Are developers playing "chicken" with the market?

David Goldsmith

All Powerful Moderator
Staff member
It seems like there are lots of new developments which should have hit the market already, but they have been held back waiting for the market to improve (or something else?). There are also a number of projects which are "on the market" but none of the units are officially listed and you have to contact them to get any information. A number of projects had press releases touting Fall 2019 (or earlier) or "Early 2020" and we haven't seen anything yet.

This article talks about 6,000 units of shadow inventory in new construction in Manhattan:

https://www.google.com/amp/s/www.bloomberg.com/amp/news/articles/2020-01-06/manhattan-s-flood-of-new-condos-could-take-six-years-to-sell
"Manhattan’s Flood of New Condos Could Take Six Years to Sell
By Oshrat Carmiel
January 6, 2020, 1:48 PM EST

About 85% of newly built units haven’t been formally listed

Large ‘shadow inventory’ is a drag on struggling sales market

Manhattan is glutted with even more luxury condos than most apartment-shoppers realize.
The borough has 7,050 unsold, newly built units, according to a report by Halstead Development Marketing. The bulk of those -- almost 6,000 -- haven’t been formally listed for sale, creating an under-the-radar “shadow inventory.”

The secret supply is a heavy weight on a market in which sales, especially of higher-end properties, have slowed to a crawl. It would take take 74 months -- more than 6 years -- to clear all of Manhattan’s unsold units at the pace of contracts in 2019, the report shows.

The glut is a product of a post-recession construction boom aimed at globe-trotting investors, who now show little interest in collecting lavish Manhattan homes. And most newly built apartments are out of reach for the majority of New Yorkers.

The shadow inventory is largest in the area that includes the Financial District. Those 967 apartments are on top of 96 units that are actively being marketed, the report shows."

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At some point something has to give. These projects will have to come to market, turn into rental projects, be sold as whole buildings, or taken by whoever holds the paper.
 

Noah Rosenblatt

Talking Manhattan on UrbanDigs.com
I think a combination of all of that may happen David. Especially retals and taken oever by the paper holders. I think these guys know all it takes is one domino to fall to start a potential wave. Seems like this downturn so far has been spared the worst
 

David Goldsmith

All Powerful Moderator
Staff member
A big question is how the new construction market will bleed over into resales. *IF* enough of these projects get taken over by creditors and then liquidated at whatever prices will clear the market quickly, that could be what "makes the market." How can resale sellers compete with brand new units selling for less money? Especially if it's not just a handful of bargains but turns into thousands of units.
 

Noah Rosenblatt

Talking Manhattan on UrbanDigs.com
hmm, not sure they are so quick to do that. Dunno, just dont expect it en masse in a way that negatively feeds on itself. Now if equity markets collapse another 20%+ from here, all bets are off as to how that will impact our markets and already hurting devs. I just think if all else stays the same without major disruption, it may quietly work itself out with a few 'market clearing' events but nothing that resets the whole new dev market. I mean, some of the trades lately in that sector are showing 20%-30%+ discounts from peak in the higher price points
 

David Goldsmith

All Powerful Moderator
Staff member
I agree that to a large extent it depends on how pervasive it becomes. However all it takes is one of the very large projects to head in this direction to make it seem like a lot.
 

David Goldsmith

All Powerful Moderator
Staff member

The Waldorf Astoria’s big gamble
A $3 billion project launches sales as a global pandemic slams an already weak market. What could go wrong?

At a launch event for the refurbished Waldorf Astoria in early March, Douglas Elliman sales director Dan Tubb stood in front of a wall of screens flickering with black-and-white photographs of the hotel’s famous guests.
Marilyn Monroe, Winston Churchill and John F. Kennedy — all of them were part of the landmark’s storied history. Now, Tubb said, buyers could have their own piece of that legacy.
But outside the Park Avenue hotel, which is offering 375 residential condos for sale on the upper floors, a public health crisis was beginning to unfurl. The coronavirus had wreaked havoc in China and spread across the world, overwhelming health care systems and killing thousands. Within weeks, the number of cases in New York had surged, shutting down schools and confining millions of people to their homes.
The Waldorf’s highly anticipated sales launch — already challenged by the luxury market’s oversupply problem and the state’s new mansion tax — was plunged into unpredictable territory.
“It’s kind of unfortunate that they opened when they did,” said Donna Olshan of the boutique residential brokerage Olshan Realty. “It would have been better had they not gone to the market.”
By March 16, the project’s sales gallery was shut down.
“In consultation with each of our respected developer clients, we have decided to promote social distancing by physically closing,” a spokesperson for Douglas Elliman said, adding that virtual tours are now available.

Two days later, Andrew Miller, CEO of Dajia US, the Waldorf’s primary sponsor since last year, defended the timing. “Market and buyer enthusiasm for the project is incredibly high, yet we know and respect that people are likely focused on global events at the moment,” he said, noting that sales had launched to the brokerage community in late February.
As the fast-spreading coronavirus batters the city’s already weak luxury market, it’s unclear if the Waldorf will emerge unscathed.

Olshan noted that the condominium-hotel hybrid was far from alone in its vulnerability to the pandemic. “Every property will be hit now,” she said. “No property is going to escape.”
With an opening slated for 2022, many in the industry are optimistic about the building’s chances. Some 75 units have been released for sale at prices ranging from $1.7 million for a studio to $18 million for a four-bedroom.
“Assuming the world gets back to normal sometime in the near future, I think the Waldorf will do very well,” said Nancy Packes, who tracks condo sales and believes the available units are reasonably priced. “The building itself is spectacular.”

Confidence in crisis

Before the pandemic, the Waldorf was facing another big hurdle: a glut of luxury inventory.

Large condominiums filled with unsold units reflect the challenges in today’s market: Foreign buyers are harder to come by, deals take longer, and discounts are the new normal. Experts predict the city’s unsold inventory will take up to 10 years to sell.

But Dajia’s Miller said he is confident foreign and domestic buyers will embrace what the Waldorf is offering, despite the conditions.

“I think a lot of people have been waiting for something that inspires the urgency to buy now,” he said. “Something that feels unique and irreplaceable, and fundamentally special.”

Dajia was established by the Chinese government in 2019 to handle the assets of the original developer, Anbang Insurance Group, which had been taken over by regulators in 2018. Known for its aggressive track record of foreign investment, Anbang had paid $1.95 billion for the Waldorf in 2015 and poured $1 billion into renovations.

The hotel portion of the building will include 375 rooms operated by Hilton. Above them, the residential units will be sweetened by access to 50,000 square feet of private amenities, including a spa, a 25-meter pool, a game room, an enclosed “winter garden” and four private bars.

Miller said the Waldorf’s sales team is available seven days a week for virtual showings. Like its peers across the city, it has had to adapt to an entirely new way of doing business — and fast. Contract activity at the Waldorf is unclear, though Miller reports getting thousands of inquiries from all over the world.

“Given the international renown of Waldorf Astoria New York, we have already completed virtual appointments for international buyers who have purchased sight unseen,” he said.

Banking on legacy

The Waldorf famously started life as two Fifth Avenue hotels — owned by feuding relatives — which were later joined together. It was sold to developers of the Empire State Building in 1929 and demolished. The second iteration, which occupies a full block between East 49th and East 50th streets, was the world’s largest hotel when it was built in 1931.
 

David Goldsmith

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A beacon of opulence, the Waldorf over the years earned a reputation for drawing dignitaries and celebrities including Frank Sinatra, Sophia Loren and Elizabeth Taylor. While units were not for sale, the hotel rooms were treated as long-term residences for many guests, including Monroe, who moved into a suite in 1955, about the same time that her romance with the playwright Arthur Miller began, and former President Herbert Hoover, who lived there for some three decades.

After Anbang purchased the building, it brought on the architecture firm Skidmore, Owings & Merrill to work on the overhaul, which has been underway since 2017.

Given the hotel’s decorated heritage, the work has been a balancing act between honoring the building’s original Art Deco design and bringing in modern touches.

“This is both an exterior landmark and an interior landmark — two distinct designations in New York, so it’s the highest degree of difficulty,” said Skidmore’s Frank Mahan, who noted that his team worked closely with the Landmarks Preservation Commission on the project.

A separate entrance will be created for residents, to separate them from hotel traffic. “The Spirit of Achievement,” a winged statue by Icelandic artist Nina Saemundsson installed above the entrance when the hotel opened 89 years ago, has been brought indoors while work is ongoing but will eventually return to its original location.

Waldorf team members hope to create the impression that the building is accessible to a wide swath of buyers — setting it apart from luxury towers where the barrier to entry is several million dollars — though they acknowledge the Waldorf’s price points are still inaccessible for most.

Inside the model two-bedroom — a relatively modest offering compared to some of the larger units — soundproofing insulates the space from the usual city drone, and the room’s color palette is mostly muted: polished marble countertops, gray couches and bronze detailing. Interior designer Jean-Louis Deniot said the restrained atmosphere was intentional.

“It doesn’t have really a predefined style apart from the fact that, yes, it’s to remind you that you are part of the Waldorf Astoria,” he said.

“Everything in the apartments in the Waldorf Astoria is very bespoke,” said Tubb, who left Corcoran Sunshine last August to market sales at the building for Elliman. “You’re not going to go out and find something on the shelf somewhere else. It’s all custom.”

Weathering turbulence

Anbang has been through an upheaval since its record-breaking deal to buy the storied hotel.

In February 2018, it was seized by the Chinese government as part of a crackdown on companies spending heavily on foreign assets. Three months later, Anbang’s chair, Wu Xiaohui, was sentenced to 18 years in prison for defrauding investors.

After regulators took over the firm, it was dismantled, and several of its foreign assets were sold. Those remaining were taken over by Dajia.

The developer’s gamble is not only that it can draw buyers to the iconic building, but that it can re-create the glory of the hotel. At the moment, though, the industry is in survival mode, struggling to navigate the swift and brutal economic fallout of the coronavirus pandemic. At some establishments in the city, occupancy reportedly dropped as low as 15 percent, and at least one — Ian Schrager’s Public on the Lower East Side — shut its doors. The long-term effects remain unknown.

“For the near term, hotel occupancy will be decidedly lower than before the pandemic started, and as for many businesses it may be as long as two years before ‘business as usual’ is conducted here and around the world,” said Barry LePatner, founder of construction law firm LePatner & Associates.

There were also some positive signs in the sales market, early on. Between March 9 and March 22, there were 35 contracts above $4 million signed in Manhattan, according to market reports by Olshan Realty. But halfway through that period, in-person showings were prohibited by the state, and contracts dropped as low as two in the week ending March 29.

At the Waldorf, with so many units to move, the redevelopment was always going to be risky. But Stephen Kliegerman, president of Halstead Development Marketing, said big projects typically plan for longer sellouts and a degree of unpredictability.

With that, come pitfalls.

“Large-scale projects become very difficult to plan out over time because you may be going through shifting economies and shifting marketplaces,” Kliegerman said.

In late February, Dajia’s two-year period of regulatory control ended, but the company is still looking to offload foreign assets. Since the outbreak of the coronavirus, at least one deal — to sell a $5.8 billion portfolio of U.S. hotels — has been thrown into peril, according to Bloomberg.

Miller declined to comment on the report but said there were no plans to sell the Waldorf. “I’m pleased — and occasionally a bit surprised — that that never came up as a real option,” he said.

“Everyone at Anbang and at the regulatory commission and now Dajia understood that the Waldorf Astoria is something unique and special,” Miller said. “Having embarked upon this journey to restore and reimagine the building, it was an obligation of everyone to see it through.”
 

David Goldsmith

All Powerful Moderator
Staff member

HFZ’s the XI has considered wholesale deals
Douglas Elliman put together discounted proposal for bulk units at Bjarke Ingels-designed condo

HFZ Capital Group’s sales team has discussed selling a chunk of discounted units at the XI, the Far West Side luxury condominium project designed by Bjarke Ingels.

A document prepared by Douglas Elliman, which is handling sales at the 236-unit project, lists a package of 10 condos with their current asking prices, as well as “bulk offering” prices for comparison. The document was obtained by The Real Deal, and sources familiar with the matter said it had been presented to two prospective buyers interested in bulk deals — the first dating back months ago.

The price drops in the document varied — a 14th-floor unit was down to $4.8 million from $5.6 million; a 17th-floor unit to $2.6 million from $3.1 million. Taken together, they amount to a blended discount of almost 20 percent, or more than $7 million.

John Gomes of Douglas Elliman’s Eklund Gomes Team said HFZ wasn’t marketing units in bulk. He said the sales team had originally put together the list for an investor in Six Senses Hotels Resorts Spas — the company that will operate the upcoming 137-key hotel at the development — who was interested in buying multiple units. A second prospective buyer came forward more recently, he said.

Through a representative for the project, HFZ declined to comment.

As the economy worsens, some industry insiders say interest in bulk condo offerings is on the rise. Andrew Gerringer, who runs new business development at the Marketing Directors, said he has been fielding calls every week from investors, but so far the offerings he has seen haven’t been enticing enough.

“I have a list of people that want to buy in bulk, it’s just that I’m not seeing anybody that really is interested in selling in bulk at a price that investors would be interested in,” he said.

Earlier this month, the Wall Street Journal reported that a South American family spent almost $27 million on eight units at GID Development’s Waterline Square condo on the Upper West Side. The buyers, who paid in cash, were reportedly given a combined discount of more than 7 percent across all the units.

A source close to the XI said the project had also seen strong interest from overseas buyers looking to buy multiple units.

The XI, a pair of twisting towers with a projected sellout of $2 billion, was one of many luxury projects already contending with Manhattan’s overstocked market before the coronavirus pandemic hit.

To acquire the land in 2015, HFZ paid $870 million, or roughly $1,100 a square foot — one of the priciest land deals in New York City history. The developer also landed a $1.25 billion construction loan from The Children’s Investment Fund in 2017, one of the largest condo construction financing deals of the cycle.

The original asking prices at the development — averaging roughly $4,000 per square foot — were about twice the average in West Chelsea near the High Line.

HFZ has been relatively quiet about transaction volume since sales launched in 2018, and some brokers previously said deals were sluggish. However, three sources familiar with the matter said the building was now effective, meaning at least 15 percent of units are in contract.

Sales have come in at a blended average of $3,700 a foot, according to a source with knowledge of the deals.

The 950,000-square-foot project takes up a full city block and will include 60,000 square feet of amenities. The condo is expected to open sometime before next February, according to filings with the state attorney general’s office.
 

David Goldsmith

All Powerful Moderator
Staff member
March 2017 Extell announced inking 100 deals. February 2020 The Real Deal published they had 223 closed and 39 in contract. So for almost 3 years pre-COVID-19 they did a little over 4 1/2 contracts per month and had 553 left to sell. And this is with a very long tax abatement and rounds of incentives like up to 10 years of "free" common charges.

Now they have announced up to 20% price reductions. But given the difficulties so far and our changing market due to this crisis, will that be enough? The project still suffers from the same location issues (and may even be considered worse by buyers given it's being wedged between 2 of the most most perceptually challenged areas). I also think post-COVID-19 buyers will show both a preference towards smaller buildings and valuing space they have some access/control of over common "amenity" space. This building is the polar opposite of that.


Extell announces Covid-inspired price cuts at One Manhattan Square
Move is the latest in a string of offers designed to drum up sales at the 815-unit tower

Extell Development, a leader in setting the bar for luxury prices, is offering discounts of up to 20 percent on all remaining units at its One Manhattan Square condominium.

In a statement Thursday, the New York developer said the decision to slash prices was made “in response to global conditions related to COVID-19.”

It’s the latest in a series of offers designed to spur sales at the 815-unit tower, which was grappling with a soft luxury market well before the pandemic hit. Last April, the developer said it would waive common charges for up to a decade — an unprecedented move, even in a concession-heavy market. Later, it introduced a “rent-to-own” program.

It’s unclear how many units will be subject to the latest discounts, however an analysis from January showed that at that time, 223 of the building’s 815 units had been sold, 39 were in contract and 553 were unsold. (A spokesperson for Extell declined to provide more up-to-date figures.)

The pandemic and ensuing shutdown have taken a huge toll on Manhattan’s luxury market, compounding existing problems and creating even more headaches for developers looking to offload a glut of unsold inventory.

To keep deals moving, brokers across the city have hastily shifted their operations online, conducting meetings on Zoom and showing properties virtually — the closest thing buyers can get to a look inside from the confines of lockdown.

Still, millions of dollars can be difficult to part with in a turbulent economy — particularly when you can’t see a property in person — and new contracts in the luxury market have been slow.

Extell is hoping price drops will prove a circuit breaker.

“While we have adapted to selling our residences through a virtual sales experience, we recognize that it is also important to incentivize our buyers with this program,” Extell’s founder and chairman, Gary Barnett, said in a statement Thursday. “Combined with low interest rates and a 20-year tax abatement, we feel this will make for a very compelling offering.”

The tower is currently advertising prices ranging from a one-bedroom unit asking $1.2 million to a three-bedroom unit asking $7.8 million. According to a 2019 TRD analysis of sales at the building, the average price of units that have closed is $1.7 million. The building has a projected sellout of $1.9 billion.

Last August, Extell secured $690 million in refinancing from the Blackstone Group for the remainder of the tower. The package included a $553.5 million senior inventory loan.
 

David Goldsmith

All Powerful Moderator
Staff member

Developers are drawing battle lines with lenders over project financing.


Sharif El-Gamal threatening to deconstruct condo tower, lender claims
Developer accused of “bad faith scheme” to devalue 45 Park Place upon foreclosure

Sharif El-Gamal built a 667-foot condo tower in Tribeca. Now he’s threatening to rip the top of it down, his lender says.
The developer is playing hardball, according to the lender, warning that if a foreclosure proceeds, he will make the project much less valuable.
The seeds of the strategy were sown in 2016 when El-Gamal, the head of Soho Properties, merged two zoning lots at the former so-called “Ground Zero mosque” site, where he planned to build a two-story Islamic cultural center and a 43-story condominium at 45 Park Place.
That allowed El-Gamal to use air rights from the proposed Islamic Museum of New York to build 45 Park Place roughly one-third taller than otherwise permitted, boosting its projected sellout to nearly $448 million.

But the project has suffered a series of setbacks, and its consortium of overseas lenders has cut off funding and is moving to foreclose. To stave off the action, El-Gamal is warning those air rights could disappear, the consortium says.
It’s a complicated maneuver. This February, attorneys for the entity that owns the cultural site wrote to the entity that owns the condo tower, threatening to undo the zoning-lot merger unless the lender releases the funds to complete the project. Both entities are controlled by El-Gamal, according to the lender, although the developer denies that.

The attorneys said the merger rollback would yank 40,000 square feet of rights from the nearly completed condo tower. That would render the most valuable 15 or so floors illegal.
The lending group fired back. In a letter asserting that both entities answer to El-Gamal, it accused him of orchestrating a “bad faith scheme” to “gain leverage in negotiations.”
“To the extent that Mr. El-Gamal and his companies seek to pursue this scheme, they will be held fully liable for any and all damages,” vowed the group, which includes Malaysia’s Malayan Banking Berhad, Kuwait-based Warba Bank and MSD Partners, an investment advisory firm led by the principals of Michael Dell’s family office MSD Capital.

El-Gamal denies having made the threat. He acknowledges having once been the president of the cultural site’s LLC that sent the letter, but said he no longer controls it. A certification in property records shows El-Gamal signed as president of the entity Oct. 16, four months before the letter was sent.
“I did not send that letter. I never threatened to invalidate the [zoning agreement],” he said. “Those assertions that are being made are not supported by the facts.”

The developer added that he stands by the project and intends to complete it.
“I accept the challenge to try to bring everybody back to the table,” he said. “This project means everything to me.”
The threat to deconstruct a condo tower is not new — 200 Amsterdam Avenue is facing the loss of its top 20 floors after a judge sided with opponents earlier this year — but for one to come from the building’s own developer might be unprecedented.
Slow sales

As with many luxury condo projects across the city that missed the market’s peak in 2015, El-Gamal’s troubles at 45 Park Place have been building for some time.
Records show only 11 of the tower’s 50 units have gone into contract since sales launched in 2017, the most expensive being a three-bedroom on the 38th floor asking $12.35 million. The elaborate website for 45 Park Place boasts of its full-floor residences and high-profile team, including El-Gamal, interior designer Piero Lissoni and architects Michel Abboud and Jean Nouvel (who only designed the proposed museum, not the residential building). But finding buyers could be further complicated by the pandemic.

Stribling & Associates initially handled sales and marketing at the building, before parting ways with the developer in 2017. Corcoran Sunshine Group has taken over, but the “availability” section on the project’s website has no active listings. A representative for Corcoran Sunshine declined to say why.
Progress on the cultural center has also been slow since plans were filed for it in 2017. Zoning approval remains pending, according to the Department of Buildings, and a spokesperson for the agency said it has not received any communication about that.

With so many condo projects in distress and buyers coping with coronavirus fallout, 45 Park Place will not be the only one to face a reckoning. More foreclosures, note sales and projects changing hands are expected, said Stephen Kliegerman, president of Halstead Development Marketing.
“Unfortunately, out of any economic crisis there are foreclosures and there is distress in the construction and new-development marketplace,” he said. “I do think there will be some projects — particularly those that have been troubled pre-Covid — that are certainly looking at more difficult times ahead.”

El-Gamal’s lender filed to foreclose on the property in early March, before the state shutdown. The group offered up a laundry list of violations that it claims put the loan into default, including El-Gamal’s failure to repay the outstanding balance of about $108 million when the loan matured in last April. Another allegation is that he fell short of a sales milestone in November 2018, when he was supposed to have signed contracts totaling 120 percent of the price of the construction loan.

The lender also argued that El-Gamal received an unauthorized $62 million mezzanine loan on the property in the spring of 2016, lacks the required $10 million liquidity to keep the loan in balance and has been responsible for construction delays and mechanic’s liens filed against the site.

In March, Justice Francis A. Kahn III appointed a temporary receiver to take control of the property, a move that attorneys for the developer tried to block.

“All parties must agree that the prospect of a languishing, half-completed skyscraper in lower Manhattan for years to come is a scenario that should be avoided at all costs,” a lawyer for one of the El-Gamal–affiliated entities wrote in a letter to the judge on March 20.

Matthew Parrott of law firm Fried Frank, who is representing the lender, declined to comment.

The project has had its share of other problems. Last year, El-Gamal had a showdown with his contractor, Gilbane Building Company, over a delayed $10 million payment.

He had also been working to secure a loan of between $170 million and $190 million from Madison Realty Capital, a deal that sources said fell through. A representative from Madison Realty Capital declined to comment.

El-Gamal may yet get 45 Park Place out of its predicament. He said his firm had received a refinancing commitment from Meritz Financial Group in December for about $200 million. He said he intends to finalize the deal, but could not provide a timeframe.
 

David Goldsmith

All Powerful Moderator
Staff member

Sizing up Manhattan’s condo crunch following a decade of boom and bust
How luxury condos planned at the peak of the market became deadweights for developers in an era of uncertainty

It was set to be the tallest condo tower in Lower Manhattan, capped with a ring of golden bands that arched toward the sky.
But as the new year arrived, with the high-end condo market in freefall, developers Madison Equities and Gemdale Properties pulled the plug last month on their 1,115-foot supertall at 45 Broad Street, citing “market conditions.” In the previous quarter, sales in the Financial District sank almost 45 percent.

Now, the project will be delivered later, and 80 feet shorter than expected, a spokesperson for the developers told The Real Deal — though time will tell.
“Assuming 45 Broad can’t be built as a rental, due to the costs of the project, then going on hold is a smart decision given the amount of inventory on the market,” said Andrew Gerringer, managing director of new business development at the Marketing Directors.

The site, a gaping hole encased in a cordon on a busy street in the Financial District, serves as a gloomy reminder for developers: The luxury condo boom that defined the past decade has come to an end.
Back in 2013, when the U.S. economy was rebounding and foreign capital was flowing through the city, 84 Manhattan condo projects were filed with the New York attorney general’s office, according to a TRD analysis. The next year, that number peaked at 86.

Today, many of the units in these luxury buildings are still sitting vacant, and they could take more than six years to sell, according to appraiser Jonathan Miller of Miller Samuel.
To put that in perspective: There is $5.7 billion in existing inventory on the market and $2.2 billion in contract, according to a 2019 new development condo report from Halstead Development Marketing, which counted $13 billion in sales that have closed since 2018. Those figures combined still fall short of $33 billion worth of inventory lurking in the shadows, according to Halstead.

Condos conceived at the peak of the market are launching sales at a time defined by oversupply and uncertainty, forcing developers to cut prices, seek lender lifelines and come up with creative concessions to stay afloat. There are more than 1,000 unsold units across Manhattan’s four biggest condo projects, according to an analysis of figures from Nancy Packes Pipeline and Transactions Databases that are licensed to the real estate industry.

“Anyone who thinks they can just sit there and charge the exorbitant prices they were able to get three or four years ago and they’re going to be able sell inventory in a prompt manner … it’s not going to happen,” said Christopher Delson, a partner at the law firm Morrison & Foerster.

While some developers are choosing to halt projects before they rise from the ground, others are opting for smaller boutique models over the gargantuan skyscrapers that hallmarked the boom. Eighty percent of the 51 Manhattan condo plans filed in 2019 were for projects with fewer than 50 units, according to TRD’s research. None of the projects had more than 200 units.

“I don’t think anyone is running to do a lot of new condo now,” said JDS Development Group’s Michael Stern, who argued the slowdown will clear the runway for new units to sell.
Others note that it’s a mixed bag for existing inventory, based on quality and price. “I think we are in a fragmented market, and all projects are not created equally.” said Robin Schneiderman, business development director for Halstead’s new development division. “While there are challenging spots, there are also spots that continue to perform very well.”
The decade’s boom-to-bust trajectory has taken a professional toll on many in the industry — and a personal one. Perhaps few have felt it more than Joseph Beninati. The Bronx-born developer burst onto the scene in 2013 with plans for a 950-foot-tall condo tower at 3 Sutton Place. But the 113-unit project collapsed under financial pressures, including costly payments on a $147 million construction loan. A 12-unit condo project at 515 West 29th Street sponsored by the developer’s firm Bauhouse Group also collapsed into litigation.

This January, Beninati filed for personal bankruptcy in Texas, disclosing that he has $24 million in liabilities and just $900 in his checking account. He surrendered the Mercedes and Audi he had been leasing. The developer, who could not be reached for comment, now earns $1,500 a month doing acquisition work for a company named Other Side Industrial, according to filings.

Beninati’s collapse was more a result of his inexperience and missteps than the market downturn. But the risk of casualty is high across the board.
“If the U.S. goes into recession, the stock market will be down, everyone will be hurting, and that will undermine the luxury market,” said Mark Zandi, chief economist at Moody’s Analytics.

“I do think recession risks, generally, are high and will remain high because of where we are in the business cycle,” he said. “The odds are probably one in five for this year, but if you told me we had a recession sometime in the next two to three years, I would not be surprised.”

A big correction?
Last March, veteran condo developer William Zeckendorf traveled to Albany to lobby against a proposed pied-à-terre tax. While his efforts helped kill the proposal, increased mansion and transfer taxes were imposed as an alternative, hitting high-end buyers directly.

These legislative changes, which followed a federal cap on state and local tax deductions, are part of a wider political shift that has rocked the industry’s long-standing power in New York and caused tension with a younger generation of activists concerned about gentrification, corporate transparency and climate change. The shift also put pressure on a sales market already struggling with a sharp decline in foreign buyers.

It’s difficult to know which factors had the most impact — from overpricing to politics to foreign buyers, the pool is vast — but by the end of the decade, no one doubted that the market had taken a major hit. In 2019, only 935 luxury contracts — which included condos, co-ops and townhouses — were signed for a total value of $7.65 billion, the lowest dollar volume since 2012, according to Olshan Realty.

As always, there were outliers: Vornado Realty Trust’s 116-unit tower at 220 Central Park South brought in record-breaking sales following its 2015 launch, including the $238 million penthouse purchased by hedge-funder Ken Griffin last January — the most expensive home sale in U.S. history.

Farther downtown, Amazon’s Jeff Bezos dropped $80 million on three units at 212 Fifth Avenue five months later, marking the largest downtown condo deal in history.
But while news of big sales gave the appearance of continued strength in the luxury market, they often spoke more to an extinct market rather than to current conditions: Many of the prices were fixed years ago when the units went into contract.

With the sales market in flux, high-end rentals reaped some of the rewards as buyers retreated to temporary homes to wait for prices to hit bottom. “Luxury rental prices boomed at the onset of the financial crisis and then stabilized for about six years, then began to climb again in 2019,” Miller said. In the last quarter of 2019, they hit a median price of $9,000 — the highest in 10 years.

Of course, in the world of big money, big stakes and big egos, real estate is an inherently risky business, and some brokers insist the narrative of doom is overstated. Volatility is par the course, they say, and New York will always be seen as an attractive place to buy.



“I think it’s easy to jump on the bandwagon and say how bad the market is,” said Douglas Elliman’s Richard Steinberg, who noted that, while 2019 was a particularly difficult year, his team saw a 50 percent increase in sales in the fourth quarter, and he was positive going into 2020.

He said the uptick showed that developers and sellers were slowly accepting that prices had to come down.
The last big drop in luxury pricing came at the onset of the financial crisis, Miller said. The current retreat is notably longer; prices peaked in 2016 and continued to fall through the end of last year. While there may be another price correction ahead, Miller said, the “heavy lifting,” by and large, is over.
Longtime Sotheby’s International agent Nikki Field said brokers themselves are jumping into the market, a vote of confidence for buyers considering their options. “My senior partner Kevin Brown bought a condo recently, and I’m buying a co-op,” she said. “When an experienced professional in the field is buying at this time, you know that we feel this is the right opportunity.”
But despite positive forecasts, the declines in recent years have undoubtedly led to collective soul searching about where things went wrong. The climate should be ideal for sales: The U.S. economy is still strong; the S&P 500 skyrocketed 30 percent last year; and interest rates are near an all-time low. Yet one-in-four new luxury condos built in New York City since 2013 were unsold as of last September, according to an analysis by StreetEasy.
The glut of inventory raises questions about whether there was ever enough demand for all the luxury units that were built and whether developers relied too heavily on all-cash foreign buyers who saw Manhattan as a safe haven for their money.
Donna Olshan, head of the boutique residential brokerage Olshan Realty, said developers should have given more thought to who was coming to the city, including the thousands of tech workers who are expected to move here in the coming years as companies, including Facebook, Google and Amazon, boost their New York operations.
“I think the developers suspend reality — if they can raise the money to build a project, they do,” she said. “They’re like Broadway producers. They always think they have a hit.”
One57 for all
When the financial crisis rocked Manhattan’s luxury condo market in 2008, everything from bank lending to construction ground to a halt. But in 2014, an ambitious skyscraper rose up over Central Park, built by Gary Barnett’s Extell Development.
One57 — a record-breaking, 75-story structure with a facade of silver and blue squares — cemented Barnett’s place as a pioneer, pushing prices higher and ushering in an ultra-competitive era of luxury real estate.
“It was the great project at the time,” said Charlie Attias, a broker at Compass who’s been selling condos in Manhattan for nearly two decades. “There was nothing else.”
But 10 years into the country’s longest economic expansion and one of the city’s most dramatic real estate cycles, Barnett — like dozens of other high-profile developers — is struggling to sell.
Extell’s One Manhattan Square, the biggest project on the market with 815 units, has sold just 223 apartments with another 39 in contract, according to TRD’s analysis of data provided by Nancy Packes.
At One57, resale prices have reflected the market’s decline. Last year retail heir David Lowy sold his three-bedroom unit at the tower for $19 million, about 32 percent less than what he paid in 2015. It was the largest resale loss of 2019.
Extell declined to comment for this story. But in an interview with this publication last December, Barnett said the city’s unpredictability has led his firm to look more outside New York and move further into rentals.
“We don’t have the velocity we’d like to see, but we are signing deals,” Barnett said of Extell’s Billionaires’ Row projects. “We are chipping away at the inventory. There’s less inventory at that super high level. There are also fewer buyers.”
He expressed confidence, however, that the Manhattan condo market would recover. For high-stakes developers, an aura of confidence can help to allay buyer nerves in a sentiment-driven climate. But some are seeing clearer results than others.
HFZ Capital’s Ziel Feldman famously paid $870 million for a full city block near the High Line — one of the priciest Manhattan land deals ever — and borrowed $1.25 billion — one of the largest construction loans of the cycle — to build his firm’s two twisting towers at 76 11th Avenue. Sales officially launched at the building in September 2018.
The developer is targeting a total sellout of $2 billion. But while New Zealand billionaire Graeme Hart reportedly went into contract for a $34 million penthouse at the building last June, there have been no recorded sales on XI’s 236 condo units to date, Packes’ data showed. HFZ declined to comment.
For now, the Related Companies appears to be leading the pack at its 15 Hudson Yards development, where 171 of the 285 units are sold, and 10 are in contract, according to the firm.
On the other end, Aby Rosen’s RFR Holding and Chinese firm Vanke have started to slash prices at its 94-unit, 63-story condo at 100 East 53rd Street, where just 23 of the property’s units had closed as of December 2019, according to public filings. The developers took on huge debt for the project, including $360 million from the Industrial and Commercial Bank of China.
“I don’t think there’s a single new development building that has not come under pressure from banks,” Leonard Steinberg, the Compass agent directing sales, told TRD in December. “But it’s not like there’s a gun to our heads.” RFR declined to comment.
Olshan said players who are being squeezed will need to renegotiate their debt, noting that every developer has a different relationship with their backers. “Obviously, if they’re not selling, they have to placate their equity partners,” she noted.
“Some of them will stay forever and hang in there. Others won’t.”
Money matters
In Downtown Manhattan, on the border of Chinatown, Extell’s One Manhattan Square stands as a symbol of boom-era goals and market realities.
Since sales launched in 2015 — the first push targeting buyers in China, Malaysia and Singapore — the developer has introduced an array of concessions to spur deals, offering to waive common charges for up to 10 years and even launching a rent-to-own program that allows residents to try before they buy.
The program has also been rolled out at two Downtown properties owned by Ben Shaoul’s Magnum Real Estate Group.
Jordan Brill, a partner at the firm, said the plan made sense in an uncertain market fraught with psychological barriers. “Product’s moving very slow because people are being extra cautious and want to make sure they make a sound investment amidst this relative state of paralysis,” he said.
Shaun Pappas, a real estate attorney who works with Magnum, said he has been contacted by smaller developers about whether rent-to-own would work for them. One of his clients, Italian-born developer Stefano Farsura, said he was considering it for his 14-unit condo on 139 East 23rd Street. Sales launched in January, and all units are asking below $4 million. “We decided to stay flexible and see how the market reacts,” he said.

The developer, who filed plans for his project in 2019, said he had changed course as he watched the market struggle. First, he scrapped a penthouse with a rooftop garden — an “ego apartment,” he called it — in favor of making the units more uniform in price and converting the rooftop into a communal space with open-air seating and a barbeque. His next step was to push sales back to when the project was all but complete, a trend that is becoming more common because buyers don’t have the same sense of urgency they once did and often want to see their units before signing a deal.
“We have a number of condo projects that are on the drawing board — things that we know will happen — but people are holding off putting them on the market until they are close to completion, as opposed to pre-construction marketing,” said Jay Neveloff, a partner at the law firm Kramer Levin Naftalis & Frankel.
But as concessions, incentives and even delayed sales launches become pervasive — in many cases coupled with price cuts — the line between solid strategy and marketing gimmick can narrow. In January, star Nest Seekers broker Ryan Serhant surprised some in the industry by posing behind a pile of cash for an Instagram video, in which he announced, “I’m going to offer $50,000 in cash to the first broker who brings me a deal at 196 Orchard in 2020.” (Magnum, the firm behind the Downtown project, later confirmed it was footing the bill.)
Brill said he was surprised to see a few people suggest the promotion was unethical and put the criticism down to shortsightedness. “Any broker looking to push a transaction through today is going to offer either a piece or all of that incentive to their buyer, and what would be unethical is not sharing that extra $50,000 with their buyer,” he said.
The need to lift sales is particularly pressing for developers weighed down by large amounts of debt. One luxury condo project that almost came apart because of missed loan payments and sluggish sales is 125 Greenwich. Sponsored by Davide Bizzi’s Bizzi & Partners, Howard Lorber’s New Valley, China Cindat and the Carlton Group, the building topped out last March but is plagued by litigation and has yet to be completed.
Singapore-based United Overseas Bank, which lent $195 million on the 275-unit project, moved to foreclose on the developers at the Downtown site last summer, then sold the debt to development firm BH3 Capital Partners. A separate foreclosure action by an EB-5 lender, Nick Mastroianni’s USIF, is also stalled after a planned auction did not happen last summer. And in December, a complaint was filed against the developers for skipping seven months of rent for the project’s sales office on the 84th floor of One World Trade Center.
“If you haven’t started and gotten your construction loan yet,” the Marketing Directors’ Gerringer noted, “why would you build today in a market like this when there is so much uncertainty and so much at risk?”
Despite the challenges at some big development sites, Neveloff predicted most well-backed projects would withstand the current market pressures with plenty of options for prominent sponsors to recapitalize.
But George Doerre, vice president at M&T Bank, predicted there would be fewer construction loans in 2020.
“The number of people coming forward looking for condo financing just isn’t there,” he said, noting that rent reforms had hampered condo conversions. For those projects that were initiated, Doerre added, “you have to feel really confident in their ability to sell out.”
Tall orders
JDS Development’s Stern — one of the luxury condo market’s newcomers of the last decade — has been building an ambitious 1,428-foot development at 111 West 57th Street on the backdrop of the luxury slowdown.
The 60-unit condo project, which has a projected sellout of $1.3 billion, was co-developed by Kevin Maloney’s PMG and equity investor Ambase, which was later sidelined from the project after a drawn-out legal battle over ownership stakes and missed capital calls.
But if Stern is worried about marketing 111 West 57th — the world’s skinniest skyscraper with just one unit per floor — he doesn’t show it. After launching sales in 2016, he suspended them amid the slowdown and relaunched in 2018. While the developer declined to discuss figures, he said interest has been strong, primarily from domestic buyers. The project’s first closings are expected in April, and construction is expected to wrap this year.
His project is one of the newest on Billionaires’ Row, which has become crowded since One57 was built and is known for both record sales and disappointing resales.
A recent Miller Samuel analysis of eight buildings in the area found that close to 40 percent of units remain unsold as of September 2019. (Extell’s Central Park Tower at 217 West 57th Street was not included.)
“The developers on 57th Street started building condominiums for people that barely exist in the world,” Terra Holdings owner and co-chair Kent Swig told TRD last December. “I don’t think people did their demographic homework.”
At Vornado’s 220 Central Park South — which Miller estimated to be 85 percent sold — the 116-unit building’s golden touch is soon to be tested: The first reported resale was listed this year with owner Richard Leibovitch asking $10 million more than he paid just a year ago.
Stern said that while 2019 was difficult for the industry, the slowdown in new projects was positive.
“We should see some of the older inventory absorbed, and that bodes well for moving more product in 2020 than we did in 2019,” he argued.
Future Outlook
In the past decade, 22,304 condo units were built in Manhattan, the most of any borough, according to data from Packes first reported by The New York Times.
Although the 10 biggest Manhattan condo projects on the market have hundreds of empty units among them, Miller said condos priced below $5 million were faring well. Commentators often speak about the condo market as a monolith, he said, but sales below $5 million make up 96 percent of it. That portion, he said, “is moving sideways or rising.”
Though often discounted, sales are still happening. There were 611 condos sold last year, according to CORE’s year-end report, fueled in part by the pre-mansion-tax rush in June. That was a slight uptick from 605 the previous year but down from 840 sales in 2017 and 883 in 2016.
Many luxury brokers are still optimistic about the year ahead, while reserving caution about the potential effects of the federal election. An analysis for TRD by Jonathan Miller of co-op sales between 2008 and 2019 shows this concern is warranted: Sales in presidential election years dropped 12.7 percent between June and October and peaked again in November and December.
Global volatility, which brokers say has wreaked havoc on the sales market in the past few years, will not slow any time soon. The impeachment trial, unrest in Iran and mounting concern over climate change all play into buyer sentiment.
“The biggest concern, for me, is the pied-à-terre tax,” Elliman broker Frances Katzen said. “I think if that goes into effect — excuse my language — we’re fucked because we are heavily reliant on that investor component to diversify and absorb a big chunk of what’s being built.”
Many in the industry argue that well-priced inventory will continue to sell, though disagreement persists about what pricing is realistic. “Part of the condo story is, What is the good inventory and the bad inventory?” said Stephen Kliegerman, president of Halstead Property Development Marketing. “At some point, when do we not count them as inventory anymore when they’ve been on the market for so long?”
Neveloff is confident developers can navigate the uneven terrain. “I don’t expect to see many foreclosures,” he said. “I certainly don’t expect to see many bankruptcies.”
Morrison & Foerster’s Delson differed. “My guess is we’re going to start to see foreclosures,” he said, noting that the process usually takes about two years.
Outside Manhattan, other boroughs are also showing growth, and Brooklyn has been transformed with new development in the past decade. “New York is a bifurcated market,” said Compass’ Elizabeth Ann Stribling-Kivlan. Despite industry fears of a recession, she has seen much worse.
“In the 1990s, you couldn’t give apartments away,” she said. “We aren’t in a situation like that.”
 

David Goldsmith

All Powerful Moderator
Staff member

Developers are drawing battle lines with lenders over project financing.


Sharif El-Gamal threatening to deconstruct condo tower, lender claims
Developer accused of “bad faith scheme” to devalue 45 Park Place upon foreclosure

Sharif El-Gamal built a 667-foot condo tower in Tribeca. Now he’s threatening to rip the top of it down, his lender says.
The developer is playing hardball, according to the lender, warning that if a foreclosure proceeds, he will make the project much less valuable.
The seeds of the strategy were sown in 2016 when El-Gamal, the head of Soho Properties, merged two zoning lots at the former so-called “Ground Zero mosque” site, where he planned to build a two-story Islamic cultural center and a 43-story condominium at 45 Park Place.
That allowed El-Gamal to use air rights from the proposed Islamic Museum of New York to build 45 Park Place roughly one-third taller than otherwise permitted, boosting its projected sellout to nearly $448 million.

But the project has suffered a series of setbacks, and its consortium of overseas lenders has cut off funding and is moving to foreclose. To stave off the action, El-Gamal is warning those air rights could disappear, the consortium says.
It’s a complicated maneuver. This February, attorneys for the entity that owns the cultural site wrote to the entity that owns the condo tower, threatening to undo the zoning-lot merger unless the lender releases the funds to complete the project. Both entities are controlled by El-Gamal, according to the lender, although the developer denies that.

The attorneys said the merger rollback would yank 40,000 square feet of rights from the nearly completed condo tower. That would render the most valuable 15 or so floors illegal.
The lending group fired back. In a letter asserting that both entities answer to El-Gamal, it accused him of orchestrating a “bad faith scheme” to “gain leverage in negotiations.”
“To the extent that Mr. El-Gamal and his companies seek to pursue this scheme, they will be held fully liable for any and all damages,” vowed the group, which includes Malaysia’s Malayan Banking Berhad, Kuwait-based Warba Bank and MSD Partners, an investment advisory firm led by the principals of Michael Dell’s family office MSD Capital.

El-Gamal denies having made the threat. He acknowledges having once been the president of the cultural site’s LLC that sent the letter, but said he no longer controls it. A certification in property records shows El-Gamal signed as president of the entity Oct. 16, four months before the letter was sent.
“I did not send that letter. I never threatened to invalidate the [zoning agreement],” he said. “Those assertions that are being made are not supported by the facts.”

The developer added that he stands by the project and intends to complete it.
“I accept the challenge to try to bring everybody back to the table,” he said. “This project means everything to me.”
The threat to deconstruct a condo tower is not new — 200 Amsterdam Avenue is facing the loss of its top 20 floors after a judge sided with opponents earlier this year — but for one to come from the building’s own developer might be unprecedented.
Slow sales

As with many luxury condo projects across the city that missed the market’s peak in 2015, El-Gamal’s troubles at 45 Park Place have been building for some time.
Records show only 11 of the tower’s 50 units have gone into contract since sales launched in 2017, the most expensive being a three-bedroom on the 38th floor asking $12.35 million. The elaborate website for 45 Park Place boasts of its full-floor residences and high-profile team, including El-Gamal, interior designer Piero Lissoni and architects Michel Abboud and Jean Nouvel (who only designed the proposed museum, not the residential building). But finding buyers could be further complicated by the pandemic.

Stribling & Associates initially handled sales and marketing at the building, before parting ways with the developer in 2017. Corcoran Sunshine Group has taken over, but the “availability” section on the project’s website has no active listings. A representative for Corcoran Sunshine declined to say why.
Progress on the cultural center has also been slow since plans were filed for it in 2017. Zoning approval remains pending, according to the Department of Buildings, and a spokesperson for the agency said it has not received any communication about that.

With so many condo projects in distress and buyers coping with coronavirus fallout, 45 Park Place will not be the only one to face a reckoning. More foreclosures, note sales and projects changing hands are expected, said Stephen Kliegerman, president of Halstead Development Marketing.
“Unfortunately, out of any economic crisis there are foreclosures and there is distress in the construction and new-development marketplace,” he said. “I do think there will be some projects — particularly those that have been troubled pre-Covid — that are certainly looking at more difficult times ahead.”

El-Gamal’s lender filed to foreclose on the property in early March, before the state shutdown. The group offered up a laundry list of violations that it claims put the loan into default, including El-Gamal’s failure to repay the outstanding balance of about $108 million when the loan matured in last April. Another allegation is that he fell short of a sales milestone in November 2018, when he was supposed to have signed contracts totaling 120 percent of the price of the construction loan.

The lender also argued that El-Gamal received an unauthorized $62 million mezzanine loan on the property in the spring of 2016, lacks the required $10 million liquidity to keep the loan in balance and has been responsible for construction delays and mechanic’s liens filed against the site.

In March, Justice Francis A. Kahn III appointed a temporary receiver to take control of the property, a move that attorneys for the developer tried to block.

“All parties must agree that the prospect of a languishing, half-completed skyscraper in lower Manhattan for years to come is a scenario that should be avoided at all costs,” a lawyer for one of the El-Gamal–affiliated entities wrote in a letter to the judge on March 20.

Matthew Parrott of law firm Fried Frank, who is representing the lender, declined to comment.

The project has had its share of other problems. Last year, El-Gamal had a showdown with his contractor, Gilbane Building Company, over a delayed $10 million payment.

He had also been working to secure a loan of between $170 million and $190 million from Madison Realty Capital, a deal that sources said fell through. A representative from Madison Realty Capital declined to comment.

El-Gamal may yet get 45 Park Place out of its predicament. He said his firm had received a refinancing commitment from Meritz Financial Group in December for about $200 million. He said he intends to finalize the deal, but could not provide a timeframe.
Related story:
 

David Goldsmith

All Powerful Moderator
Staff member
On the rental side, Rent Stabilized landlords are keeping below market units vacant on purpose hoping to blow up the system (and playing chicken with State Legislature).

New Yorkers’ exodus could unravel rent regulation
End of rent emergency possible, but not likely, experts say

Rent stabilization has been a dominant force in the city’s real estate for generations, and was cemented in place by the state legislature a year ago. But if the exodus of New Yorkers continues, it could bump the housing vacancy rate up and trigger the end of the controversial policy.
However, it would first have to clear some serious political hurdles.

Since 1974, rent stabilization has depended on a housing emergency, defined in part by an apartment vacancy rate below 5 percent. In 2017 there were 79,000 available rental units in New York City, or 3.63 percent of the total, as determined by the Department of Housing Preservation and Development’s most recent official survey.

The vacancy rate has long been well below the threshold. But reports of New Yorkers leaving town and scenes of an emptied-out city have led some to ponder whether the housing emergency might end.
“If there is a flight from the city … it is not out of the realm of possibility that the vacancy rate can go above the requisite threshold, thereby undermining the statutory basis for rent regulation,” said landlord lawyer Sherwin Belkin, a partner at Belkin Burden Goldman.

On the tenants’ side, Ellen Davidson, a staff attorney at Legal Aid, agreed that it is “theoretically” possible. But, she noted, not before 2022, when the next Housing and Vacancy Survey is expected to be released.
The survey is taken every three years, but is pushed back a year when it coincides with a decennial census, as it does this year.

But what if many of the 420,000 people who left the city between March 1 and May 1 don’t return? If two-thirds left rentals, approximating the city’s average, that’s about 280,000 people.
The key metric on which the rent stabilization law hinges is the percentage of active rental units that are empty. The 3.63 percent in 2017 was some 30,000 units short of the 5 percent mark — housing for roughly 70,000 people. So about 1 in 4 of renters who escaped would have to not return — and their apartments would have to be empty and available when the survey is done next year.

That’s a high bar. Clearly, the spring exodus by itself will not be enough.
What about vacant units not on the market, perhaps because they are being renovated? There were 245,000 in 2017. But they do not count in the calculation.
Even if the vacancy rate were to exceed 5 percent, the rent stabilization law has an escape hatch: State legislators could raise the 5 percent limit — or eliminate the threshold altogether — perhaps citing the economic fallout of Covid-19 as a rationale.

“There’s a good legal argument that what has happened in New York City is the definition of an emergency, and that the laws should be renewed even without the vacancy rate being below 5 percent,” said Davidson.
Real estate attorney Michael Dabah, a founding partner at Stein Adler Dabah Zelkowitz, agreed that elected officials are unlikely to allow their landmark legislation to be dismantled.

“I’m not inclined to believe all that much will change,” said Dabah. “Such a quick reversal strikes me as highly unlikely in the face of the fairly recent shift in momentum.”
 

David Goldsmith

All Powerful Moderator
Staff member

Manhattan developers discreetly shopping bulk condo deals
Simon Baron and Quadrum Global are offering a 10% discount for the remaining 26 units at the Chamberlain

It’s hard to sell one luxury apartment these days, but what about 20?
In New York City, some developers are hoping to clear a glut of unsold units by offering bulk deals at discounted prices. It’s an uncommon move that comes as the city’s weak luxury market is further hobbled by the pandemic.

Developers Simon Baron and Quadrum Global are offering a 10 percent discount on the 26 remaining units at their 38-unit Chamberlain condop on at 269 West 87th Street, according to a marketing document obtained by The Real Deal.
In a pitch, Vickram Jambu’s team at Lee & Associates projected the remaining units could fetch between $900 and $1,600 per square foot on resale with a total projected value of $87 million. If a bulk buyer considered renting out the units, the team estimated the Chamberlain’s three vacant penthouses — priced between $4.5 million to $5.4 million — could fetch between $35,000 to $37,000 per month, or $108 per square foot.
Representatives for both Simon Baron and Quadrum declined to comment. The development team, which in 2015 signed a $90 million ground lease for the site, was originally aiming for a $205 million sellout.
Jambu declined to comment on the project, but said he had seen an uptick in interest in bulk deals overall.
“Given the turbulence in the market recently, bulk-condo dispositions have become more of a popular topic between some of our clients as of late,” he said.

While some developers would be happy to entertain such a deal if one came their way right now, bulk sales can completely transform a building, particularly if they bring in large numbers of renters. Some investors buy in bulk so they can rent out the units and sell them years later at a higher price. Others opt to hold the units empty to avoid the wear and tear of renting.
Having an investor own a block of units in a building can also pose obstacles for existing owners when they look to sell, because prospective buyers may run into trouble getting loans.
A condo mortgage questionnaire reviewed by TRD asked applicants whether a single entity or individual owned more than 10 percent of units in the building. An affirmative response to this question would pose a red flag, said a banker in the mortgage industry, because lenders prefer the stability of owner-occupied units, and enforce thresholds when considering loans.
Still, because of the state of the luxury market, investor interest in bulk deals has been on the up. Last month, TRD reported that the Douglas Elliman sales team at HFZ Capital’s XI condo had discussed bulk-offering opportunities with at least two investors. A bulk-offering document prepared by the Elliman team included 10 units with a blended discount of almost 20 percent, or more than $7 million.
Ankit Duggal, vice president of acquisition and debt investments at RockFarmer Properties, said his firm had scooped up bulk co-op shares after the last financial crisis, and he anticipated the pandemic would generate a similar rush.
“Any time you see a crisis point is usually when you see an opportunity for some kind bulk buying,” he said.
Jambu insisted that bulk deals don’t necessarily mean a project is in distress — a point disputed by others in the industry.
Finding the right investor, though, can be a challenge, and one developer who spoke on the condition of anonymity said bulk deals in his experience rarely worked.
“In a market where there isn’t movement and nothing is sold, most bulk buyers are looking for a significant discount and that sits below the lender’s release price,” he said. “So unless you have a lender aligned with a bulk sale, they tend not to happen.”
And while rental plans are an obvious fallback, they don’t always make sense in the high-end market, according to Jambu. That’s because developers would have to make huge discounts for investors to achieve any decent rental revenue, and they would be better served finding an investor looking to buy the units and sell them sooner, he said.
“With the general condo inventory in Manhattan that’s luxury, that’s over $2,000 a square foot, typically, the rental math just doesn’t work,” he said. “Unless you’re discounting at such a heavy level, which is close to 40 to 50 percent.”
His advice for investors? “Buy and hold and sell.”
 

David Goldsmith

All Powerful Moderator
Staff member
Developers, investors hustle for bulk condo deals
Niche market alive with interest as condo developers scramble to shed units.

Danny Fishman cannot keep up with the demand.

The investor, who leads Gaia Real Estate, is contending with a deluge of pitches from developers hoping to sell him condo units in bulk. He said the missives began picking up last year but recently have been coming in at such velocity that he hardly has time to look at them.

“I would easily say at least 50 percent of new [condo] construction in the city is talking about bulk [sales],” Fishman said.
Gaia is in advanced talks to buy five condo packages ranging from 12 units to more than 100 at projects in Manhattan and Brooklyn. All are new deals that appeared since March, when the coronavirus shutdown halted apartment showings and slowed sales to a trickle.

“Any time you see a crisis point is usually when you see an opportunity for some kind of bulk buying,” said Ankit Duggal, vice president of acquisition and debt investments at RockFarmer Properties.

$1.6B
The total value of 2,295 units sold in bulk deals in NYC between January 2015 and May 2020, according to a TRD analysis
The luxury market was already in strife when the pandemic hit, with $5.7 billion in existing condo inventory at the beginning of the year and another $33 billion worth in the shadows. But now, with sales stalled and financing harder to come by, developers and their partners are looking at any way to move units. Some investors, however, still feel prices aren’t low enough to justify a big bet on New York City’s beleaguered condo market, particularly in light of added stress from a global pandemic and new regulations affecting the rental market, a key part of many bulk buyers’ business models.

“It’s almost the same as [if] they’re just surrendering property. If you’re a bulk buyer, you’re trolling around to find the most desperate sponsor.”
Dan Hollander, DHA Capital
“Right now, everything is a guessing game, which isn’t great when you’re running numbers for these,” said Corey Dyer of Sotheby’s International Realty, whose team has been analyzing deals based on comparisons to other periods of economic uncertainty.
“It’s too soon to tell, and I think anybody that tells you otherwise … I don’t know if I can trust them.”
The developer’s calculus
Interest in bulk deals is out there, but making them happen can be difficult.
Sponsors generally forgo the profits they stood to earn from final units sales because bulk deals only happen at below-retail prices.

“It’s almost the same as [if] they’re just surrendering property,” said developer Dan Hollander. “If you’re a bulk buyer, you’re trolling around to find the most desperate sponsor.”

But there are reasons sponsors may go that route.
One, said Josh Winefsky of Kramer Levin, is if a loan maturity date were looming and sales were slow. In that case, selling the remaining units might be more appealing than kicking more equity into the project, finding a new partner or refinancing at a potentially higher rate, Winefsky said.

Ceruzzi president Art Hooper said he’s been getting calls from bulk buyers interested in the developer’s Upper East Side condominium, the Hayworth, where just two units are in contract. A planned deal for an inventory loan at the site recently stalled because of the pandemic.

“There’s no question that the condo market is not robust in New York,” Hooper said in an earlier interview.

Vickram Jambu of Lee & Associates, who is marketing a bulk package at the Chamberlain condo at 269 West 87th Street, said a common misconception is that bulk offers arise only when a project is in distress. He argues that such deals can be a useful way for a developer to change business strategy. (Jambu declined to comment on the Chamberlain condo specifically. Its developers, Simon Baron and Quadrum Global, also declined to comment.)

Winefsky characterized bulk trades as a “deviation” from the sponsor’s business plan, usually because of slow sales.
“It’s unlikely that someone goes in thinking, ‘I’m going to sell in bulk,’” he said. “I don’t know that I would say it’s an act of desperation … but it’s in all likelihood not a sign of a very healthy project.”

Another developer, who spoke on the condition of anonymity, said he mostly didn’t take bulk offers too seriously because even though it would be great to move a huge haul of units at once, there is usually a catch.

“In a market where there isn’t movement and nothing is sold, most bulk buyers are looking for a significant discount and that sits below the lender’s release price,” the developer said. “So unless you have a lender aligned with a bulk sale, they tend not to happen.”
A growing niche
Bulk buying has never been a huge driver of New York City’s sales market. An analysis of property records by The Real Deal showed 2,295 units were sold in bulk deals across the five boroughs for $1.6 billion between January 2015 and May 2020.

Still, there have been a slew of notable trades in recent years, including Gaia’s 144-unit buy at the Corinthian condo in 2014 for $147 million and Moinian Group’s $27 million sale of 32 apartments at the W Downtown. Last year, Gaia closed on 90 units at the Brodsky Organization’s Bridge Tower Place Condominium for $52 million.

Mark Zborovsky, a broker who specializes in selling blocks of converted sponsor units, said the market has been steady for many years. The main change he’s seen since he started out in the 1970s is growth: The market has increased, and prices have gone up.

“People were buying blocks for 10, 15 cents on the dollar,” he said of his early days. Now, investors pay between 30 percent and 40 percent of the units’ market value.

When bulk deals first gained traction in the 1980s, they were driven by the banks. At the beginning of the decade, a rush of developers came into the condo market. But a change to the tax law in 1986 altered the deductibility of certain investments, depressing real estate values. By the end of the decade, the country was facing a major banking crisis.

“That’s when the banks took back, for the first time, many, many projects,” said Andy Gerringer of the Marketing Directors. “There were so many condos on the market at that time, and the banks had to get them off their books.”

But investors were in short supply. Hedge funds and the private-equity firms weren’t as prevalent in real estate as they are today, Gerringer said. Most of the investors with both the money and appetite for bulk deals came from overseas.
That has since changed: Over the years a handful of New York investors and developers such as Myles Horn have teamed up with larger players to buy units cheaply, renovate the apartments and sometimes common spaces and then sell at a markup.

Horn, who has bought and sold more than 5,000 units in bulk deals over about 40 years, is also seeing more interest in what had been a niche market. The developer and investor is in talks to close on 250 units across multiple co-operative buildings owned by one sponsor. Those negotiations pre-date Covid, but Horn said he has since begun working on another bulk deal, this one at a new condo.

“It’s a very, very small business,” he said. “Now everyone and their mother is looking for these deals.”
Condo distress
It’s easy to see why Manhattan’s luxury market is ripe for bulk deals. Though it showed signs of life in the early part of this year, Covid-19 quickly scuttled that momentum.
“The problem, as I see it, is there has not yet been a realization on the owners or lenders’ part as to how deeply underwater these projects are. I think [buyers] may get burned.”
Myles Horn, developer
Despite virtual tours and other platforms geared toward contactless deals being rapidly adopted by agents and consumers, the number of new deals has plummeted. In May, Manhattan’s co-op and condo markets saw respective year-over-year drops in contract volume of 80 percent and 83 percent, according to a report from Douglas Elliman and appraisal firm Miller Samuel. Brooklyn’s co-op and condo markets fell 76 percent and 44 percent, respectively.
Faced with any combination of those headwinds, exposed lenders and institutional equity investors will often push for bulk sales.

“They are very welcome,” said Ran Eliasaf, managing partner of Northwind Group, an investor-turned-lender that recently launched a $220 million debt fund to originate condo inventory loans for New York City–based projects.
“It all depends on the price,” he said, acknowledging that while bulk deals trade at discounts, it’s worth it if the final price matches what the lender underwrote or significantly contributes to paying down a loan.
For bulk buyers, price is a major stumbling block too. Historically, the rule of thumb for a bulk discount is 30 percent to 40 percent below retail asking prices, according to Horn. But most bulk offers he’s reviewed have a 10 percent to 15 percent markdown, which he calls “nonsense.”
“That’s not the price. It’s in fact their wish list,” he said.
Active deals in the market offer some insight into where developers are.
Marketing materials for the Chamberlain show the developers are offering an additional 10 percent discount on all 26 remaining apartments at the 38-unit condo.
At HFZ Capital’s XI condominium, the Douglas Elliman sales team has held talks about a 10-unit package with a blended discount of 20 percent.
“The problem, as I see it, is there has not yet been a realization on the owners or lenders’ part as to how deeply underwater these projects are,” Horn said. “I think [buyers] may get burned … Most of these deals have not yet reached the appropriate discount.”
Fishman agreed, noting that Gaia is buying “only on discount.” He said he expects lean years ahead and isn’t counting on the residential market bouncing back anytime soon.
“We don’t believe in buying market price and hoping everything will grow with the city,” he said. “We don’t think there will be growth.”
Hunting for a bargain
As the country settles into a recession, many in the industry are watching to see if a new wave of bulk deals emerges.
“We’re seeing opportunities being offered on the condominiums that have maybe 10, 20 percent sellout and now they’re stuck,” said RockFarmer’s Duggal. “We’re also seeing, on the other side of the trade, distressed debt being sold off on that structure as well.”
Duggal said his firm had been looking at deals before the pandemic, including a portfolio of Bronx co-op deals that was marketed last year. But in recent months, more have started to come across their desks.
When they underwrite bulk deals, Duggal said his firm considers the debt position of the building and whether there’s a strong market for the product. If the buyer sentiment is negative, he said, they work on the assumption that the units would not sell for a long time, instead focusing on what rents they can achieve.
“The upside for us is the condominium sellout,” he said. Renting, though, is always the fallback.
In New York City’s notoriously tight rental market, the idea of struggling to find tenants may seem laughable. But these aren’t ordinary times. More than 40 million Americans are unemployed because of the pandemic, and many well-heeled city dwellers have been renting vacation homes.
In April, at the height of the pandemic, new rental activity dropped by more than 70 percent to the lowest level since 2009. That means any rental figures bulk buyers are relying on to forecast their income are out-of-date at best.
Attorney Mark Hakim also noted that the changes to the rent laws last year, in addition to the specter of the “good cause” eviction bill, which would effectively cap rent increases on market-rate units statewide, may have likewise prompted some investors to think twice about bulk buying in Manhattan.
That’s the case for Gaia’s Fishman, who said New York’s eviction moratorium and lack of landlord relief in light of the pandemic has been particularly hard to absorb.
“There’s a political risk,” he said. “I will invest in New York only if I’m getting a discount to account for the added risk.”
Jambu of Lee & Associates said high-end bulk deals don’t make sense without the sales component.
“Typically speaking, the discount is not heavy enough to have the entire business plan predicated on purely rental,” he said. The model, particularly now, is “buy and hold and sell.”
But how long can an investor hold a vacant unit to sell it at a profit?
“If an investor can come in and carry them for five, 10 years, [these bulk deals] are great buys,” Dyer said.
Horn, however, cautioned that bulk buyers should prepare for the worst-case scenario: not being able to sell units.
“Nobody knows how long this is going to last … We all think we’re geniuses until we screw up,” said Horn. “The market makes you a bum or a hero.”
 

David Goldsmith

All Powerful Moderator
Staff member
Loan wolves: Bankers are stalking developers as debts come due
As condo sales stall, lenders are growling at developers’ doors

It was one of many signs last year that a growing number of New York City condo developers are on borrowed time.
Bank OZK had committed $108 million to finance a 92-unit condo building at 615 10th Avenue back in 2015. But last April, with the project stalled, the construction lender dialed that back by $20 million, forcing the developer to grab a lifeline from mezzanine lender Mack Real Estate Credit Strategies.

The troubles brewing at that Hell’s Kitchen project are playing out across Manhattan as condo developers run out of extensions on their construction loans. With billions of dollars in debt coming due over the next few years, and sales in the doldrums for the foreseeable future, developers are under increasing pressure from lenders to slash prices or convert to rentals to generate cash.

Many developers are resorting to short-term, high-interest inventory loans in the hope of waiting out the slump, sources say. But the oversupply of high-end units, new state taxes, a drop in overseas buyers and renewed fears of a pied-à-terre tax suggest that debt collectors may come calling before new buyers do.

“For luxury condos, it’s a perfect storm of bad things,” said Andrew Heiberger, who founded Citi Habitats and now-defunct Town Residential. He said many listings are still overpriced, and the market has been hurt by fewer foreign buyers, the SALT and mansion taxes and oversupply.

“Additionally, many developers are going to have a hard time with velocity and selling enough units to cover their debt service,” Heiberger said.
Since 2015, condo developers have borrowed more than $12 billion for projects in Manhattan alone, according to data firm Real Capital Analytics, though some of that debt may have since been paid down, the company said.

Over that same period, RCA’s data shows, more than 8,000 new Manhattan condo units were built or announced, creating an inventory glut that’s now weighing heavily on the luxury market. In the third quarter of 2019, there were 1,951 luxury units on the market, a jump in inventory of 33 percent over the same period in 2018, according to appraisal firm Miller Samuel.

Manhattan condo development loans reached a peak of $3.9 billion in 2016 but dipped to $1.77 billion the next year, while 2019 is expected to mark a new low point, with less than $630 million in financing booked by the end of September, according to RCA (see table).

Most construction loans have three-year terms plus two one-year extensions, according to bankers, so much of the $7.24 billion that developers borrowed in 2015 and 2016 will be coming due over the next two years. And any inventory loans — which typically have terms of two to three years — will have to be paid back even sooner, increasing pressure on developers.

“The activity is not what everybody had hoped for,” said Andy Gerringer, a managing director with the new development advisory firm Marketing Directors.
Gerringer said banks have been calling him over the last few weeks asking what kinds of rents unsold condos can fetch.“This is the next step, to try to get some kind of cash flow coming in,” he said. “I think it will be very interesting what happens next.”

Converting to rentals creates immediate cash, but it makes developers wait much longer to recoup their investment, so most resist the move as long as possible.
Instead, developers are rolling out increasingly extravagant incentives and amenities to woo buyers. Five months after offering to waive common charges for up to 10 years at One Manhattan Square, Gary Barnett’s Extell Development launched a rent-to-own program in September for the 815-unit tower at 225 Cherry Street, allowing tenants to apply a full year’s rent toward the purchase of a unit, which amounts to a discount of nearly 4 percent.

And Broad Street Development recently made headlines with its offer of in-home IV therapy drips at its 61-unit building at 40 Bleecker Street.
But nobody expects nutrient-infused IVs to get luxury condo sales off life support.
As of mid-December, 278 contracts had been signed for units priced $4 million and above in 2019, versus 415 for the same period in 2018, according to brokerage Olshan Realty. That drop comes after years of relative stability. There were 429 signed contracts in the same period in 2017 and 427 in 2016, per Olshan.

The bleak sales outlook is leading bankers to lean harder on developers to find ways to move inventory or generate cash flow.
“Lenders are becoming more impatient because they want their loans paid back,” said Andy Singer, CEO of the Singer & Bassuk Organization, which arranges financing for developers. “There’s lots of tension.”

Rowdy partners
Increasingly, that tension is among the developers themselves.
Developer Ian Bruce Eichner faced an ugly legal battle for control of the 83-unit condo tower at 45 East 22nd Street in Flatiron, which he built with cash from preferred-equity players Dune Real Estate Partners and Fortress Investment Group, as he resisted their pressure to slash prices.

Only an 11th-hour inventory loan of $168 million from Madison Realty Capital in June 2018 saved Eichner from defaulting and losing control of the project.
Such struggles within joint ventures are becoming more common as partners with different timelines face conflicting incentives when juggling slow sales and debt payments.

The developers behind the ultra-luxe 82-story tower next to the Museum of Modern Art at 53 West 53rd Street — a team including Hines, Goldman Sachs and Singapore’s Pontiac Land Group — had to resort to arbitration early last year over how deeply to discount its slow-selling units.

The $860 million in construction financing they secured from Singapore’s United Overseas Bank Limited in 2014 is coming due, and Hines wanted to slash prices at the Jean Nouvel-designed building. But Goldman and Pontiac — with deeper pockets to wait out the slump — wanted smaller discounts.

The average list price for the 64 apartments for sale as of Dec. 13 was $3,600 per square foot, putting them firmly in the hard-to-trade territory of $3,000-plus per foot, brokers say.
A spokesperson for the project declined to comment or make developers available for an interview.

Such high-priced units became even harder to move last year after taxes went up on luxury homes. In July, not only did transfer taxes increase, but the mansion tax expanded. Before the change, that levy was a flat 1 percent on all homes priced at $1 million or more. But now that 1 percent applies only to homes priced from $1 million to $2 million, and pricier homes pay higher rates on a sliding scale — up to 3.9 percent for $25 million-plus properties.

Still, developers are resisting steep discounts for fear of setting off a downward spiral, according to a lender who asked to remain anonymous because he originates loans to many condo developers.
“What we are hearing is that developers are trying to hold the line at 10 percent to 12 percent off their current ask,” the lender said. “Everybody is trying to avoid the impression of desperation and a fire sale.”

Buzzworthy discounts
Few of the current crop of luxury projects caused more buzz when it launched than the condo conversion of the upper floors of the Woolworth Building, the iconic 58-story 1913 skyscraper at 2 Park Place.

But the Woolworth Tower Residences also provided one of the more buzzworthy discounts among ultra-luxe condos when the five-story unfinished penthouse — dubbed the Pinnacle — was reduced last fall from to $79 million from $110 million, a discount of more than 28 percent.
The project has limped along since sales launched in 2014, with just 10 of its 32 units sold, according to public filings.
Nonetheless, the developers have so far managed to keep discounts on the remaining unsold units from breaching the 10 percent threshold, according to Ken Horn, founder of Alchemy Properties, who is developing the project along with BlackRock Private Equity Partners.
Horn downplays the burden of the unsold units’ carrying costs — common charges plus loan interest — and said he has paid off about 70 percent of his $220 million construction loan from United Overseas Bank.
“We feel no financial pressure to dump these units,” Horn said.
Other developers, however, are feeling the heat from their bankers to unload inventory, and it’s rankling their brokers.
Aby Rosen’s RFR Realty and Chinese firm Vanke, developers of the 96-unit, 63-story condo at 100 East 53rd Street, appear to have resorted to slashing prices as they labor under a mountain of debt — including $360 million secured from the Industrial and Commercial Bank of China before Chinese firms began pulling back investment.
For example, unit 45A, a two-bedroom, was listed this winter at $4.95 million, down from $8 million in 2016 — a 38 percent discount.
As of Dec. 13, just 23 of the property’s units had closed, according to public filings, and 12 of those were recently listed as rentals on StreetEasy.com. Such quick-turnaround rentals can be a sign that investors are snapping up units in bulk, according to lawyers and lenders, suggesting deep price cuts.
The building’s brokers admit to feeling pressed, but deny any sense of desperation.
“I don’t think there’s a single new development building that has not come under pressure from banks,” said Leonard Steinberg, the Compass agent directing sales. “But it’s not like there’s a gun to our heads.”
Lenders just need to sit tight, Steinberg insisted.
“You need to put on your big-boy pants,” he said. “This market requires a different level of patience.”
Running out of gas
Some developers may be able to rely on the tender mercies of indulgent lenders, at least for a while.
Tessler Developments has propped up its sagging 69-unit condo building at 172 Madison Avenue with a succession of loans from the same bank.
The developer secured a high-leverage construction loan of $141 million from Deutsche Bank in 2014, which amounted to roughly 88 percent of the project’s total projected cost of $160 million, according to boutique advisory firm Maverick Capital, which arranged the financing.
But since it began marketing in 2015, the 33-story development at the edge of the NoMad neighborhood has cycled through four sales teams: Keller Williams, Corcoran and Compass — twice — sometimes because the brokers threw up their hands.
In 2017, with construction still not complete, Tessler secured a $164 million inventory loan from Deutsche Bank and private equity firm TPG. At the time, about 43 units were under contract, according to the marketing team.
Fast-forward to 2018 and the sales team had changed again, but the sales figures hadn’t budged. Tessler got another bailout, in the form of yet another partial inventory loan from Deutsche Bank — this time for $94.5 million — to retire the 2017 debt.
Since then, only a few more units have sold, with 47 units having closed by mid-December, according to public filings.
Most of the remaining apartments are listed for around $2,600 per square foot. But nearly a third of the project’s planned $321 million sellout total seems to rely on the unfinished penthouse. The five-level, 20,000-square-foot aerie with 11 bedrooms, a pool and up to 23-foot ceilings is listed at $98 million — or $4,900 per square foot — making it the most expensive new unit on the market.
Whether Deutsche Bank will quadruple down on its bet with Tessler in the current sales climate remains to be seen. But the German bank — famous for continuing to lend to the Trump Organization for years after most other banks stepped back — is known for taking risks in the service of increasing its American market share.
Calls and emails to Tessler CEO Yitzchak Tessler went unreturned.
Other lenders are more conservative about continuing to bankroll the luxury condo sector, but bankers are not hitting the panic button yet. It’s for a reason, however, that developers don’t want to hear: Values remain about 1.5 times the equity in most projects, according to lenders, so there’s still room for prices to come down before loans are imperiled.
For example, one of the top construction lenders in New York, Bank OZK, has 26 outstanding loans to condo-only projects, with a total commitment of $2.95 billion. But its chair, George Gleason, told TRD that the bank’s exposure is no cause for worry. The average weighted loan basis per square foot is just $989 — well below the asking price of even discounted luxe units.
Gleason said that of the 61 loans his bank has made in New York City for projects that include condominiums, 31 have been paid off. Some of those were made whole through late-stage inventory loans, he said, but he declined to provide a list, citing company policy.
Bank OZK did ratchet back its support for the 615 10th Avenue project, rising on the site of a former Hess gas station, but Gleason is confident its remaining investment is safe.
“They did have some issues, but they have addressed those issues,” he said.
In 2017, the project’s original developer, Xinyuan Real Estate, handed over management of the project to Kuafu Properties, which negotiated an extension until 2021 for the truncated OZK loan.
For now, the developers are standing by their offering plan promising a $165 million sellout, and expect to price units at about $2,000 per square foot when — or if — sales eventually begin, according to a source close to the project.
Kuafu did not return a call for comment, but the source said the project could still make money — if not as a condo, then as a rental property.
“We think the project is very viable,” the source said. “The rental market there is on fire.”
 
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