This Office REIT Just Bought 2 Apartment Buildings – Here’s Why


Empire State Realty Trust ( ESRT -1.97% ) has primarily owned office buildings for much of its history, but has recently added New York City apartment buildings to its portfolio. In this crazy live Video clip, recorded on January 28Christina Chiu, Chief Financial Officer of Empire State Realty Trust (ESRT), explains why the company decided to add a residential component to its investment strategy.

Matt Frankel: You mentioned multifamily, you just purchased two multifamily properties. I think the first major acquisitions since the company’s IPO [initial public offering] in 2013, if I’m not mistaken.

Christine Chiu: That’s right.

Frankel: What was the thinking behind multifamily? Was it to diversify? Was it just that you saw an opportunity? Was it out of fear of what might happen to offices in the long run, or was it all of the above?

Christine Chiu: ESRT, prior to the multi-family acquisition, already had a variety of ways to add value to Manhattan, New York City. We have our office business, which we just talked about, the value proposition there. We have retail, some building spaces, some freestanding.

Our retail business is, think of it like everyday retail, a high volume type of traffic. Tenants love Target (TGT 0.19% ). it’s not High Street luxury. We think that’s really the wealth of retail. Then we have the observatory activity, which is a real plus for the company when tourism returns fully. For us, exploring multifamily means we’re focusing on New York. If you have three ways to add value, are you helping to generate long-term shareholder value if you have a fourth way to add value? That was really the genesis to further expand our optionality.

We are in New York, local sniper. We understand the market, the sub-markets. We are influenced by the New York City recovery and should find an additional way to deliver value to our shareholders. Multifamily uniquely has different drivers for the business. The demand drivers are different from office and retail. You get different inflation coverage due to annual rent reviews. There is attractive long-term revenue growth potential and the investment profile, capital expenditure profile is different from that of the office. We thought that was a very nice compliment.

I think the logical question goes ahead, what does this mean? You keep growing and I think those are the areas. We have these four areas, and we would like to add to multifamily, but it will depend on our ability to buy well. We want to be able to generate shareholder value, and if the right opportunities arise, we will certainly look to buy more. We don’t want these to be orphan assets, but we’re not going to rush or force a number of units. Everything will depend on our ability to generate value.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.


Comments are closed.