Plan Several Possible Ownership Timelines Selling When The Market Is Hot
A classic example of timing a sale was demonstrated by Leonard Kandell
who made his fortune by constructing and leasing residential
apartment buildings in New York City. Traditionally, he was a longterm
holder. However, when the idea of converting apartment buildings
into cooperative apartments became red hot, there were any
number of avid buyers scrambling to buy residential rental buildings
with the objective of converting them into co-op apartments, so the
units could be sold individually for high prices. The problem faced by
any owner wishing to convert a building to cooperative ownership was
getting 15 percent of the renters in the building to agree to buy their
apartmentsThat was a legal requirement in the State of New York before
the owner was permitted to declare his cooperative plan effective.
That’s where extensive negotiation came in. If you didn’t get 15 percent,
you couldn’t declare the co-op plan effective and there was a
waiting period before you could try again. So getting 15 percent of
tenants to buy often involved complex negotiations relating to the
price they would be willing to pay for their apartments and what they
wanted the owner to do for them to induce them to become buyers.
Once the co-op plan was effective, eviction proceedings were possible
to permit the owner to get possession of the remaining units and sell
them to new buyers. Agreeing to exorbitant payoffs to some tenants
became the norm.
Kandell owned many apartment buildings and he regarded his tenants
as family. When I asked him why he didn’t cash in on the conversion
boom he said, “I don’t want to fight with my tenants over turning
their building into a co-op. Let someone else have the headaches and reap the rewards.
Since the market for apartment buildings that are
ripe for conversion to co-ops is hot, I will sell them at a premium to
people who want to convert them and I’ll take the money to buy land
in a good location that has a long-term ground lease.”
Kandell made a conscious decision to give up the income that he
had from apartment rentals, sell the buildings at high prices because of
the particular demand that existed at that time, and turn the money
into a safe, gilt edge, and passive investment in ground leases. Taking
advantage of favorable tax treatment, he swapped a building that could
go co-op for a ground lease that was owned by my old client, Sol Goldman.
The land Goldman swapped was under a major office structure,
known as the Newsweek building on Madison Avenue. The rate of return
was lower than Kandell earned from the apartment building but
it was a rock-solid investment that would ultimately appreciate in
value. By repeating this investment technique, Kandell amassed a considerable
fortune that he left for his heirs without the headaches connected
with active ownership and operation of apartment buildings. I
learned later that some of the co-op conversions of Kandell buildings
never got off the ground primarily because of fights with tenants that
ended up in the courts. Kandell took advantage of an opportunity to
cash in when the time was ripe and changed his investment strategy to
a more conservative one.
Whenever the market is hot for the type of
property you own, you should consider selling and reaping large profits,
then putting the money into another type of real estate for which
the demand, and the price, is not so high..
The following are examples of several strategies that successful realty
investors utilize. Some of the strategies are short term and some
are long term.This strategy is long-term in nature, because you’re investing in a
property that you intend to hold, and then either develop it some
time in the...
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Renting houses or apartments has always been a great way for realty
investors to show a good return on their investment. However, when
it comes to renting houses to tenants, there’s another potential
method one can use to earn an even greater return. You can do it by
giving a tenant an option to b...
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Sometime a piece of real estate requires a change of use to achieve a
greater value. If you have a residential building that isn’t doing well and
the zoning permits the change to office use, check it out. If it’s costeffective
based on the cost of the conversion and the increased income
from off...
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Once again I must use Leonard Kandell as a prime example of brilliant foresight and real estate savvy. Kandell owned land on Central Park South in New York City under a ground lease owned by the operator of a Ritz Carlton Hotel. It was a valuable piece of land in a very strategic spot with a majo...
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Partnerships or joint ventures are excellent vehicles for blending diverse
investing interests into a cohesive business entity. One partner
may put in nothing but money, another may put in both money and
expertise, a third may contribute land. The documentation binding
them together requires careful...
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