Empire State Realty Trust (ESRT -2.56%) has primarily owned office buildings for much of its history, but recently added New York City apartment buildings to the portfolio. In this Fool Live video clip, recorded on Jan. 28, Christina Chiu, chief financial officer at Empire State Realty Trust (ESRT), explains why the company decided to add a residential component to its investment strategy.
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Matt Frankel: You mentioned multifamily, that you just bought two multifamily properties. I think the first major acquisitions since the company's IPO [initial public offering] in 2013, if I'm not mistaken.
Christina Chiu: That is correct.
Frankel: What was the thinking behind the multifamily? Was it to diversify? Was it just you saw an opportunity? Was it because of fear of what could happen to the offices long term, or was it all of the above?
Christina Chiu: ESRT, prior to the multifamily acquisition, already had various ways to add value within Manhattan, within New York City. We have our office business, which we just spoke on, the value proposition there. We have the retail, some space building, couple of stand-alone.
Our retail is, think of it as everyday retail, high-volume type of traffic. Tenants like Target (TGT -0.54%). it's not the High Street luxury. We think that's really wealth from retail. Then we have the observatory business, which is a real benefit to the company when tourism fully comes back. To us, exploring multifamily is saying we're New York City focused. If you have three ways to add value, do you help generate long-term shareholder value if you have a fourth way to add value? That was really the genesis to further expand our optionality.
We're in New York City, local sharpshooter. We understand the market, the sub-markets. We're leveraged to the New York City recovery and we should find additional way to give our shareholders value. Multifamily uniquely has different drivers for the business. The demand drivers are different from office and retail. You get a different inflation hedge because of the annual rent resets. There's attractive long-term income growth potential and the capex profile, capital expenditure profile is different from that of office. We felt that was a really great compliment.
I think the logical question is going forward, what does that mean? You keep expanding and I think those are the areas. We have these four areas, and we'd love to add to the multifamily, but it will be predicated on our ability to buy well. We want to be able to drive shareholder value, and if the right opportunities come, we'll certainly seek to buy more. We don't want these to be orphan assets, but we're not going to rush into anything or force a certain number of units. It will all be based on our ability to drive value.
