More on SG2 and Private Equity

Opinion by blogger Gregory Lobo Jost:
In addition to Private Equity landlord SG2's buying and selling, the Daily News Bronx Section reports on the continued lack of cooking gas at 1530 Sheridan Ave. Tenants have been making due with electric two-burner counter-top stoves since the end of December, with many tenants reporting problems.

This potential sale of two dozen properties represents more than a third of SG2's portfolio; according to our own research, the firm owns about 70 buildings with 4,700 apartments in the Bronx. Overall in 2007, private equity groups paid a significantly higher price per unit ($83,300) for their Bronx apartment buildings than other buyers ($76,000), expecting higher returns through "maximizing income potential" (read, raising rents through various means).

It's curious that SG2 is trying to flip some of their buildings so quickly. It may be that they are trying to cash out while there are still buyers willing to pay extremely high prices despite soaring operating costs (fuel and water being prime examples). It could be that they are realizing that the "upside potential" in these properties isn't meeting expectations, as tenants are already paying half of their income on rent and the gentry fails to arrive in the Bronx.

Unfortunately, the extremely high sales prices being paid for west Bronx rent stabilized properties means many tenants will be forced out to cheaper parts of the City. (Oh wait - there aren't any parts of the city that are cheaper!) Of course, the possibility exists that tenants able and willing to pay the higher rents won't materialize in our neighborhoods, but that isn't good news either: buildings may likely fall into disrepair and may even end up in foreclosure. (Read more on this here and here.)

Meanwhile, I just found out last week that my building is also for sale for more than $120,000 per unit! Hopefully no one, especially a private equity firm, will buy it.