Attracted to the promise of steady annual returns, real estate investment funds, foreign and institutional investors, and local operators are snapping up rental properties across New York City.

Next month, a joint venture comprising a local investment group and a prominent real estate investment fund is expected to close on the purchase of a portfolio of 4,000 units on the Upper West Side and Harlem. The joint venture is paying about $250,000 a unit, or $1 billion in total, for many of these buildings, which were constructed and financed through the Mitchell-Lama program.

The New York Sun has learned that a local investor is in contract to purchase 800 apartments and numerous stores in 33 buildings on the Upper East Side. According to a prominent investment broker who asked not to identified, the investor “bought this once-in-a-lifetime package with tremendous value in future upside potential because these buildings were never aggressively run as far as strong management is concerned.”

Overall, the market is buzzing. “With land becoming more and more scarce in Manhattan and capital still flowing into the island like waves breaking ashore, the keen demand for existing residential rental property is as great as I remember in my more than two decades in the industry,” the director and principal at Eastern Consolidated Properties, Alan Miller, said.

“Competition for deals is intense, with bidding wars erupting for almost every available property that comes to market,” he said.

“Residential rental buildings have always been in big demand,” the senior partner at Massey Knakal Realty Services, Tim King, said. “They are an appealing asset class for investors that range from small family operations up to the largest institutional owners.”

He added: “Private investment funds find these buildings to be attractive due to the predictable cash flow, consistent increase in rents in stabilized buildings and the insatiable demand for housing in New York City means that vacancy rates will always be minimal.”

Investors from around the globe are looking to invest in New York City, as evidenced by the recent sale of the East Harlem residential portfolio owned by Steven Kessner to a group from Britain. The purchaser, Dawnay, Dale Group, bought a portfolio of 48 walk-up and elevator apartment buildings for about $225 million. The portfolio includes 1,141 apartments and 67 retail stores that sold for about 13 times the gross rent roll.

“With interest from local, domestic, and overseas groups looking to own a huge swath of real estate concentrated in one neighborhood, the bidding came from far and wide eventually the package was snatched by another first time buyer to the Big Apple,” Mr. Miller said.

Israel-based Brack Capital has been an active purchaser of residential rental apartment buildings. On March 13, it purchased the 77 year-old, 30,000-square-foot, 44-unit residential elevator apartment building at 140 East 17th St. near Rutherford Place. It paid $15.4 million, or $350,000 a unit ($513 a square foot), nearly 18 to 19 times the gross rent roll for the building. Last year, Brack paid $158 million for the 325-unit apartment house at 240 E. 27th St.

Last month, the Bassuk family sold a portfolio of 14 multifamily apartment buildings in Brooklyn and Queens for $118 million to a joint venture of JP Morgan Asset Management and the Bronstein Family. The portfolio consisted of 844,000 square feet in 943 apartments in the Bay Ridge, Midwood, and Brooklyn Heights sections of Brooklyn, and the remainder in the Sunnyside, Jackson Heights, Richmond Hill, and Woodhaven sections of Queens. The apartments sold for about $125 a square foot, or $125,132 an apartment.

“Selling was never before considered an option, but in the current market where ownership of residential properties is transferring at extremely low cap rates and high gross rent multiples, a sale became viable,” a partner at Massey Knakal Realty Services, Brian Leary, said. He was retained to sell the portfolio.

“The Bassuk and Kessner portfolio, and others like it, represent incredible assets with a tremendous amount of upside rent potential and with the legal ability to increase rent over time through natural vacancies and major capital improvements,” a partner at Massey Knakal, Shimon Shkury, said. “These assets are usually located in secondary markets such as Northern Manhattan and the outer boroughs where investors have seen a dramatic increase in rents in the past few years, but the captive stabilized rents have stayed substantially below the free market rents.”

Last month, a joint venture of Maurice Mann and African Israel Investment Ltd., a company controlled by Lev Leviev, closed on the purchase of the Apthorp, the 12-story, full-block building at 2201-2219 Broadway, built in 1908. The joint venture paid $426 million plus $30 million in related costs for the 163-unit complex, or about $2.4 million an apartment, the highest price ever recorded for an apartment sale in America.

“The Apthrop and its cousin, the Langham, are the two most New York-centric, luxurious, historical rental buildings of their time”, the investment executive at Eastdil Secured, Douglas Harmon, who handled the sale, said.

“The Apthorp was established for the rich and famous at the turn of the last century and is as spectacular an asset today as it was one year ago. The Apthrop trade was a hybrid concoction of economics and art, part Monet and or early Picasso, and part a long-term, clever wager on the prospects of luxurious living on the Upper West Side.”

Mr. Harmon is also representing the Manocherian family, the owners of the Langham, an apartment building built in 1907 at 135 Central Park West near West 73rd Street. According to the real estate sources, the seller is seeking a price of close to $10 million an apartment, or about $600 million.

As I reported last month, the City Investment Fund and its operating partner Urban America LLC, an investment firm owned by the Eisenberg Family and Ramius Capital Group, is in contract to sell its first investment, a total of 1,416 apartments in 114 buildings known as Eastchester Heights in the Bronx. The buyer is a joint venture of Taconic Investment Partners and ING Clarion.

Not everyone is bullish on the upside of rental buildings. The president of the City Investment Fund, Thomas Lydon, said prices “are high, returns are down, and projected rent growth is too aggressive. Many of these sales are being financed with substantial negative carry, the return is completely backed-ended, relying upon historically low cap rates as an exit strategy. In many cases most of the large portfolio of rental buildings has been milked by the previous owners for years, the properties have been neglected for necessary capital improvements required.”

“Now the new investor acquiring the properties will be challenged at the operations level to operate these properties efficiently,” Mr. Lydon said.

According to real estate sources, New York Downtown Hospital is expected to close on the sale of Booth House, an 11-story, a 148-unit apartment building located at 318 E. 15th St. on Stuyvesant Square near Gramercy Park, and the property might fetch close to $55 million. The hospital has been using the building to provide housing to members of its staff since it acquired the property in the early 1960s.

Last week, a seven-story elevator apartment building on the Lower East Side went under contract for nearly $16.5 million. According to real estate sources, the purchaser who prevailed in the heated bidding war was a local operator who saw value in the property, which is made up of 48 apartments and seven stores.

A number of rental buildings are being marketed for sale. On the Upper East Side, an investment banker has been retained to sell the 10-story, 70,036-square-foot residential apartment building at 122 E. 76th St., built in 1915. The building is located on the south side of the street between Park and Lexington avenues. The lower floors of the building are presently used as office space by Lenox Hill Hospital and will be delivered vacant. In all, about 70% of the building will be delivered vacant, providing an investor the opportunity to reposition the property as a luxury rental or a condominium conversion.

Eastern Consolidated Properties has been retained to sell a 12-story-plus penthouse apartment building at 211 E. 51st St., just east of Third Avenue. The building contains three commercial units and 85 residential apartments. All of the residential units will be delivered vacant at the closing. The property also has additional air rights of about 10,000 square feet.

“Although some investors are jumping to invest in multifamily, we have been in this business for the past 15 years, and we are still very bullish on this sector,” the cofounder and managing partner at Stonehenge Partners, Ofer Yardeni, said. “With rental buildings you can increase the income regardless of market condition, making investment very desirable.”

He added: “The key to success in this business is not the pricing that you pay for building; it is how you manage the properties. If you don’t have the infrastructure to operate the business, you will not be a success. You must be detail-oriented, and it is a 24/7 business.

“We believe with the elimination of 421a in many locations in the city, rent has only one way to go … up. New York City is the most desirable place to live in the world and with zoning and the fact that it takes two or more years to build if you find a site, their will be more demand than meets the supply.”

I must concur with Mr. Miller when he says, with residential rents rising at record prices, “how many people will continue to afford these high rents to live in the best city in the world remains to be seen. But it is a tight supply on this restricted island that everyone wishes they could call home.”

Mr. Stoler, a contributing editor to the Sun, is a television broadcaster and senior principal at a real estate investment fund. He can be reached at mstoler@newyorkrealestatetv.com