Multifamily investment, not sexy but stable

NEW YORK (Reuters) - Owning rent-regulated New York apartments may not sound sexy, but it is a great long-term investment, according to Richard LeFrak, chairman and chief executive office of the privately held LeFrak Organization.

"If we're in a era of low interest rates, and if we're in an era of peoples' concern about volatility, what's better to own than an apartment house?" LeFrak said on Monday at the Reuters Global Real Estate and Infrastructure Summit in New York.

"Frankly, the best is rent-stabilized apartments because the rents don't go down, they go up," he said. "There is such a constricted supply that there's never a high vacancy rate, and rent is basically set by the government."

The LeFrak Organization owns about 25,000 such apartments in New York City, most of which they built themselves. The organization also has extensive holdings in Los Angeles and London.

It was Richard LeFrak's grandfather, Maurice, who started the real estate firm in 1901, but it was his father, Samuel, who built it into an empire when he erected apartment buildings for veterans returning from the Second World War.

Rent-stabilized housing accounts for 20 percent of the Organization's holdings, which include energy, banks and other types of real estate.

The Organization is interested in acquiring more rent-stabilized properties, LeFrak said. It has been mentioned as a possible owner of the Stuyvesant Town/Peter Cooper Village, the two Manhattan complexes Tishman Speyer bought for $5.4 billion in 2006 only to default on the loans in January.

LeFrak said because of the legal tangle and the complex ownership of the 11,200 apartments, the ultimate outcome for Stuyvesant Town/Peter Cooper Village is not in the near-term future.

LeFrak said that multifamily housing as a commercial real estate type has turned the corner and the bulk of the defaults may be behind the industry.

That optimism is reflected in the pricing of the publicly traded apartment real estate investment trust, he said. Shares of AvalonBay Communities Inc (AVB.N) are up 69 percent from a year earlier and Equity Residential (EQR.N) shares are up 89 percent.

U.S. apartments, as an investment, have benefited from America's changing view of home ownership since the U.S. housing bust four or five years ago.

"It's interesting that home ownership may or may not have been condemned as an investment form now," he said. "People may be thinking twice in thinking that owning a home is a good investment. It may not be a good financial investment."

LeFrak also sees apartment owners benefiting from the demographic bulge of aging baby-boomers.

"America's aging," he said. "The natural transition is to go from a home to an apartment at a certain point."

Investors like multifamily property because it is stable, he said. "

"One asset that's a very non-volatile asset is owning rental housing," he said. "It's just not that complicated. It requires population growth, it doesn't really require that much job growth although job growth is important to the pricing.

"It's very much count the seat and count the bodies and you'll have a very good sense of where the market is."

(Reporting by Ilaina Jonas, editing by Leslie Gevirtz)