East Rock Apartments Sell For $11.5M

A 37-unit East Rock apartment complex changed hands for $11.5 million — because a Long Island City lighting company’s land value kept rising while its manufacturing business kept slowing down. 

How are those two real estate phenomena two states apart connected?

Through a federal tax deferral provision called Section 1031.

First, the New Haven sale.

According to a warranty deed posted to the city’s land records database on April 12, 516 Orange Street LLC paid 516 Orange LLC $11.5 million to purchase 516 Orange St.

That five-story, 37-unit apartment building at the corner of Orange and Pearl streets last sold for just under $5 million in 2015. The city most recently appraised it for tax purposes as worth around $7.3 million.

The seller of the building is a company controlled by Jacob and Josef Feldman’s real estate investment firm MOD Equities. The buyer is a New York City-based hold company controlled by Alan Hochster.

Hochster’s son, Eitan, explained to the Independent the motivation behind the deal. He also said that, from a 516 Orange St. tenant’s perspective, this transaction should have no impact: The building will continue to be managed by MOD. There are no changes or improvements planned for the property. 

“Almost nothing has changed about the property,” he said. The only difference between now and before this transaction, he said, is ​“where the profits go.”

Eitan is both the son of the building’s buyer and the director of finance for the building’s seller.

He said that his dad decided to buy 516 Orange because his company had recently sold a collection of Long Island City properties that had been in the Hochster family’s ownership for several generations. 

Those industrial and multifamily properties on 40th Avenue, 11th Street, and 10th Street in Long Island City, Queens, were owned by the Hochster family’s business Roxter Lighting, which manufactures custom lighting fixtures and metal stampings.

“This is a factory that my grandfather had that was manufacturing for years and years and years,” Eitan said. Over time, the value of the land where that Long Island City factory sat ​“went up so significantly” while ​“the business had slowed.”

So Eitan’s dad decided to sell his lighting company’s Long Island City properties. According to the commercial real estate transactions site ​“traded,” those three New York City properties sold in April for $14 million.

What does any of this have to do with New Haven?

The Hochsters suddenly had a lot of cash on hand that they needed to spend to take advantage of a federal tax benefit.

“There would have been such a huge tax bill” on that Long Island City property sale ​“if we didn’t buy something else through 1031,” Eitan said. His dad’s company decided to plow some of those Long Island City property sale proceeds into purchasing 516 Orange.

Section 1031 is a part of the federal tax code that allows real estate investors to defer capital gains taxes on one property transaction so long as they use the money from that sale on a ​“like-kind” property deal elsewhere.

That means reinvesting money from one property deal into another property deal within 180 days of the initial transaction allows the investor to kick federal capital gain taxes down the road until that second property is sold. 

Unless, of course, that second property is sold as part of another 1031 exchange. And then capital gains taxes are deferred again, and the process repeats. 

Use of this 1031 exchange provision is not unique to East Rock rentals. The New York City-based owners of the Whalley Avenue Wendy’s purchased that fast food restaurant for $3.1 million in 2019 for that exact same tax-deferral reason.

Eitan told the Independent that he’s worked as MOD’s director of finance for the past five years. He knows 516 Orange St. well. ​“It’s easiest to buy a building when you know it inside and out,” he said.

What about the $4 million gap between the city’s appraisal of 516 Orange St. for tax purposes and the amount of money Alan Hochster’s company actually spent buying that apartment building?

“We just feel that the building is a great building,” Eitan told the Independent. ​“It’s in a great location, it’s landlocked, you can’t really build” more apartments right there. 

“We believe in Yale,” he continued. ​“We believe in the School of Management. We believe it will be an asset that, long term, will be good for us.”