Dawnay, Day, the London-based investment bank, has invested £250 million on homes in Harlem, New York, as a foundation to building an American arm with property worth more than £5 billion, The Times has learnt.

Dawnay, Day’s investment in East Harlem represents a huge gamble on the rapid gentrification of the couple of square miles north of 100th Street, which for more than a century has served as a ghetto for the poorest immigrant communities and until recently was a no-go zone for the largely white middle classes of neighbouring Lower Manhattan.

The privately owned bank with more than $4 billion of assets — controlled and run by Guy Naggar and Peter Klimt — has just opened a 45-man office in downtown Manhattan, from where it is trading as Dawnay, Day US Real Estate Management. The venture is the bank’s first foray in North America as it seeks residential and commercial property in the New York area and other large cities across the United States.

Dawnay, Day’s arrival in the United States is part of wider British move into the American property market. Large UK investors have been attracted by opportunities created over recent few months after the crash in the American housing market and the relative weakness of the dollar, which is trading at near 15-year lows against sterling.

Dawnay, Day’s East Harlem acquisition consists of 1,137 largely one and two-bedroom flats in 47 buildings running on the North side of Central Park from East 100th Street and East 120th Street, bought from a private American seller.

The deal also included a building with seven smart “condominium flats” at the southern tip of Manahattan in the East Village — considered rundown 20 years ago but now one of the priciest places to live, populated by young bankers who wish to rub shoulders with the bohemian artist community.

Phil Blakeley, director at Dawnay, Day who is leading his firm’s US expansion, said: “East Harlem is the last area of the whole of Manhattan being gentrified.

“This is the area close to Mount Sinai hospital — you go down the streets and there are a lot of shopping centres being opened up. There are lots of young professionals moving in. It is a bit like buying in Brixton 15 years ago, where house prices have since gone up fivefold.”

Dawnay, Day has already started preliminary negotiations on other large property portfolios in Harlem, Lower Manhattan and Queens. The bank is also considering sites in Chicago.

Mr Blakeley added: “Our intention is to build up. We are not just looking at New York — that is just a start. Our aim is to have in excess of $5 billion within a short period — within a few years.”

Mr Blakeley said that he had been attracted partly by the legal system for the leasings market, which, like the now-largely defunct old British system, allows for regular fixed-rate rises in rents for long-term sitting tenants. Once a tenant moves out, the chance to renovate and re-let at open market rates can offer the chance to raise the rent tenfold, which at the same time massively increases the capital value of the building.

The East Harlem lot has been bought at a value of $280 per foot, giving an initial yield of 5 per cent. Annual rental increases should lift the yield to 6 per cent within a year without refurbishment. Once renovated and re-let, parts of the site could easily be valued at over $1,000 per square foot. Mr Blakeley added: “A typical two-bedroom flat taking $150 per month in rent can see the rents rise 3 per cent to 4 per cent each year without doing anything. As soon as you take vacant possession, the rents will typically rise 17 per cent when re-let without doing anything. But with renovation, a flat could well take $1,700 a month once re-let on the open market.”

Long-term tenants can be bought out or tempted with the offer of several thousands of dollars in upfront lump sums.

Dawnay, Day’s entry into the American market could end up with a flotation of a fund on the public stock markets as US Real Estate Investment Trust, similar to the strategy followed by the bank in its European expansion.

The bank began buying in Germany and Central Europe and has since floated on the London Stock Exchange two multibillion-euro funds — Dawnay, Day Treveria, for its German assets, and Dawnay, Day Carpathian.

Dawnay, Day is known for its unusual asset acquisitions, including a recent purchase of a half-share in CKL Restaurants, the company that owns the Wolseley, the restaurant and favourite haunt of celebrities and power-brokers based in a former car showroom near the Ritz hotel in Central London.

History file

— Defined today as the part of Manhattan north of 96th Street, the original village of Harlem was established in 1658 by the Dutch governor, Peter Stuyvesant, and named Nieuw Harlem after the Dutch city of Harlem

— Harlem was an area of rich farms and estates, but by the 1830s had hit hard times and the farms were vacated. The area’s grand families were replaced by the poor

— Harlem became a middle-class district after the Civil War and new rail links boosted it after 1881. Philip Payton, a black investor, bought into white property when prices fell and New York’s black middle class began to move in. In the 1920s “Harlem Renaissance”, the area became black America’s cultural centre

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