An Illinois-based investment group wants to buy a 292-unit rental complex in Farmingville for $190 million, less than two years after the development opened to residents.
A company affiliated with Oak Brook, Illinois-based real estate investment firm Inland Private Capital Corp. signed a contract in November to buy The Arboretum at Farmingville, according to an application the company filed with the Brookhaven Industrial Development Agency on Dec. 12.
Manhattan-based BRP Companies developed the roughly 62-acre rental complex, which offers a mix of townhomes, apartments and single-family houses for market-rate rent, plus a handful of affordable units, south of Horseblock Road, Newsday previously reported. The development was built on land that was formerly a farm and nursery.
The potential sale underscores how valuable rental properties are for investors, because these homes can command high rents amid the Island’s scarce housing supply, said Michael Florio, the CEO of Long Island Builders Institute, a trade association representing the home building industry on Long Island.
“It’s basic economics,” Florio said.
Rents at available units range from $3,784 to $5,732 per month depending on the size of the rental, according to the Arboretum’s website.
The complex also includes space for a 24,000-square-foot commercial building that Michael Kelly, the president of Farmingville-based Kelly Development, plans to break ground on this spring, Kelly said. The potential sale would not include his commercial project, Kelly said.
Transfer of IDA tax breaks
BRP spent at least $141 million on the project, according to a letter sent to the IDA in 2021. Other investors in the project included the private equity firm BlackRock, according to a BRP news release from May last year.
BRP secured 15 years of tax relief from the Brookhaven IDA through 2037, according to the 2021 agreement with the IDA. That 15 years of relief amounted to about $10 million in forgone property tax revenue, according to a 2021 Town analysis. When the developer first applied for the tax benefits in 2019, it argued that the savings were needed to “to ensure the financial viability” of the development, according to its IDA application.
The IDA approved the transfer of those tax incentives to Inland in its board meeting on Jan. 7. If the sale closes, Inland would receive the tax savings through 2037, said Daniel Baker, an attorney with Greenberg Traurig representing Inland.
Inland plans to “own and operate” the multifamily complex, according to its IDA application. A representative for Inland declined to comment on the possible sale.
BRP was required to set aside 30 apartments as affordable housing, Newsday reported. Rents for the affordable units ranged from around $2,600 to $2,900, depending on a unit’s size and the renter’s income. Those units will remain affordable, said Lisa Mulligan, CEO of the Brookhaven IDA.
The property tax savings likely contributed to making the Arboretum a strong investment opportunity, said Shimon Shkury, president and founder of Manhattan-based Ariel Property Advisors, an investment sales and advisory firm.
Typically, property tax savings help an investor recoup the money they spend to acquire a property more quickly. Market-rate rental complexes with few numbers of affordable apartments, like the Arboretum, are attractive to investors, Shkury added.
It’s also fairly common for IDAs to transfer tax benefits when ownership changes, said Greg LeRoy, the executive director of Good Jobs First, a government watchdog nonprofit. But he said tax abatements limit the dollars school districts collect from tax revenue.
Tax abatements “are extremely costly to school districts, and if you incentivize new housing units, that means more student enrollment and more costs for the school districts,” LeRoy said.
But Mulligan said the development was built on vacant land, and even with the tax breaks, it would produce more revenue for the town than had the site remained empty.
The deal would expand Inland’s presence on Long Island.
Inland, through its subsidiaries, owns at least three properties on Long Island: a self-storage facility in Yaphank, a building occupied by a CVS in Levittown and a 109-unit apartment property in Long Beach.
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