Two real estate investors, many changes in Amherst
Real estate investors are buying up home in neighborhoods located near the Univeristy of Massachusettsin Amherst as students seek to rent off-campus housing close by. The trend is changing the nature of neighborhoods once populated by families. The photo above shows
the dormitories of the UMass Southwest Residential Area toweingr behind homes on Sunset Court.
KEVIN GUTTING Purchase photo reprints »
GAZETTE FILE PHOTOS
A large housing development is proposed for the Cushman area of Amherst to accommodate the town's growing student population. Purchase photo reprints »
The house at 41 Shumway St. is owned by investor Jamie Cherewatti.
SARAH CROSBY Purchase photo reprints »
The house at 30 South Whitney Street is owned by investor Jamie Cherewatti..
SARAH CROSBY Purchase photo reprints »
The house at 985 East Pleasant Street is owned by Jamie Cherewatti.
SARAH CROSBY Purchase photo reprints »
AMHERST — David Edsall lived at 156 Sunset Ave. for 23 peaceful years.
Then he sold his house to Jamie Cherewatti in March 2011. A year later, the single-family home was rented to students and Cherewatti, of Amherst, had received town approval to convert it into a two-family home.
A month later, three of the tenants were arrested and cited for violating Amherst’s nuisance house and noise bylaws after police broke up a party attended by more than 200 people and a disc jockey.
That scenario is not uncommon. Many residents who live near high-turnover student rentals are finding such neighborhood nuisances increasingly loathsome.
A growing number of homes that once housed Amherst families and were owner-occupied, are being converted into rental units for university and college students. Since 2010, 48 owner-occupied homes have been converted into rentals, including a whopping 25 last year, according to town records.
One house at a time, this trend is changing the character of neighborhoods, prompting even more town residents fed up with late night student drinking, screaming and disruptions, to sell their homes and move away.
Into that void steps Cherewatti and You-Pan Tzeng of Longmeadow, two investors who are buying up residential properties at a steady clip. They have been borrowing millions of dollars to acquire homes, fix them up for students and start collecting rent checks.
Edsall has regrets about selling his home to an investor. He said he feels bad his neighbors are now living next door to students.
“I just think it would be better off with a family living in it. It’d be better cared for and less irritating to the neighbors,” said Edsall, who moved to Vermont after he sold his Amherst home in Amherst. “The more rental units, the more people who own their homes are likely to move out.”
The rate at which investors are buying houses and neighborhoods are changing is accelerating, according to a Gazette review of real estate records. Cherewatti, for example, spent more than $8 million since 2010 on Amherst properties. Tzeng spent about $3 million last year on eight properties.
Before these two started spending serious dollars in 2010, the number of rental units in Amherst was going down, albeit modestly. From 2000 to 2010 rental units decreased by 32 units, according to the town’s Housing Production Plan, released in March.
Asked why he’s investing so heavily in Amherst, Cherewatti noted that he grew up here and added: “The student market is a fairly strong real estate market. There’s headaches and there are also benefits, like anything else. ... It’s a question of what you want to do with your life.”
Cherewatti first showed up on the Amherst real estate scene in the summer of 2003 when, at age 26, he bought Harlow Properties on 73 Main St., from Jeanne Harlow for an undisclosed price, according to a Gazette article about the sale. Cherewatti later changed the name of the business to Eagle Crest Property Management. He said he gained experience in real estate management from working at Lend Lease Real Estate in Boston and earned a business degree from Babson College.
He also learned about the business from his father, J. Roger Cherewatti. In the 1980s Roger Cherewatti was the director of the UMass Physical Plant. Under his leadership, UMass coordinated with the town on traffic patterns, solid waste treatment, pollution and expansion of the university. He also negotiated the sale of 3.5 UMass acres to the town for low-income housing. Around 1990, Roger Cherewatti became the director of operations at Aspen Square Management Co., a West Springfield-based rental housing firm that owns thousands of properties across the United States, including Alpine Commons on Belchertown Road and Aspen Chase on Main Street in Amherst.
Cherewatti owns 32 properties in Amherst: 16 single-family homes, six two-family homes, four three-family homes, three apartment/condo complexes with eight or more units (Echo Village, College Inn Apartments and 219 Amity St.), one undetermined property, commercial space on North Pleasant Street, and one four-family home, according to land records. Most of the properties — 22 — were purchased after 2009.
He purchased one of those, Echo Village Apartments on Gatehouse Road, for $3 million in January and promptly sent out notices informing the families living in the 24 units that he was raising rents 20 to 40 percent. Those tenants, many of whom have subsidies under the Section 8 federal housing program, are looking for new homes. The action sparked a flurry of protest as advocates scurried to help halt evictions. In addition, the Echo Village Tenants Association is asking Town Meeting next month to give the town the greenlight to buy the property for $3 million to preserve the housing as low-income.
After acquiring a Main Street apartment house in Amherst eight years ago, Tzeng has gradually increased his rental property holdings in subsequent years before exploding onto the real estate scene last year.
In 2012, Tzeng acquired eight properties under two limited liability companies for approximately $3 million, some of them formerly owner-occupied or single-family homes that he is converting into student rentals in residential neighborhoods around the UMass campus.
In one month alone — June 2012 — Tzeng acquired three homes at 290 and 321 Lincoln Ave., and 42 Shumway St. for $1.1 million. One property he acquired the following month at 60 Railroad St. was cited by Amherst police as a nuisance house this year, according to police records. Another, at 321 Lincoln Ave., has been the subject of controversy because Tzeng had reported to the town last year that he lived there and not at his property in Longmeadow. The property came with a owner-occupied provision — a requirement that was attached to the property in 1993 when the home was converted into a two-family house. To rent the property to full-capacity, the owner has to live there.
Tzeng did not respond to several Gazette requests for an interview, including a letter sent to his Wolf Swamp Road home in Longmeadow stating the newspaper was preparing a story about the Amherst rental housing market and sought his perspectives. A man who answered the door at 321 Lincoln Ave. said Tzeng does live there, but was not home at that time.
Nearly all of Cherewatti’s properties are managed by his company, Eagle Crest Property Management of Amherst, a firm which also manages many of Tzeng’s properties. Cherewatti is president of Eagle Crest and the business is managed by his brother, Jack Cherewatti. Eagle Crest cares for more than 1,300 homes, according to the company’s website.
Homes and apartments owned and managed by Cherewatti are, for the most part, occupied by students and situated near UMass and Amherst’s downtown. He owns property on South Whitney, Triangle, East Pleasant, Fearing and Phillips streets in addition to homes on Nutting and Sunset avenues.
In a 20-minute telephone interview, Cherewatti declined to delve into his investment strategy or the town’s by-laws, those passed and those proposed.
He said when choosing an investment property, location is key. “Anything else can be overcome: condition, that sort of thing,” he said, “but you can’t move the house to a different location.”
A good location for student rentals in a college town, is one that is within walking distance to campus and close to amenities, said James Whittington, co-founder of Nove International/U.S. Urban Realty, a Chicago-based commercial property management firm.
“They’re looking for whether it’s close to some bars to go hang out at on Thursday and Friday night or get a quick bite to eat, banking is important to them, destination retail,” he said. “Location drives whether a development will be successful.”
Weeding out trouble
Of Cherewatti’s holdings, three were cited as nuisance houses in 2012: Edsall’s former home at 156 Sunset Ave.; 219 Amity St. and 176 Triangle St. Other town bylaw violations were doled out by police for people parking on the lawn, trash on the ground and expanding a lot without a permit. But the majority of Cherewatti-owned homes — 26 of them — had no complaints that rose to the level of a violation last year.
Among the landlords whose properties received the most nuisance house violations was Stephan Gharabegian of Lexington, who was part of an earlier wave of real estate investment in Amherst. Four of Gharabegian’s properties — 11, 33 and 45 Phillips St., as well as 186 College St. — were hit with nuisance house complaints in 2012. One of those properties was found to be home to an underground bar.
In town, Cherewatti’s reputation among residents is evolving. It’s hard to find someone who enjoys the racket that can accompany living next to students, but many residents understand the challenges landlords face in reining in bad tenant behavior. Larry Kelley, an Amherst resident who blogs about town government with special attention to how emergency officers are dispatched and the housing market, said although he was skeptical about Cherewatti’s commitment to fostering good relationships with neighbors, he has observed Cherewatti become more responsive to complaints.
“I think he’s starting to come around,” said Kelley whose blog, Only in The Republic of Amherst, has a “party house of the weekend” feature documenting which Amherst homes create the most trouble.
“I know he’s feeling the pressure and I think that’s good,” Kelley continued. “He doesn’t want to be known as the slumlord of Amherst.”
Cherewatti and other landlords interviewed said it can be hard to weed out troublemakers in a college town. Most of the applicants don’t have substantial credit, rental or work histories to prove whether they can pay the rent and maintain a household. One of the pieces of information Eagle Crest and some other property managers look for from potential tenants is a release of their academic and behavioral records from UMass. Eagle Crest has a form on its website a student applicant must fill out that releases this information from the university. Without the waiver, UMass would not be able to divulge this information because of federal privacy laws.
“We learn whether they’ve had a sanction from the university and there’s usually an undergraduate history,” he said.
Building on success
The price tags of Cherewatti’s holdings total more than $14.7 million, according to property deeds, and the investor purchased most of his homes through limited liability corporations. Cherewatti is the president and/or manager of some 16 LLCs registered with the state, though only a few are active.
Cherewatti was likely able to obtain many of his loans by leveraging his successful investments against future ones.
Ed Hill, a real estate and land use lawyer who is a partner at Cappalli & Hill, LLC in Connecticut, who spoke to the Gazette in general about real estate investment in college towns, said when banks see a history of profitable purchases, getting a loan can be easy.
“The lender is not concerned that the investor may owe $5 million because he has properties that are worth $7 million and the cash flow that can support each of the properties,” Hill said.
Hill said when a bank assesses a real estate investor’s worth, it looks at the rents being charged and collected, the vacancy rate of rental units, whether debts are being paid on time and whether the investor is making a profit. Typically, Hill said, an investor will want to make a minimum of a 10 to 15 percent annual return on a housing investment property.
Student housing is a particularly good bet for investors and lenders. Universities expand enrollments, creating more demand for housing; a new crop of students come in every year and the rental homes are usually packed with paying tenants.
“Housing students, it tends to be over-crowded,” Hill said. “The landlords will take a three-bedroom or two-bedroom and put four students in it because he can max the income.”
This is something Kelley has observed as well.
“In Amherst, a one-family doesn’t mean one family anymore: it means four students,” he said. The town has a bylaw that limits the number of unrelated people who can live in one dwelling to four.
Meanwhile, as the demand for rental housing continues to grow, investors continue to buy residential properties and convert them into students rentals. These properties are attractive because they are relatively cheap, have a good cash flow and not many regulatory or permitting hurdles.
“There has been an increase in the pressure and there hasn’t been a corresponding increase in the housing,” said Jonathan Tucker, the town’s planning director.
There is a proposal to build a 170-unit apartment complex on Henry Street in North Amherst, but opposition from residents concerned about changing the character of the neighborhood is already mounting.
Staff writer Dan Crowley contributed to this story.
Kristin Palpini can be contacted at firstname.lastname@example.org.