After New Haven’s economic development chief sold an investment property for $1.3 million more than he paid for it, a busy local investor wondered: Is it time to sell my own properties?
The investor, Jacob Feldman, asked that question after his broker told him about a recent property sale by Matthew Nemerson, a reflection of the city’s torrid residential real-estate market.
Nemerson serves as the city’s economic development administrator. He is also the managing partner of a limited liability corporation called Peabody Place, which on April 12 sold a 10-unit apartment complex at 245 Whitney Ave. for $2.31 million, according to city land records. Nemerson’s corporation bought the property in 2004 from Quinnipiac University for around $1 million.
Nemerson’s broker also happens to be the broker for Jacob Feldman, whose own family investment company, MOD Equities, owns and manages some 250 multi-family apartment units in New Haven. MOD has been buying new vacant property to develop, including the old Harold’s bridal shop building on Elm Street, which MOD won approval in April 2016 to turn into a five-story apartment building, and a lot at High and George streets, which MOD won city permission in December 2015 to build 115 furnished short-term-stay apartments above a storefront.
After hearing from his broker about Nemerson’s lucrative sale “for a very nice number,” Feldman said in an interview, he decided to see what prices he could fetch on some of his properties. Including those two he has won permission to develop.
“If somebody brings me an offer, that’s the world we live in,” Feldman said. “I would be a fool” not to entertain offers.
Feldman said that it might be a good time to sell the High-George lot because, after he won zoning approval to construct the short-term-stay apartments, he failed to reach an agreement with the lender on the project. Banks had become more cautious in general at the time about approving loans for unconventional projects, he said. The High-George project involved an unusual “hybrid” permit that would allow a small hotel to be built there instead of apartments. “It’s a unique project. That is not a standard deal,” Feldman said.
Feldman over the past few weeks approached another busy local developer, Randy Salvatore, about purchasing parts of MOD’s portfolio. Those talks are in progress.
Salvatore said in an interview that he’s in the “due diligence phase.”
“I’m seeing if all of it makes sense, some of it, or none of it,” Salvatore said. He said discussions first focused on the High and George property, then the Harold’s building. It’s too early to tell if he will decide to make an offer, he said.
“If Randy ends up buying it, it will be a beautiful hotel. If I build it, it will be beautiful,” Feldman said.
Salvatore has already developed a series of boutique hotels called Zero Degrees, so he could make use of the zoning permission granted for High and George.
Salvatore took heat from some Independent commenters on a recent story about his decision to put up for sale the Novella, a $40 million 136-unit luxury apartment building he constructed at the corner of Chapel and Howe streets. Salvatore said his discussions with Feldman prove that he has hardly lost interest in New Haven’s real-estate market. He’s also planning to begin a project aimed at bringing 140 apartments, 7,000 square feet of stores, 120,000 square feet of research space and 50,000 square feet of offices to 11.6 acres of mostly vacant lots between Congress Avenue and Church Street South in the Hill neighborhood.
For the past few weeks no work has been visibly done on the Harold’s project. Feldman said that’s because his crews recently completed cleaning up asbestos on the site and is now planning to begin a separate environmental clean-up of the basement. he said the project is moving ahead.
Nemerson, meanwhile, said in an interview Thursday why he decided to sell his three-story building at 245 Whitney in order to avoid conflicts of interest as city development administrator.
He bought the property back in 2004 from Quinnipiac University. Quinnipiac at first gave his LLC a short-term mortgage $920,724.81 to pay for the balance beyond what Nemerson estimated was a downpayment of about $80,000; Nemerson paid it back a year later and obtained a new $1.37 million mortgage from Wachovia Bank. He said he invested $700,000 in upgrading the building, previously used as a dorm for female Quinnipiac students with internships at New Haven hospitals, and rented them out.
Nemerson said he disclosed his ownership to the city when he became development administrator in 2014. He said as long as he merely continued to own the complex as is, without making major improvements, he didn’t see a conflict of interest.
But now the building needs another upgrade, including new kitchens, Nemerson said. He concluded that he shouldn’t undertake such a project while serving in his government role. “I should not be getting variances or talking to my building department,” which he oversees, he said. So he decided to sell the building instead. He hired a broker to handle the sale and made sure to keep his identity out of negotiations. “I never attended any meetings,” he said, so that potential buyers wouldn’t be influenced by knowledge that they were dealing with a government official.
Considering the money he invested in the project, he ended up netting more like $400,000, not over $1 million, over 13 years when he sold the building, Nemerson said.
After selling that building, Nemerson’s Peabody Place LLC has bought a new one. It paid $950,000 to purchase a six-family apartment building at 738 Whitney Ave. He said it doesn’t require obtaining permits or variances, so therefore he doesn’t anticipate encountering any conflicts of interest. He said he needed to buy another property with the proceeds from the sale of 245 Whitney in order to take advantage of a “1031 exchange” under the federal tax code. Otherwise, he said, he would have lost all the profit on taxes.