- Covid has had an extreme impact on the New York City apartment market.
- By September 2020, the asking rent dropped, and Clipper offered large price cuts to fill vacant units.
- Today, the asking rent for this unit is 32% higher than the 2019 level and 72% higher than the 2020 level—a stunning recovery from the dire situation in early 2021.
- As CLPR continues to renew existing leases and sign new leases, it will experience dramatic revenue and net-operating-income increases.
The following segment was excerpted from this fund letter .
Clipper Realty ( CLPR )
This price history chart of apartment 8A at the Clover House, owned by Clipper Realty, is worth a thousand words. It perfectly captures the extreme impact Covid has had on the New York City apartment market. In the summer of 2019, this specific unit asked for $3,329. By September of 2020, the asking rent had dropped to $2,550 as Clipper and other landlords offered large price cuts to fill vacant units.
This was about the time that author, comedy club owner, and former hedge-fund manager James Altucher famously proclaimed that New York City was dead forever. Today, the asking rent for this unit is 32% higher than the 2019 level and 72% higher than the 2020 level—a stunning recovery from the dire situation in early 2021. As Clipper continues to renew existing leases and sign new leases, it will experience dramatic revenue and net-operating-income increases.
We are eager to see updates in the coming quarters. In 2020 and early 2021, it seemed as if the U-Haul trucks would only move people out of New York City and Covid would stay with us forever. In 2022, it seems obvious that New York City will recover and Covid headlines will fade. The new headlines now feature chronic shortage of housing and bidding wars on apartments. This is precisely why we focus on normalized earnings power 2-5 years out. Our partners’ patience allows us to take long-term views and take advantage of temporary interruptions in earnings powers.
I recently attended Clipper’s in-person annual shareholder meeting in Brooklyn with a fellow value focused investment manager.
Being the only two investors who showed up, we were able to chat with the management team for over an hour. We had a very informative and productive meeting. Clipper Realty, like many of our smaller family-controlled real estate companies, suffers from investor misconception. Investors generally question the intention of the management. We found the management team to be very amiable, cordial, and attentive to our suggestions. We chatted about the business and learned more about Clipper’s plans. We encouraged Clipper to allocate more resources to investor outreach and suggested hosting an investor day coupled with a property tour.
There were three key takeaways from the meeting:
- Clipper has invested in digital tools to streamline apartment leasing and financial reporting. This effort was spearheaded by the young chief operating officer.
- Clipper’s new development project at 1010 Pacific is anticipated to finish by yearend 2022 and the lease up will take only one quarter, versus the twelve months we had previously modeled.
- The family cares a lot about the large gap between the share price and the private market value. They want to close this gap and potentially use Clipper’s public equity as a low-cost currency. This creates alignment between the controlling family and minority shareholders.
This last point seems obvious, but there can be strange situations where the controlling family cares very little about public share price.
The public market has a weird dynamic. Suppose a billionaire said, “You can buy into our private real estate holdings at 70 cents on the dollar and at 40% of the equity value. On day one, you’ll receive a 5% distribution, which will grow over time.” There would likely be a line stretching out the door to invest in such a deal. But because such a dynamic is available in the publicly traded stock market, people are skeptical and often complain about some misconstrued actions of the management team.
Our job is to investigate the truth and pick the situations where our knowledge significantly differs from what the public understands.
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
For further details see:
Rhizome Partners - Clipper Realty: Poised For Dramatic Revenue Increases