How Do You Turn a Vacant Building Into 108 Apartments?

(0:00) My guest today is CEO and co-founder of Kings Capital, a New York investment firm that buys repositions and builds multifamily, mixed-use, and retail properties in New York City and the Sunbelt. This summer he bought a vacant 17-story building in the financial district for $30 million, and the plan is to turn it into 108 apartments. Before Kings Capital, He managed Brooklyn properties and co-founded a brokerage (0:30) focused on off-market deals. His firm says he has sourced, negotiated, and transacted more than $500 million in real estate. He was on a panel at the ReDeal Summit this past June. This is an event that I was lucky enough to be an MC about what is really happening in the New York City real estate market. And I wanted to have him on my podcast, The Wealth Clock. Today we get into how a vacant building becomes a thirty million dollar deal, how he finds other people or other deals other people never see, (1:02) and how he raises money to do it. (1:42) Welcome to the show, George. I appreciate you coming on. Thank you Steven good morning, thank you for having me. Okay, let's let's go back a little. where are you from? How'd you get into real estate? Born and raised in Brooklyn, New York, Greek descent, both parents migrated from Greece in their teens. Grew up in Marine Park, second part of my life, I lived in Midwood. Worked in the family business for some time and realized I didn't want to do retail and got my real estate license, that's something to do. And started managing the family properties that we had, helped repositioning, did some lease up, some of the management stuff. (2:13) Through the brokerage, was able to save a couple of dollars and realized that I wanted to be on the ownership side. And that's when I had met my partner today, Jeff Znaty, and my brother and I, and we were on the partner at the time, Richard, ended up buying some properties in Ocean Hill together. Between 2013 and 2018, we bought eight buildings. Where is where is Ocean Hill? Ocean Hill is the pocket between Bed-Stuy and Bushwick. It's that little pocket east of Bed-Stuy right before the Broadway Junction. (2:43) Got it, got it. So it's in Brooklyn. Okay, good, good. So you're here in Brooklyn. I'm in Brooklyn. I'm born and raised as well. I I I actually live we we we did a swap. I grew up in Midwood and now I live in Marine Park. So maybe I'll see you on you know at the park one day, jogging or something. so you're in real estate, you're managing property in Brooklyn, you decided you want to I guess get in on the ownership side. What was the first building that you bought on your own. And when I say on your own, I don't necessarily mean with your own money, (3:14) but with your own firm. not necessarily with a previous firm that you're working with, but really on your own. Yeah, was back when I Yeah. mentioned in 2015, we bought a couple of six families in Ocean Hill. That's when I had saved and I got outside the family stuff, which is still part of the legacy assets today. But on my own was in 2015, we bought two six families in Ocean Hill. Buy rental real estate in New York City, it's extremely tough. And when I say tough, you're fighting with regulation constantly. (3:46) we had this rule or law that passed in 2019 that really killed a lot of landlords, it really hurt or put a dent into planes. I know some of the smaller assets are not necessarily affected by it. how did this 2019 rule that went into effect affect you and maybe affect others that you know in the business. I mean, it turned the industry upside down in many ways. you know, people, a lot of people that were in the value add space, which we are, you know, you know, aren't able to go into buildings and renovate and do the things they wanted (4:19) to in the past where they're included buyouts or, know, just converting a building as a whole. There were a lot of laws that were that basically basically erased that business overnight. And we have a very small. portion of our portfolio of stabilized units. So it didn't affect us that much. know, probably less than 5 % of my portfolio of stabilized assets. Even less than that, probably, I'm just guessing at this point. But in general, I've seen things trade for less than half of what they would purchase, you five years ago. So the industry is upside down. (4:49) I think you have north of 60,000 vacant apartments rent stabilized apartments in the city, which is creating a big supply constraint. So In general, it screwed everything up. To the free market stuff that we own, that stuff went the opposite way. So that stuff went, it appreciated like crazy over the last few years. So it's just been a complete challenge, I would say, in terms of finding new properties to buy, but also helping some of the free market stuff that we do own. Tell me about this building in the financial district, which is in Manhattan. it's a vacant building. (5:19) your plan is to turn it into a hundred and eight apartments. Tell me how you found it, how long a plan like this takes, you know, from beginning to end, any details you could share on that. Sure. Well, it's actually going to be 108 apartments and two retail. We're to bring two ground floor retail. We already have a tenant for one of the spaces. That property was marketed through Cushman and Wakefield. They ran a full process in October of 24, actually. And there were many challenges with this building that I guess deterred (5:49) a lot of people that people couldn't figure out. It was part of the Mitchell-Lama program. It was overbuilt in some capacities. It didn't have the setbacks that that are required today. there were a lot of hurdles to get through, to get comfortable. We were able to do a lot of the diligence, which we always do prior to acquiring a property upfront and felt comfortable. There were many people that were all over this asset and they were initially targeting something in the mid 30s, around 34, 34 and a half million. And just as the market moves, we move and we just track the deal, (6:20) stayed on top of it. And you know, We saved a few million dollars, honestly. We were trying to pull this trigger at 32 million and then things changed and whatnot. And we ended up just didn't, we did a faster close and we locked it up at 30 million, 100,000. Wow, wow. And how long do you anticipate the construction to take? We on the road like 14, 15 months, but we're thinking we could do it in maybe 12, 13. What kind of units, what kind of apartments are you exp are you looking for? It's a mixture of studios, ones and twos. (6:50) We're targeting, obviously we bought it from New York Presbyterian Hospital. It was former nursing housing. That was one of the challenges that people had converting into Class A residential. So we have the hospital across the street. So we think we'll have a lot of spillover from residents coming in, nurses, doctors, patient universities three blocks away. And FiDi in general, it's marked as one of the fastest growing Yeah, yeah. neighborhoods. We're going to have fully renovated apartments with all the amenities possible in the units and doing a rooftop and, you know, golf simulator, storage, Nice. (7:20) gym, doorman. It's going to be a fully amenitized building. We're trying to check the best of the best. What are you hoping for rent for some of these units? mean, we're talking north of 100 a foot on these things. They're going to be smaller units. Small units tend to get higher rents per foot. You know, we're in the range of low fours to mid sevens, depending on the unit. Got it. Got it. there's lots of tax exemptions you could do. from what I understand, you did not use the four eighty five X exemption. Can you explain, I guess in one sentence, (7:51) to someone who doesn't know what is this four eighty five X and why did you not do it? Well, the 485X is specifically for ground up construction, which this is an existing building. That has its own challenges. We can talk about it another time. They have the 467M, which is for office to residential conversion, but this was not office. It was actually nurse housing. But what we were able to implement here is we are applying for tax credits. So we think we'll be able to get a substantial amount of equity back through tax credits here. for a bunch of years. How does that work? Correct, yeah. Okay. what kind of lender are you using for this or is this you know, (8:25) taken out of the piggy bank? bridge lender, you know, we try to get 70, like low 70 LTC on the deal, total loan to cost. So we have the we did the acquisition loan, which we closed back in July and the construction loan should be closing in the next few weeks. Gotta how are the rates on these types of loans these days? They're expensive. They're expensive. mean, it's not for the faint of heart, but we make it work. We have a very good relationship with our lender, Derby Copeland. So shout out to Derby Copeland, who's done a lot by us, do well for us over the last few years. And they're the lender on this deal and they're doing the best we can. (8:57) I don't want to talk numbers because for whatever reason, the deal works. It's going be a very good deal for us. Outside of New York City, tell me about some of the real estate you're involved in. Well, we have some stuff in the Sunbelt and we acquired that back in 21 and 22. It's had its challenges. I'm not going to sugar coat it. That market took a, took a hit over the last few years. We were able to stabilize the properties. We refinanced, but it's had other bunch of challenges. can't even imagine, like when I say you can't even imagine things that came out of the whirlwind that you wouldn't expect, (9:28) you know, ICE agents, for example, very close to the border. It's, it's, it's. It's a Spanish central market in that part of Texas, Pasadena, Houston. And we have ICE agents coming to raid properties, for example, power plant closed and we had vacancies. like things happening overnight, people have, it's carry licenses, guns on properties, the things you wouldn't account for in New York. So it's extremely challenging buying in Texas right now. we've been, although we have 330 apartments in Houston and (9:59) the market took a big dip and I think it's a good time to maybe get back in on some opportunistic stuff for the time being. But with a lot of the lessons that I learned over the last few years, it would be a lot more specific and a lot more particular on moving forward. Is it safe to say that you're focusing back home in the New York market? Yeah, we're very bullish on New York. We have eight projects that were in either in process right now in varied phases. We have a condo selling out in Greenwood right now. We're launching one in Brooklyn Heights. We're closing two more deals in the next six weeks. (10:29) One in Brooklyn, one in Manhattan, ground up condos. And we had a bunch of closing the summer, the Gold Street deal you mentioned. Another one on Mott and Prince, which should be a boutique development site, which we bought off Time Equities. and a bunch of other stuff that we're just in various phases on right now. like our focus is in New York, it's on bread and butter. We believe New York still has a lot of legs. So we're all energies going here right now. I'm gonna delve into a topic maybe you don't wanna talk about, but we have a mayor here in New York and a lot of people are happy with (10:59) him and a lot of people are unhappy with him. In terms of real estate, in terms of tenants, in terms of higher you know, class A type of properties that it seems that you're involved in, especially in the financial district. Tell me what are you what are your thoughts about New York in terms of the mayor? Is the mayor just a temporary glitch? Is he not a glitch at all? you know, tell me anything you wanna say or hold back and you'll tell me offline. Yeah, no, I have no shame. I'll say my thoughts. (11:30) look, I believe that short term, there's definitely been a negative sentiment in the market and it's deterred some people from entering. There's definitely equity on the sidelines from New York because of the sentiment that some of our investors and people that I've spoken to have come in on some deal, just want to see with how things pan out in many ways. So the sentiment is more negative than positive on the real estate side. What I do understand and what they want to accomplish. there's two things, know, politicians do things for votes. That's just how it is. They do things to appease people. (12:01) And if that's the case, then they're doing more harm than good because the market is affected negatively. I do believe there's an affordability issue in New York in many ways, both on housing and just in general, just things are just very expensive and it's been a triple effect from COVID. So I do believe there should be some sort of regulation, and I don't if that's the right word, but programs put in place as well with developers that we should be working together with local officials to fix the problem. (12:31) You know, and that I don't think like freezing rents, for example, which was an easy win for the administration is not going to solve anything. You'll help people save a couple of dollars and whatnot, but that's not going to solve a problem. It's just really not. You have expenses rising. You have people not being able to, you know, pay things. And it's not creating housing. You know, they have this 485x program, which you referenced earlier, which again, it's, it's, it's a program that was designed to create affordable housing, but the way they designed the program is, is actually preventing a lot of developers from entering just the way it's worded. (13:03) And then just the way it is, whether it be prevailing wages, whether it units over 99 units, there's a lot of issues with that program. So cool heads prevail. I hope that people can sit down together and figure this out, but. I do think there's an affordability issue and I think that it can be resolved, but it requires the officials giving something to landlords as well as owners, landlords giving something. If you need something that's permanently affordable, no problem. You need to exempt some of my taxes for a certain period of time. That could be with stabilized units today. You want to freeze rents, freeze rents, but the landlords need to get something back. So a lot of these owners, they're mom and pop owners. (13:34) Then people look at landlords as being like these conglomerates when you have mom and pop people losing their shirts and it's just not fair. Okay. I did some research. you tell me if I'm wrong over here. ChatGPT helped me with it. back in 2021, at the height of the pandemic, you bought a property on Mulberry Street in Little Italy for about five million dollars. Make sense? Five and a half, yeah that's correct. Okay, this was your first Manhattan multifamily, and it was apparently the first sale of that building in more than 60 years. (14:05) So My question is, why did you buy this property in the height of the pandemic? Most people were on the sidelines. And how did you get access to this building after, you know, not being on the market for that period of time, sixty years? Wow. Well, Warren Buffett said when people are greedy, be fearful. When people are fearful, be greedy. And I always remember that. And COVID was something that nobody expected. And it was a very dark time for us, especially in the real estate market. (14:35) There were articles that came out of just the vacancies in Manhattan. It was of exodus, right? So you could play football in Times Square. That's how empty New York was at the time. But I looked at it as an opportunity. And if I was ever going to get into Manhattan real estate, now is the time. And I got a call on the deal from a local broker that I knew in Brooklyn. It was actually July 3rd. Obviously nothing was going on. I was in the office and you know, he's had this vacant building and you're interested. And I called up my partner at the time and said, you know, what do think this is worth? (15:05) And he says, I think in a normal, you know, roughly around 7 million bucks, you know, so I knew it was a very good opportunity for us to go in and Marcus and Millichap had the deal, but we hadn't seen it. And we were able to be aggressive on it and we signed the contract within three or four weeks of seeing it. who was the seller? old Italian family. actually migrated from Italy in the 40s. The stuff we found in their basement afterwards, it was just like really historic, really awesome stuff. I have some of the playbills in my office from the 40s and variety magazines and a lot of stuff that the family lived there since, (15:35) you know, for over close to 70 years. Why did they decide to sell it now? It was COVID, was their same reason. They wanted to, they were getting out of the city. I think they moved to Connecticut. Very interesting. Wow. Wow. Yeah, COVID was a very interesting time. it was good for some, bad for others, but it was definitely a very, very interesting time. what is your what is your buy box? any properties that are too small that you want to look at? Any properties too big that you can't touch? I it's definitely small, you know, but I would say there's always caveats. (16:05) Like we're not looking at anything really five million or under, but if a three or $4 million deal came up in prime Brooklyn, Greenpoint, Cobble Hill, Boerum Hill, Brooklyn Heights, you know, we'll do it because location, you know, will triumphs price in that situation. But we're really targeting five million and above. It's five to 150 million right now is really the price range. Buy box is the value add multi stuff. conversions, office to resi, ground up development, joint ventures, vacant buildings, mostly free market buildings. We look at stuff that's partially stabilized, (16:36) but it can't be more than called 10, 15 % right now. It's really where target and it's gotta be primaries of Manhattan and Brooklyn, like North Brooklyn and Manhattan South of 96 is really where we're looking. Got it. What else does your day look like? I I I'm assuming you're not reaching out to tenants, collecting rent yourself, or maybe you are. What what is your typical day? Are you dealing with investors? Are you dealing with the lender? talk me what what your role in your company is. combination of everything, you know, (17:06) I'm in many ways that the conduit between all departments, acquisitions, asset management, construction management, investor relations. I have my hand in everything. I don't do just one thing. Every day is different. You know, it could be managing the acquisitions we have, the new deals that are coming in, you know, it could be meeting new investors. It could be pitching a deal. It could be speaking to a lender about a problem that popped up, putting out fires. deal with asset management on the current portfolio. It's a little bit of everything on a daily basis to be honest with you. When you speak to investors or potential investors, (17:37) how do you talk about returns without overselling? What what do you refuse to promise when you're speaking to a potential investor? there's no promises, right? We, we can project the best we can and you do your best to complete your underwriting. The one thing we say, and we believe this to heart is we, we are all underwrite conservatively. Whatever the GC will tell us, we'll try to fluff a few months. Whatever the budget we get, we'll add a contingency to that, you know, whatever we don't project out on our sales. (18:07) Well, whatever sales we're using, whatever sales we're doing on a condo could be, let's say we're launching in two years from now, we'll use. numbers today, we don't trend. So typically, if you can beat one of those metrics, or all of them, you'll end up exceeding the expectation. So the only thing I can promise is that I'm gonna do my best to beat the projections. That's typically what we do. And we believe anything we do outside the underwriting, let's say this, and a deal can make sense on paper, but outside that there are other things, variables, which are more subjective in my opinion that will make me move forward on a deal or not. (18:37) And one of those things is I have to believe that the underwriting is actually executable in the market and do I love the real estate. So if I combine those things, I feel very confident because I have to put my own money in this thing. You have a relationship with your lender. I'm assuming you have people calling you on a regular basis, pitching you, you know, are you ready to refinance? You know, they're looking up CoStar saying, Hey, your loan is about to be due. What do you tell them when the when they call you or are you not even answering their phone or email at this point for for those types of calls? (19:09) Look, the selling code, come in all the time and they're not going to stop. I don't fault people for trying to get business and that's okay. But as a sponsor, you have to manage your time. There's definitely a balance between trying to see what's available because you always want to do better. At the same time, you have to focus on what's at hand. So we keep an open ear for new possibilities because from my experience being in the business for this long, you see that lenders change appetites. They get spread thin sometimes, sometimes they change their investment criteria. Sometimes the source of capital might change. (19:39) at any given moment, you know, a lender can pull a plug on what they're investing, what they're lending on. So we definitely have an open ear. So far so good with our relationships, but you have to see what's out there at all times. Outside of real estate, what do you invest in? Meaning more for diversification, not necessarily business related. Do you put some money in the stock market? Are you an index fund guy? Are you buying Bitcoin? Do you keep it in the mattress? What what do you do to diversify when you bring some of these some (20:11) of these deals go well and you bring some of the money home? Where where are you putting this? I I put a bunch of money in all my deals and outside promotes and fees and whatnot. I believe that I can make money on my money. So I'm investing heavily on all my deals. So obviously we have a bunch going on at one time. So I have to find a way to balance each transaction. But outside of real estate, I've invested in a restaurant, I've invested in a bar, I have money in a cash advance company, I have Bitcoin. I have invested in a MVNO, which is a prepaid cell phone service. (20:45) So a little bit of different things. If I feel it's opportunistic and I believe in the people behind it, I'll jump in other things as well. What do you do for fun outside of work? Outside of work, fun. I love to travel. I have to go back to Greece. That's my happy place. I try to get there a few times a year. Spend time with family. I'm a big basketball guy. Knicks in five. I don't miss a Knick game. Hit the gym every day. I love personal development books, as geeky as maybe that sounds, but I love stimulating my brain. Spend time with quality people. (21:16) Lately now I'm taking up golf. As I get older, I realize I have to find new hobbies that I could play sports in and not ruin my back. So I picked up golf recently. Not pickleball like everybody else. You know what, might get there, but golf is, I love outdoors, so I'm trying to be on the course. So my goal is to play golf and it's good networking out here. George, thank you so much. I learned a lot. Tell everybody here how they can reach out to you if they have any questions, if they want to sell you something, if they if they're a lender and they want to work on your next deal, (21:49) if they're selling insurance, you know, all the all the calls that you love getting. maybe some investors will see this and and call you or potential investors, you know, what's your website, phone number, email, address, anything you want to share. I'll put it in the show notes. Sure, I appreciate it. My direct email, first of all, thank you for having me. This was a pleasure and I look forward to maybe doing another panel with you one day. My email is george at kingscapitalre.com. Website is kingscapitalre.com. You can reach me on LinkedIn. That's G-I-A-N-N-O-P-O-U-L-O-S, (22:19) George Giannopoulos. Instagram. My direct is George with three underscores, Giannopoulos and then the KingscapitalRE. Instagram is fine and to submit a deal, can send it to me directly or we have a deals email which gets filled as just for deals that our acquisition team oversees. That's deals at kingscapitalre.com. George, was great having you on this episode of the Wealth Clock Podcast. I met you in person four months ago by this ReDeal event. It's really become a premier networking event here in the New York area. (22:52) You were a rock star on the panel. people were mobbing you for autographs after the fact. And I'm happy you finally came on the show. Thank you so much, George. I appreciate you having me. Thank you again.