Flip Enriches Middleman, Burns Tenants

Two ​“investment bros” pulled up to Exchange Street, ready to scope out a small rental property they were under contract to buy from an octogenarian landlord.

Who were these guys? wondered a tenant.

The duo wouldn’t own the house for long.

On the same day they bought it, they flipped it at a $40,000 markup to one of the city’s mega-landlords.

And the tenants? Their rent shot up 50 percent.

That’s the story of 40 Exchange St. — a century-old, two-family home and converted, single-family carriage house in the Quinnipiac River Historic District on the eastern edge of the Fair Haven neighborhood.

The story of the three-unit rental property’s flip reveals how savvy investors can make a quick profit in the city’s surging, pandemic-era housing market.

It also offers some insight into how large property management / landlord / real estate investment firms with lots of cash on hand continue to grow and grow and grow.

It shows how tenants used to paying below-market rents can be hit with sudden, steep rent hikes when a new, large-scale landlord takes over.

And it reveals a perversion in a state law meant to combat poverty: The flippers got a $1,875 conveyance tax break for ​“enterprise zone” real estate purchases. Taxpayers, in other words, paid the flippers money for pocketing tens of thousands of dollars while making it harder for renters to pay their bills, without creating value.

According to the city’s online land record database, on April 8, an Ansonia-based company called JR Realty Ventures LLC bought the property from Milford-based landlord Chester Kasmin for $210,000.

On that very same April day, JR Realty Ventures LLC — which is owned by Joel Rodriguez and Timothy Patrick Hines, Jr. — flipped the Exchange Street rental property for $250,000 to Sap Re Holdings LLC, a holding company controlled by Ocean Management’s Shmuel Aizenberg.

And on April 14, Ocean’s holding company added 40 Exchange St. to a $10 million open-end mortgage it has with the California-based CoreVest American Finance Lender LLC that covers a number of local Ocean-owned properties and dates back to July 2020.

Because the Exchange Street property sits in one of New Haven’s ​“Enterprise Zones”—a state tax incentive program designed to target investment towards economically ​“distressed” areas like Fair Haven — JR Realty Ventures didn’t have to pay any real estate conveyance taxes to the state for the April 8 flip, essentially earning the middle men a $1,875 state tax break for buying and immediately selling the apartments to Ocean Management.

Getting ​“Creative”

Rodriguez, one of the Ansonia-based investors who flipped 40 Exchange St., told the Independent that his company did not necessarily intend to flip the property.

But the hot real estate market and 40 Exchange’s relatively low rents encouraged him to look around for a new buyer quickly.

“As you can see the current real estate market has become extremely competitive and there’s quite a few large owners in the area that are highly active in the market. For an investor like myself, I look to acquire smaller multifamily properties as part of my personal portfolio.”

In this case, he said, he was ​“intrigued to add Exchange St but the previous owner wasn’t willing to hold the note and our typical lenders didn’t believe the current rent roll could support a conventional mortgage. At that point in time, already under contract I had to get creative so I spoke with some other investors I know and they shared with me the ability to transfer ownership.

“At that point I reached out to Ocean Management and a few other large owners on a limb to see if they’d have any interest. Although I was aware of the current interest level in the market, the huge demand for this smaller property was completely unanticipated on my end and led to choosing to sell the property.”

The city land records database shows that the April 8 purchase and sale of 40 Exchange St. is the only publicly-recorded New Haven land transaction JR Realty Ventures LLC has ever engaged in. The state business registry database shows that JR Realty Ventures LLC was first registered and incorporated as a Connecticut company on Feb. 10.

“Wholesaling”

Hamden-based attorney Kishore Kapoor, who represented Rodriguez’s JR Realty Ventures LLC in both same-day transactions of 40 Exchange St., also spoke with the Independent — but on the condition that he speak only generally about how this type of flip works, and not specifically about the Fair Haven deal in particular. He cited attorney-client confidentiality in refusing to talk about the 40 Exchange St. deal.

“Generally somebody buys the property, and then flips it to another investor. It happens more frequently than people think,” Kapoor said.

He called this process ​“wholesaling.”

Such flips rarely make it into public record databases.

That’s because usually in such deals, an initial investor seeks out a property, gets under contract to purchase it, lines up a second investor, and then sells the home-purchase contract directly. The deed for the flipped property only ever changes hands once in such cases, between the former landlord and the final investor buyer.

The way that the 40 Exchange St. deal was structured, however, the middle man investor — JR Realty Ventures LLC — came into public view.

JR Realty Ventures briefly acquired the title to the property from Kasmin before immediately selling it to an affiliate of Ocean Management. At a price tag $40,000 higher than they bought it for.

“Typically, these are cash deals. There are no mortgages involved,” Kapoor said. And generally, this type of property flipping is so profitable because ​“the seller didn’t sell for what the property is truly worth.”

“It’s actually occurring a lot in Connecticut,” he said.

Fast-growing housing empires in New Haven — like Ocean and Mandy Management — have been able to swoop into these cash deals thanks often to out-of-state investors looking to make profits on the city’s poverty rental market.

Kapoor was asked if he thinks this is the sign of a healthy real estate market, with investors buying up properties at one price and then immediately selling them at a significant markup.

“I haven’t really thought too much about it,” he replied.

Former Landlord: ​“They Were Pretty Nice Kids”

Reached by phone on Tuesday afternoon, Kasmin — the former owner of 40 Exchange St. — said he wasn’t surprised, or upset, to learn that JR Realty Ventures flipped his home at such a higher price than he sold it for that same day.

He said he’d made a deal with the Ansonia investor duo last year for them to buy the three-unit rental property, which he had owned for a decade after inheriting the house from his ex-wife’s late parents. (“Her mom and dad really liked me,” he joked about his ex-in-laws deciding to give him the Exchange Street house.)

“I was thinking they were having trouble gaining finance,” he said about the delay between when he signed a contract with JR Realty Ventures and when they actually formally bought the property from him.

“As it got really close, even past the closing date, I was tempted to queer the deal. But they were pretty nice kids. So I just let it go at that price.”

Why did he want to sell?

“It’s over 100 years old,” Kasmin said. ​“I know the house well. I know it needs a lot of work. And I just wanted to get rid of it.”

Over the past year and a half, he said, a few potential buyers have approached him. One couple offered a little over $100,000. JR Realty Venture’s offer of $210,000 was much closer to the city-appraised value of the house, so he agreed to sell to them.

Then, as the Covid-19 pandemic drove (and continues to drive) Connecticut home prices up and up, he’s seen the value of 40 Exchange St. only increase. ​“It went up $5,000 every week or two. It was just jumping up.”

Nevertheless, he stuck with JR Realty Ventures.

“I felt committed and I didn’t really feel too bad. I know I could have gotten a little more,” but so be it.

Kasmin said he turns 82 years old this week. ​“It’s time to start cleaning things up.” He has two adult daughters, and wants to leave them money when his time comes.

He said he was happy to take the cash offered by JR Realty Ventures and leave the rental property behind.

Ocean: ​“We Got Taken For 40 Grand”

Ocean Management Office Manager Danielle Trivers was less enthusiastic when this reporter told her that JR Realty Ventures flipped 40 Exchange St. to her company for $40,000 more than it had paid for it on that same day.

“Nice,” she sighed over the phone. ​“We got taken for 40 grand.”

Trivers insisted that this type of investor-to-investor flip is not typically how Ocean Management acquires new properties. ​“We don’t typically do that,” she said. ​“We buy at auctions, or through word of mouth around here.”

She promised to let her boss, Ocean principal Shmuel Aizenberg, know about the deal. ​“I don’t like to know that we are one of the ones it happened to,” she said about the flip.

Trivers said she does not know either of the investors behind JR Realty Ventures. She said she’s involved in front office work for Ocean — and not involved with any of the legal or financial matters related to new property acquisitions. Sap Re Holding LLC’s attorney in the 40 Exchange St. purchase, local lawyer Zev Sandman, did not respond to email and phone requests for comment by the publication time of this article.

Trivers did confirm what Kasmin told the Independent during a separate interview earlier in the day.

That is, that Ocean is increasing rents for the three rental units on site to $1,200 each. (Kasmin told the Independent that, soon after he officially sold the property, a tenant called him in dismay to say that his one-bedroom apartment rent is slated to increase from $800 to $1,200 per month.)

“We have sent out a letter that we plan on getting the rents up to the market value of the area and renovating [the apartments] so that we can get it to market value,” Trivers said about the new $1,200 per unit rent.

She described those planned fixes as ​“interior renovations. It’s a very big house.”

“Their rent right now is under market,” she added. (Kasmin admitted as much. ​“Because it’s very tired and very dated, I’ve been renting it out under market,” he said. ​“And the tenants realize that. They never bothered me for anything unless it was for a true emergency.”)

Trivers was asked about how Ocean Management’s plans to bring the apartments up to market rates means a 50 percent rent hike — from $800 to $1,200 — for some of the tenants living at 40 Exchange St. Trivers said that her company is helping tenants relocate to different, more affordable apartments ​“if they’re not interested” in staying put at the new price.

All three residential units at 40 Exchange St. were on month-to-month rental agreements under the previous landlord, she said. ​“No leases came with those apartments.”

Click here, here, here, here , here and here for articles about other Ocean Management properties and development projects around the city.

“Who The Hell Is ​‘Ocean Management’?”

One of the current tenants at 40 Exchange St., meanwhile, described the whiplash of living at the center of such a rental property flip — and then of bearing the brunt of the rent hike that comes out on the other side.

“I’ve never heard of such an egregious rental increase,” said Gil Morrison, who has lived in the converted carriage house one-bedroom apartment at 40 Exchange St. for the past two years. ​“It’s insulting. And I feel like I’m just a small part of a bigger problem, and things are just getting worse.”

Morrison moved from Wooster Square out to Exchange Street two years ago to find a more affordable place to live. With this new 50 percent rent increase coming his way under Ocean Management, he said, he has already started looking for a new apartment.

“I kind of thought that Fair Haven was outside of the Downtown bubble,” he said. ​“I guess I was wrong.”

Morrison said that the previous landlord, Kasmin, had been up front with the 40 Exchange St. tenants last year and earlier this year about his plans to sell the property.

A few months ago, likely sometime in March, he recalled, two ​“investment bros” in their mid 30s showed up at 40 Exchange St.

He said they walked through the property, checking out the buildings, apartments, and surrounding grounds.

“I figured they were the new landlords, because that’s what I was told. I wanted to be nice, and I also wanted to be honest with them,” Morrison said. He said he told the investors about how his apartment could use a fix-up. He asked if they had any plans to raise the rent, or to do any major renovations.

“We’re not looking to kick anyone out,” he said the two investors told him. ​“And we’re not looking to do any renovations until people move out.” He learned that the prospective new owners’ names were Joel and Tim.

Then, in early to mid April, Kasmin told him that the property had sold. Morrison said he braced for a rent increase, maybe $100 or $200. ​“My rent is kind of cheap for the area,” he acknowledged about the $800 he pays each month for his one-bedroom apartment.

Soon thereafter, a fellow tenant at 40 Exchange St. told Morrison that the house’s water had to be turned off temporarily because of a leak. That tenant said the new property management company had hired a plumber to take care of the leak and turn the water back on.

“What do you mean property management company?” Morrison said to the fellow tenant.

Check your mail, the latter said.

So he did. And sure enough, in his mailbox was a letter from Ocean Management.

“I’m like, ​‘Who the hell is Ocean Management? This is not Tim or Joel.’”

That letter included a bill for his current rent of $800, he said, as well as a tenant survey and information about a property management online portal (“with no link,” the tenant said).

Morrison also noticed that the letter did not have Joel Rodriguez’s or Timothy Patrick Hines’s names anywhere on it.

And that Ocean Management planned to increase his rent to $1,200 as soon as unspecified renovations began — which an Ocean Management property manager later told him could be within a month or two.

Morrison said the experience left him reeling.

“Am I insane? What’s going on here? It took me a little while [to figure out] that these guys bought the property cheap from Chet and are selling it at a profit, and that Ocean is in turn going to start renovations” as well as implement a 50 percent rent increase.

Now, Morrison said, he’s actively looking for new places to live while counting down until renovations start and his rent starts going up.

“I have heard this story so many times from friends who live in New Haven,” he said. ​“I’ve heard the story many times. A property management company comes in and jacks up the rent.”

“It’s not that I can’t afford that,” Morrison added. ​“That’s not the point. The point is it’s an insulting increase. It’s just indicative of what’s happening around here.” He also worried about how these rent increases might affect one of the other tenants at 40 Exchange St., who rents his apartment with the help of a Section 8 federal housing subsidy.

By the publication time of this article, Morrison said he had found a new apartment to live in, and will be moving out of 40 Exchange.

Paley: ​“Very Troubling”

This 40 Exchange St. tenant isn’t the only one worried about an ever-accelerating trend of out-of-town investors buying rental properties and flipping them at higher prices to large-scale landlords like Ocean.

“It’s happening a lot,” observed Neighborhood Housing Services of New Haven Executive Director Jim Paley. ​“This is something that’s being brought to my attention all the time.”

For the past four decades, Paley and his local nonprofit have bought derelict properties primarily in Newhallville, gut-rehabbed those homes, and sold them at affordable prices to first-time homeowners.

They also provide a wealth of educational and financial support for local low- and middle-income homeowners as a way of encouraging them to stay in and maintain their properties to help foster a vibrant, diverse, and civically engaged neighborhood.

Unlike JR Realty Venture’s attorney, Paley has spent a fair amount of time thinking — and working to counteract — the real-world consequences of investor-to-investor flips and the consolidation of rental properties in the hands of a small number of well-funded, out-of-town players.

“It is very troubling. This is the way real estate investors operate,” he said. ​“They’re looking for bargains and for hot markets and at the bottom line. There’s nothing illegal about what they do, but the impact on the neighborhoods can be serious.”

What might those impacts be?

For one, such flips can increase the price of housing in the surrounding area, leading to higher appraisals and rents, and potentially displacement of lower-income tenants.

They also can promote the flow of rental housing from cash-strapped smaller landlords and homeowners and towards a few large, well-funded companies.

“A scanning of the land records, which is public information, will reveal how many properties are in the hands of the Ocean Management firms. They are an empire that seems to be flush with cash and that is acquire a large number of properties in New Haven,” Paley said. ​“I think there’s probably no way to avoid this phenomenon, given the fact that we have an unregulated market.”

He stressed that he’s not necessarily calling for more regulation of the real estate market.

“What I am advocating for is that there be strict compliance with the requirements of investors to maintain their properties and screen their tenants. Those two things I think are imperative.”

Paley argued that absentee landlords have a responsibility to their tenants who are paying them rent ​“to provide safe and decent housing, which they’re getting money for.” They also have a responsibility to the communities they own properties in to ​“screen their tenants, and that they do their job in maintaining a living environment that is not going to be destructive to the community in general and that can lead to a spiraling impact.”

He said NHS’s financial assistance program for homeowners in need of help fixing up their properties is one route to help families hold onto their properties and not just sell them for cash to large investors who are able to pay immediately.

He said the city’s anti-blight Livable City Initiative (LCI) also has an important role to play in enforcing the terms of the city’s residential licensing program for absentee-owned rental properties.

“We’re not going to be able to stop Ocean Management from being able to acquire properties,” Paley said. ​“But we do want to keep them from controlling the market. Because when they control the market, that’s when it becomes dangerous, when it becomes difficult to maintain socioeconomic diversity, and when it will really have a negative impact on the surrounding neighborhood.”