $500 million in residential and commercial real estate, focused in areas damaged by Superstorm Sandy. Hudson was one of the development partners.

That original partnership built two mixed-use apartment buildings -- the Lois, and the Clark -- in Brooklyn, on the border of Prospect-Lefferts Gardens and East Flatbush. In both towers, 30% of the units are set aside for tenants earning as much as 130% of the area median income, or $108,680 for a single-person household, according to city data for this year.

The 2013 investment with Hudson had a return of 7.6% through the third quarter of last year, according to pension filings.

©2021 Bloomberg L.P.

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