Are developers playing "chicken" with the market?

David Goldsmith

All Powerful Moderator
Staff member
Seems like a lot of development for what Gary Barnett claimed a bit over a year ago was going to be almost no new projects

Ranking New York’s most active developers

These are the builders that have filed plans to bring the most square footage to NYC in the past year​

New York City sprang back to life in the spring of 2021, and its busiest builders were no exception.
In the past year, the city’s 20 most active developers filed plans to build nearly 16 million square feet of projects across the five boroughs. Now, they face a whole new set of headwinds entering the second half of 2022.

Inflation, rising interest rates, an erratic stock market and fears of a recession have made it difficult to come by financing and tricky to pencil out new projects. What’s more, New York’s stringent land use process and high cost of labor make the city one of the hardest places to build in the country.
“With the environment in New York, there’s just too much risk. And you don’t get paid for that risk right now,” said Andrew Joblon, managing principal of Turnbridge Equities. “Why go through the brain damage politically and zoning-wise when you can’t make the math work?”
To gain a clearer understanding of which of the city’s developers will have the most at stake in the coming years, The Real Deal analyzed all new building filings submitted to the Department of Buildings between May 1, 2021, and June 1, 2022, for projects larger than 25,000 square feet.
Chetrit Group, the firm founded by Moroccan émigré Joseph Chetrit, topped the list as the city’s most active developer over the past year.
With 1.9 million square feet across three projects, Chetrit plans massive residential developments in Manhattan and Brooklyn. They include the development site at 265 South Street in Lower Manhattan’s Two Bridges neighborhood with plans for two residential towers, which Chetrit purchased in April from L+M Development Partners and CIM Group.
While that site has spent years in the headlines, another large Chetrit project, his 305,000-square-foot tower at 99 Fleet Place in Downtown Brooklyn, has progressed without a whisper. Elsewhere in the city, Chetrit filed plans in December for a 69-story, 300-unit skyscraper at 100 West 37th Street in the Garment District.
Peter Papamichael’s Vorea Group took second place, logging 1.3 million square feet across four developments. Vorea stuck to the outer boroughs, planning massive mixed-use projects in fast-developing, rezoned neighborhoods like Gowanus, where it has proposed more than 600 residential units across two co-developments with Domain Companies. In May, the firm signed indoor skydiving chain iFly to a 10,000-square-foot lease at its planned 50,000-square-foot mixed-use development on Borden Avenue in Long Island City.
Joblon’s Turnbridge Equities rounded out the top three with just over 1 million square feet across two projects, aided primarily by the 986,000-square-foot, multilevel last-mile distribution center it plans at 980 East 149th Street in the South Bronx.

Red tape troubles​

Multifamily development is expected to plummet in the coming months because state lawmakers allowed the popular tax break 421a to expire without a replacement. Developers claim the loss of the incentive makes building apartments in the city untenable. Progressives and tenant advocates vehemently disagree. In any event, the last time the program lapsed, in 2016, new filings for apartment projects ground to a halt and did not pick up again until 421a was revived the following year.

“We tax rental housing like cigarettes in the city,” said David Lombino, managing director at Two Trees Management, which finished 16th on the list with two projects totaling over 562,000 square feet, including Bjarke Ingels-designed residential high-rises on the Williamsburg waterfront.
Lombino said the future of multifamily projects could be murky without some sort of lucrative tax incentive. While a handful of developers were able to complete enough foundation work by mid-June to qualify for 421a before it lapsed, those projects will still take years to come to market, obscuring the immediate effects of the tax break’s demise.
“I think right now there are a lot of people building, so you might not see the impacts of the loss of the incentive program for three to five years,” he said.
Some firms have shifted their focus to different types of properties while the state figures out its residential development incentives.
“Brand-new, Class A office space is going to continue to outperform, and the life sciences market is going to continue to gain steam,” said Chris Balestra, president of Taconic Partners, which placed 19th in the ranking. “We’re in the very early innings of it.”
Taconic plans a 536,000-square-foot residential project in Inwood, where it managed to qualify for 421a ahead of its expiration and secure financing before recent interest rate hikes.
Turnbridge, put off by the expense and red tape of residential development in the city, has placed its bets on last-mile distribution centers, for which demand exploded with the rise of e-commerce that accompanied the pandemic.
The firm’s focus on industrial isn’t new — it’s been planning these moves since the early 2010s, when a series of rezonings opened up formerly industrial parcels to residential development, effectively squeezing supply and making existing distribution centers more valuable, according to Joblon.
Those rezonings happened “before industrial was super sexy,” Joblon said, casting off fears of a slowdown in the sector, which have mounted in recent weeks as consumer confidence falls and Amazon, one of the nation’s largest warehouse tenants, is intending to sublet more than 10 million square feet of its space.
“I think the impacts to New York are de minimis,” Joblon said. “It makes up almost none of that 10 million square feet.”

Construction costs​

Piling onto the uncertainty for developers are the dramatic cost fluctuations for materials such as lumber and steel that have driven up contractors’ rates.
In May 2021, the cost increase of building materials such as copper, steel, lumber and fuel hit levels not seen since the 1980s, while lumber prices had spiked 83 percent annually to $1,733 per thousand board feet.
More than a year later, developers are still struggling to manage the turbulent price changes.
“There was a lot of hard cost growth going on throughout Covid, but it sort of pales compared to what’s happened in the last six months,” said Spencer Orkus, a partner at L+M, seventh in the ranking with five projects totaling 787,000 square feet.
Larger developers have shifted their approach to procurement as contractors suggest buying materials upfront and stockpiling, even if that means paying a premium, so they can ensure availability and stabilize construction timelines.
While construction supplies are in low supply, so are the contractors that put them together. Orkus said the rush to break ground before 421a expired stretched contractors thin, making it hard to find partners with enough bandwidth to take on new jobs.
“There’s only so many contractors in this town, and as that demand shoots up, it makes it harder for us,” he said.

Scared money​

Against financial turmoil that has sent stock prices tumbling and interest rates rising, lending for new developments, particularly multifamily ones, has largely frozen.
As with residential projects that raced to get their foundations laid, it will take time for the effects to manifest in the market — projects that are already underway have secured their funding. But newcomers face a different reality.
“If you are starting a new financing process today, it’s more expensive and there are fewer lenders,” Taconic’s Balestra said. “If you don’t have top-quality sponsorship, it’s going to be difficult to find the financing you need.”
For one thing, lenders are unsure where the market will stand in a year. It’s hard to underwrite a new apartment building without a good idea of how much its developer will be able to earn by filling its units.
“We’re in this weird point right now where no one knows how to price deals and value deals,” Turnbridge’s Joblon said. “The A-note financing market is basically nonexistent right now.”
Lombino shared the same cautious approach.
“For every developer, there are things that you can control and there are things you can’t,” he said. “Two of the things that you can’t control are interest rates and demand to live and work in the city.”
“Long-term, we want to ensure that the city is healthy and is generating demand to live and work here.”

David Goldsmith

All Powerful Moderator
Staff member
Developers reported 188 deals across the city, 37 percent fewer than in July 2019

New development sales plummeted 30% in July​

Condo sales hit their lowest mark of the year, dipping below pre-pandemic levels​

Sales of new condominiums in July evoked the Tom Petty classic “Free Falling” — and it’s developers who are home with broken hearts.
New development contract activity plummeted 30 percent last month, dipping below pre-pandemic levels for the first time all year. Developers reported 188 deals across the city, 37 percent fewer than in July 2019, according to a report by Marketproof.

“There was one day in July where the contract numbers were so low that I was like, ‘Guys, let’s double check those,’” said Marketproof CEO Kael Goodman.
The market is split between haves and have-a-lots, as wealthier, less rate-sensitive buyers continued scooping up the most expensive condos, while most others stepped back. Nearly 20 percent of contracts last month were for homes asking more than $4 million, raising the median sale to $1.7 million, a six percent increase from July.

Though mortgage rates have slid back toward 5 percent, a volatile stock market, fears of a recession, ongoing inflation and supply chain woes are all weighing heavily on condo sales.
Manhattan developers reported 99 contracts worth $327.6 million, down about 40 percent from June. Ultra-luxe developments performed better than the rest of the pack, though, bringing the borough’s median price per square foot to $2,154, up 11 percent from the same period in 2019.
JDS Development’s 111 West 57th Street notched what was likely the month’s priciest sale. A penthouse at the Billionaires’ Row skyscraper went into contract asking $21 million. It was also a hot July for OKO Group’s Aman New York, which snagged the second and third-most expensive contracts. Extell’s One Manhattan Square led the borough in overall activity with six contracts.

Meanwhile, Brooklyn recorded its worst month since June 2020, when the city was in the midst of an exodus. Developers there posted just 66 contracts, down 50 percent from pre-pandemic levels. Total dollar volume fell to $97.6 million.

The Narrows, Sapol Construction’s 40-unit project in Fort Hamilton near the Verrazzano-Narrows Bridge, reported eight contracts, a city high. The project’s sales are led by SERHANT’s Team Fernandez, which recently jumped ship from Compass.

As usual, Queens sales were anchored by just a handful of high-profile developments, like Risland US’ Skyline Tower. While sales volume in the borough is up 50 percent from pre-pandemic levels, it fell nearly 40 percent month over month.

David Goldsmith

All Powerful Moderator
Staff member

Over the glut, but now what? Breaking down NYC’s new condo inventory​

Tighter market in the cards with fewer land sales, conversion units​

On the Upper West Side, up the hill from Robert Moses’ 79th Street Boat Basin, a prewar condo conversion project is in the early stages of sales.
The building at 393 West End Avenue, put up in 1926, is being converted to 75 condos (down from an initial plan of 88) by Rabina and Simon Baron Development. Though this type of project was all the rage in the mid 2010s, it is now among a dying breed: Conversions fell out of favor in 2019, when state legislators passed new tenant protection laws meant to keep renters from being displaced.

Disappearing condo conversions, coupled with record home sales and fewer land deals, have led to a new era in the New York condo market: the end of excess inventory. If the last decade was defined by developers peddling more product than buyers could handle, the next few years may see more alignment between supply and demand.
In Manhattan, new condo inventory has fallen below 6,000 units for the first time since 2018, according to Brown Harris Stevens Development Marketing data shared with The Real Deal.
“The market will have less than four years of inventory by year-end,” said Robin Schneiderman, who oversees new development at BHS and expects Manhattan’s condo market to become supply-constrained.

New-to-market listing and signed contracts (Source: Marketproof)
The sellout price for new condo conversion inventory has fallen to $1.5 billion from more than $8 billion since 2019, and inventory fell 73 percent over the same period, according to data compiled by Schneiderman’s team. Some 1,400 conversion units have come on the market since tenant protection laws passed, down from over 5,000 in the prior five-year period, with little to no future inventory expected.
Overall, new condo inventory in Manhattan has declined about 10 percent since 2021, to 5,894 units from 6,508, according to BHS. Availability has declined 13 percent since February 2021, according to a Marketproof analysis.
While ultra-luxury homes grab the headlines, and homes priced above $10 million account for nearly 10 percent of inventory in Manhattan, buyers shopping for homes below $4 million make up about two-thirds of the market, according to BHS. That buyer pool, which is more likely to need a mortgage, could afford to splurge until recently, thanks to historically low interest rates.
Last year, the market saw monthly net absorption of 958 condo units, a jump of 58 percent over 2020, and the monthly average remained elevated through the end of May at 935, according to Marketproof. The average monthly absorption rate between 2015 and 2019 was 606 units, or 36 percent less than last year. While sales have slowed since mortgage rates shot up, the recovery after the height of the pandemic was lucrative for new condo developers.
It didn’t always appear that way.
“Buyers that need financing will slow down. They will go to the rental market or compromise.”
– Miki Naftali, Naftali Group
Miki Naftali insists that several of his friends called to check on his health after hearing that he planned to kick off sales at a project just months after New York City had become the pandemic’s U.S. epicenter.
Undeterred, his Naftali Group launched the Benson, a Robert A.M. Stern-designed boutique building on East 78th Street in Lenox Hill, in September 2020. Today, the building is nearly sold out. Eighteen of its 25 units have closed, property records show, including a penthouse that fetched its full asking price of $35 million, or more than $5,000 per square foot, in November 2020. Four other units are in contract, per StreetEasy.
Like a supersonic jet cruising above storm clouds, the highest-flying buyers are less vulnerable to interest rate hikes, because they often pay all-cash. Given a volatile stock market and rising inflation, captains of the universe may see real estate as a timely investment.
Real estate’s reputation as an inflation hedge is similarly potent for buyers who need financing, and those buyers got a boost when mortgage rates were low. The result was a boom in luxury new development sales that, according to Naftali, lifted the resale market, too. After 30-year mortgage rates climbed to nearly 6 percent in late June — they stand at about 5.2 percent today — contract signings for sponsor units fell 30 percent year-over-year in July, and 40 percent in Manhattan.
“Buyers that need financing will slow down,” Naftali said. “They will go to the rental market or compromise.”

Concentrated bets​

Eight buildings in Manhattan with about 1,200 sellable units make up nearly a fifth of the borough’s existing new condo inventory, according to BHS.
The list includes top-dollar conversions such as Dajia U.S.’s Waldorf Astoria revamp and Harry Macklowe’s One Wall Street, plus new projects such as Steve Witkoff and Len Blavatnik’s One High Line (formerly HFZ Capital’s XI) and Claremont Hall in Morningside Heights, developed by Lendlease and L+M Development Partners.
For developers, scale, or the ability to put a lot of product on a single site, can help mitigate potential cost overruns by attracting more buyers with amenity packages that smaller projects cannot afford.
The largest of the group, Extell Development’s One Manhattan Square in Two Bridges, boasts more than 100,000 square feet of amenities, including a golf simulator, cold plunge pool, cigar room and pet spa. Double-digit discounts were offered to both buyers and renters at the peak of the pandemic, but those days may be gone for good.
“We’re not changing the prices or negotiating differently, and we’re still seeing a lot of deals getting done,” said Extell’s Ari Goldstein, who works on the project and another across the East River called Brooklyn Point. The firm has thought of pivoting some of the units to rentals, given the strength of the rental market, but Goldstein said, “Our ultimate goal is to sell our condo projects.”
One Manhattan Square represents another change: a shifting landscape of tax benefits. The building is among the last new developments to offer buyers a 25-year property tax abatement under the city’s 421a program. Should lawmakers come up with a replacement to the program, it is expected to require deeper levels of affordability and unlikely to benefit new development buyers, who paid a median price of $1.7 million for their units in July and make up as little as 10 percent of the city’s condo market, according to Jonathan Miller of appraisal firm Miller Samuel.

A further drag on new development has been skyrocketing construction costs, which have increased as much as 15 percent during the pandemic, according to architecture firm SLCE.
“Materials costs have risen further than labor costs,” confirmed Extell’s Goldstein. But there are signs a new building cycle could begin.
“Theoretically, the higher the hard costs, the more land prices would come down,” he said. “But that’s just theory — it doesn’t always happen.”
At the moment, land for luxury projects is trading between $400 and $500 per square foot, according to Schneiderman. That’s down about 50 percent from the peak of the market, when HFZ bought its land for the XI, before facing a reckoning across its portfolio and losing the West Chelsea project to Steve Witkoff and Len Blavatnik. Another project that suffered from high land costs: the Hayworth building at 1289 Lexington Avenue, which the Zeckendorfs rescued from Ceruzzi Properties.
By contrast, one of the best land deals since the pandemic was EJS Group’s purchase of 1305 Third Avenue for $331 per square foot, based on a $32 million purchase price. EJS, led by Ted Segal, plans to build 38 units on the site.
Overall, there are 51 buildings with 2,399 units in Manhattan’s new condo inventory pipeline, according to BHS data. Manhattan remains an island, however, and they aren’t making any more land.
“The pipeline,” said Schneiderman, “is smaller than people think.”

David Goldsmith

All Powerful Moderator
Staff member

Pay up or lawyer up: What does a holdout cost a developer?​

TRD runs the numbers one of builders’ biggest headaches​

New development activity is back in New York, and the roar of construction has awakened a dreaded industry bogeyman: the holdout.
From the Diamond District to Billionaires’ Row, neighbors and tenants have dug in their heels and hobbled major projects. Perhaps the starkest example is playing out at Miki Naftali’s Upper West Side condominium conversion at 215 West 84th Street.

In February, the developer sued Ahmet Ozsu, the sole remaining tenant in the 16-story apartment building on the site, alleging that Ozsu’s refusal to move has cost him $25 million in lost rent and profits.
But that hefty price tag doesn’t tell the full story. There are financing and operational costs to be considered, as well as legal fees and a great intangible: reputational damage.
All of them must be weighed against the high price, but relative simplicity, of buying out a tenant or paying off a pesky neighbor.
So just how much can a holdout cost? The Real Deal put together a breakdown.

“The only sure thing”​

Developers up against a stubborn tenant have to make a call: buy the renter out or sue them.
Overwhelmingly, attorneys recommend the former.
“We say to developers that the only sure thing is a buyout,” said Sherwin Belkin, founding partner at Belkin Burden Goldman. “Here’s your check. Goodbye. Don’t let the door hit you on the way out.”
The downside is that buyouts are pricey. Attorneys have claimed they’ve gotten anywhere from $750,000 to more than $2 million on behalf of holdouts in recent months. Those sums can run higher, depending on the scope of the blocked project.
Tenant lawyer David Rozenholc famously scored $25 million in 2015 for two renters standing in the way of Tishman Speyer’s $3.2 billion Hudson Yards office tower, the Spiral.
“The only sure thing is a buyout. Here’s your check. Don’t let the door hit you on the way out.”
Sherwin Belkin, Belkin Burden Goldman
Faced with those figures, some developers do choose to take the battle to the bench.
When dealing with rent-stabilized tenants, an owner can file an application with the state for permission to demolish the property and the right to refuse a lease renewal. But that approval depends on wins in two courts: New York State Supreme Court and New York City Housing Court.
If, like Naftali’s holdout, a tenant isn’t protected by the rent law, an eviction suit can do the trick. But real estate attorneys caution that a lawsuit isn’t always the quickest or cheapest solution.
“Litigation is always a crapshoot,” said Belkin. “You may have an absolute right to win, but that win can take a year, two, three, five.”
“With a buyout, you’re buying time,” he added.
And time, particularly in new development, is money.

The breakdown​

Take Naftali’s project. The developer did not return a request for comment on his expenses, but some back-of-the-napkin math offers clues.
First, there’s mounting interest on project loans. Naftali bought the 84th Street site last summer for $71 million, funding the majority of the purchase with a $44 million mortgage, records show.
At the time, commercial mortgage rates ranged from 2.1 to 6.6 percent, according to Commercial Loan Direct. Assuming Naftali nabbed a rate at the midpoint, 4.3 percent, the firm would be paying $1.9 million in interest annually, or more than $5,000 a day.
Add that to the price of keeping the building running.
The Community Housing Improvement Program, a landlord trade group, recently broke down the operating costs for buildings with rent-stabilized units, including properties that are 95 percent market-rate.
CHIP’s data pegs maintenance, fuel, labor, utilities and insurance at $6,200 per year per tenant, on average. And although just one tenant remains, Naftali is likely on the hook for keeping the whole building online.
“The tenant has a right to full habitability, meaning all the services the tenant got when the building was full, the tenant still has the right to get now,” said Adam Leitman Bailey, the attorney representing Ozsu in the Naftali case. Bailey declined to comment in more detail, citing ongoing litigation.
Those expenses could run as high as $795,000 per year, or $2,178 per day for Natfali. Tack on the annual property tax bill of $822,000, according to public records, and that adds another $2,252 per diem.
Between financing and operations, Naftali could be spending nearly $10,000 daily.

Boardroom bills​

Belkin said he’s seen developers pay legal teams several hundred thousand dollars to get a stabilized tenant out and a building demolished. Take the midpoint of those estimates and that amounts to $200,000 over four years, or $137 per day.
Naftali isn’t taking the same type of legal action — he’s suing both for damages and to evict — but his approach similarly requires navigating two courts.
What’s uncertain is how long those cases will take, and therefore, how expensive they will be.
The developer first sued to evict Ozsu in January. Earlier this month, a housing court judge ruled the renter could stay in the apartment so long as his rent relief application is pending.
Some landlords who applied for rent relief when the portal opened last summer are still awaiting an approval or rejection. A survey of over 230 landlords found that on average, tenants received a decision in about seven months.
Ozsu’s application has been pending for nearly that long. If it’s denied within the next few weeks, Naftali’s legal fees could be in the neighborhood of $30,000.
But if it’s approved, Ozsu will have secured a year’s worth of eviction protection, which would likely mean another year of litigation, bringing legal expenses closer to $80,000.

Opportunity cost​

Another bag of losses is unrealized returns.
In Naftali’s case, the developer can’t pull in rents on a next-to-empty building. But he’s also losing money on stalled condo sales.
“Every day becomes more expensive for the developer with no additional benefit,” said Steven Wagner, a condo law specialist who joined Bailey’s firm this year.
Part of that cost is what Belkin calls “the lost use of dollars.” If the development wraps in a year, the developer can reap profits sooner and invest that money elsewhere.
And there are shifts in market value to account for. Naftali plans to build 45 luxury condos on the 215 West 84th Street lot.
As of mid-August, the Olshan Report found the average asking price on a condo was about $6.8 million. For Naftali, that would amount to $308 million in potential sales.
But the city’s luxury market is slowing. Just eight contracts for units priced at $4 million and above were signed the week of Aug. 15, according to Olshan. Given the likelihood of a recession, the longer Naftali must wait to build, the more likely it is that he’ll have to sell in a down market.
“Every day becomes more expensive for the developer with no additional benefit.”
Steven Wagner, Adam Leitman Bailey, P.C.
Those conceived losses on profits seem to be part of the $25 million Naftali is seeking from Ozsu in court.

The bottom line​

In the end, a developer’s decision to litigate may be pricier than an upfront payout.
Attorneys say they can typically finish buyout negotiations in three months, unless the tenant is determined to play hardball.
“When I’m working on the landlord side, I’m in a rush,” said Bailey, Oszu’s attorney. “I understand that I need to spend money because I understand the cost of money each day that tenant is in possession.”
Had Naftali negotiated with Ozsu in that three-month timeframe, he’d have lost $900,000 in interest payments and maintenance costs, according to the $10,000-per-day calculation, and avoided litigation fees.
Ozsu told the New York Times he turned down a $30,000 buyout offer. Naftali declined to comment on that offer, but claims Ozsu is seeking a seven-figure payout.
If Naftali had agreed, he’d be down about $2 million. That’s less than half the estimated $4.3 million he may have lost to financing, operations and legal fees during the ongoing 14-month battle, which begs the question: When is it time for a developer to cut his losses?
“It gets to a point where, unless you are so well-heeled that it doesn’t matter, it does matter,” Wagner said.

David Goldsmith

All Powerful Moderator
Staff member

Fortis faces foreclosure on large Cobble Hill condo project​

Madison Realty initiates UCC sale of Fortis’ interests in two sites for River Park development​

Fortis Property Group’s big plans to redevelop a quiet part of Cobble Hill into a three-building luxury condo development have run into trouble.
Lender Madison Realty Capital has initiated a UCC foreclosure sale for the equity interests on development sites at 350 Hicks Street and 91-95 Pacific Street, where Fortis plans two condo buildings totaling 150 units.

The Hicks Street building, called 1 River Park, is to rise 20 stories and contain 48 apartments above a parking area and a community space. At the Pacific Street site, 2 River Park will have 102 residential units.
A third building, the 25-unit 5 River Park at 347 Henry Street, is not part of the UCC foreclosure and is “almost 75 percent sold,” according to Fortis’ website.
The sale of the equity interests in the two sites would satisfy $47.7 million in debt, according to marketing materials. The sale is set for Sept. 29. The reason for the default is not clear.
The foreclosure notice comes as another major Fortis project, its planned 60-story condo tower at One Maiden Lane in the Financial District, remains unfinished amid a dispute between Fortis and its lender over cash-flow and construction issues.
The firm has had more success in Brooklyn, where its 76-unit Olympia Dumbo is home to some of the borough’s most expensive real estate on a per-square-foot basis.
Fortis and Madison Realty could resolve the foreclosure prior to the auction date by restructuring the debt or agreeing on an extension, averting a sale.
Fortis acquired the Cobble Hill site in 2015 as part of a $240 million deal with the State University of New York for 18 buildings that were formerly part of the Long Island College Hospital Campus.
That deal later drew scrutiny over Mayor Bill de Blasio’s alleged role in facilitating it.
The former mayor, who was arrested during his 2013 campaign for protesting the closure of the hospital on the site, helped broker the deal to sell the property after taking office. Former Manhattan U.S. Attorney Preet Bharara investigated de Blasio’s involvement in the sale, multiple news outlets reported at the time, but did not bring charges.
De Blasio then pushed for a rezoning at the hospital site to allow for both greater density and affordable housing, but then-Council member Brad Lander, who represented the neighborhood, opposed it. Fortis ultimately decided to go with market-rate condos, which did not require a rezoning.
Soon after winning the bid, Fortis secured a $107 million bridge loan from Madison Realty. Two years later, Madison Realty provided Fortis with a $297 million construction loan for the three condo buildings.
“Madison offered us an opportunity to leverage the property at a reasonably priced cost of funds relative to the dilution we would have taken if we brought in a partner,” Fortis’s Jonathan Landau told The Real Deal in 2016.
Greg Corbin, president of bankruptcy and restructuring at Rosewood Realty Group, is marketing the foreclosure sale. Matthew Mannion of Mannion Auctions is the auctioneer.
Fortis did not immediately return a request to comment. Madison Realty declined to comment.

David Goldsmith

All Powerful Moderator
Staff member

Mack Real Estate sues for $566M over Fortis project loans​

Developer and senior lender accused fraud, misrepresentation and negligence​

Fortis Property Group’s beleaguered Seaport Residences condominium project in Lower Manhattan is facing more legal trouble, this time over a mezzanine loan that the lender claims is fraudulent.
Mack Real Estate is accusing Fortis and the 161 Maiden Lane project’s senior lender, Bank Leumi USA, of fraud in connection with the $66 million loan, according to a lawsuit filed Thursday. The suit also names Harel Insurance Company and Valley National Bank, which acquired Bank Leumi for $1.1 billion last year.

The lawsuit also accuses Fortis and co-principal Joel Kestenbaum of misrepresentation and negligence over the financing, which Fortis and Mack agreed to in September 2018. The lender is seeking at least $100 million on those counts and $566 million altogether in a series of legal actions involving Fortis projects.
Mack also accused Fortis of breaching the terms of their agreement, for which the lender is seeking at least $80 million in damages.
Kestenbaum, the guarantor on the loan, was hit with the same accusations in connection with the collateral provided in the agreement, the Seaport Residences property itself and the “intentional physical waste” of the project, according to the summons. Mack is seeking at least $162.5 million in connection with the claims.
The lawsuit alleges that Bank Leumi and Harel Insurance Company aided and abetted fraud in connection with the mezzanine loan. It also claims that Bank Leumi and Harel committed fraud, breached its contract and nullified both the intercreditor agreement that was signed between Bank Leumi and Mack in 2018 and an amendment to that document two years later.

Mack also accused Bank Leumi and Harel of fraud and unjust enrichment in connection with the $40 million mortgage and mezzanine loans it provided to Fortis in March 2020 for the developer’s 17-unit, 50,000-square-foot Polhemus Residences at 100 Amity Street in Cobble Hill, according to the summons. Fortis bought the Brooklyn property in 2015 as part of its $240 million deal with the State University of New York for 18 buildings that were formerly part of the Long Island College Hospital campus.
Mack is asking the court to award at least $170 million in compensation stemming from these claims and to nullify or amend the intercreditor agreement and amendment.
The plaintiff is also asking state Supreme Court Judge Barry Ostrager to declare that Bank Leumi is not entitled to priority of payment as the senior lender, to revise the agreement so that payment priorities are reversed, that Mack should not be required to pay any recoveries to Bank Leumi, and to award Mack at least $20 million in restitution.
Fortis and Kestenbaum are also being sued over the mortgage and mezzanine loans the developer received from Mack in March 2020 for its Polhemus condo project. The lender is seeking damages of no less than $33.1 million.
Mack is also demanding that any damages awarded to Fortis and Kestenbaum in their legal dispute against Bank Leumi over the Seaport financing should be paid to the plaintiff, and that any payments from the lawsuit that are kept by Fortis or Kestenbaum should be deemed unjust enrichment.
The court documents do not include a pre-foreclosure filing or specific details regarding the defendants’ alleged actions. Attorneys representing both sides did not respond when reached for comment.
Mack’s lawsuit over its mezzanine loan for Seaport Residences — formerly called One Seaport and briefly 1 Seaport — is the latest in a series of legal and financial sagas that have plagued Fortis’ 60-story, 98-unit Financial District project since construction began in 2016.
In 2017, a 36-year-old construction worker named Juan Chonillo died after falling from the 29th floor of the project. Chonillo was wearing a safety harness, but it was not attached to anything.
The incident resulted in a concrete subcontractor, SSC High Rise Construction, pleading guilty to second-degree manslaughter. One year later, a crane operator sent a concrete bucket smashing into the building’s 34th floor, causing concrete to pour onto the street below.
Fortis and the building’s former contractor Pizzarotti have traded lawsuits over who is to blame for the tower leaning three inches to the north.
Bank Leumi put a $120 million non-performing construction loan for the project up for sale in October 2020, claiming that Fortis had been in default of the loan agreement since the developer stopped paying interest and failed to obtain a temporary certificate of occupancy for a single condo unit in the tower earlier that year. The note has yet to be sold, according to Newmark.
Later that month, Fortis sued Bank Leumi and its other lenders, claiming that they reneged on a contract by not fully funding the construction loan they agreed to provide. The developer also claimed that the lenders were required to provide funding in the event of budgetary issues or construction delays.
Bank Leumi sought to foreclose on the $120 million worth of loans tied to the property and take ownership from Fortis in December 2020. The lender claimed that $99.9 million of its $120 million credit line had been extended through mortgages, notes, credit agreements and loan agreements.
Fortis replaced Pizzarotti as the property’s construction manager with Ray Builders, which then left the project in 2021, claiming the developer owed it $6.8 million.
That April, the city stepped in and halted work on the manager-less project. But construction had already been stalled for months. The court in June 2021 approved a temporary receiver to oversee the site and signed off on the hiring of Engel Burman Construction to secure the site and assess its status.
Fortis and Bank Leumi entered into mediation last year to resolve their claims, but negotiations fell apart this year because the parties “were too far apart,” Bank Leumi’s attorney said at the time.
Judge Ostrager in February rejected Bank Leumi’s motion seeking summary judgment on the foreclosure action. A trial is slated for November 2023, according to court records.

David Goldsmith

All Powerful Moderator
Staff member
New development deals roar back to life in August

The new development market has roared back to life since suffering its worst month of the year in July, according to a report from Marketproof.

New developments notched 259 signed contracts last month for apartments asking a combined $527 million. The median unit price fell 12 percent to $1.45 million, as outer-borough deals made up a bigger piece of the action.

All told, contract activity jumped 35 percent month-over-month and aggregate dollar volume increased 17 percent. Buildings completed in the past eight months performed particularly well as resale inventory remained low.

“The new development market is better than you think,” said Marketproof CEO Kael Goodman.

Manhattan’s builders landed 117 contracts for units asking $340.6 million. That’s a 33 percent increase in contract volume from August 2019. As activity surged, the median asking price dropped to $1.9 million, a 23 percent dip from the previous month.

The Cortland and 208 Delancey were the borough’s top two performers by volume, selling eight apartments apiece. Top contract honors went to The Cortland, developed by Related Companies and Mitsui Fudosan America, which pulled in the top two deals: a three-bedroom asking $17.5 million and a five-bedroom asking $16.6 million.

Brooklyn new developments stabilized after an abysmal July. The borough’s 110 contracts in August represented a 57 percent leap from the previous month and put it back on par with pre-pandemic levels for this time of year.

Median prices rose 28 percent to $1.26 million. One Prospect Park West, developed by Sugar Hill Capital Partners, scored Brooklyn’s top contract last month with a four-bedroom last asking $4.5 million. Regular top performer Olympia Dumbo nabbed the second-highest contract by asking price, while a unit at Extell Development’s Brooklyn Point commanded the highest price per square foot of the three.

David Goldsmith

All Powerful Moderator
Staff member

Skyline’s $1B slog: The quest to sell out Queens’ tallest building​

Chris Jiashu Xu stays patient with ambitious condo tower 60% sold after four years​

Apartments in Skyline Tower offer commanding views of Long Island City and the Manhattan skyline, attractive amenities and the prestige of being in Queens’ tallest building. But 40 percent of them are missing something important: buyers.
Four years after sales began at Chris Jiashu Xu’s ambitious condominium, only 509 of its 802 units had been sold as of Aug. 18, according to data compiled by Patrick Smith, an independent real estate consultant and Long Island City-based agent affiliated with the Corcoran Group.

The building’s most expensive units are priced above $3 million, but no sales of the 36 penthouses have closed and just seven of the sold apartments have three or more bedrooms. Buyers have also closed on 54 studios (which start at $600,000), 208 one-bedrooms and 240 two-bedrooms.
Still, Xu is not panicking. Quite the opposite, in fact: He recently increased the price of some penthouses.

Streeteasy listings show he has marked up PH203 by 18 percent, PH101 by 13 percent and PH202 by 17 percent. That might seem counterintuitive, but Eddie Shapiro, whose brokerage Nest Seekers International is marketing Skyline’s penthouses along with portions of the lower levels, notes that some of the upper-floor units are in contract.
Xu purchased the site, 3 Court Square, from Citigroup in July 2015 for $143 million. Three years later he scored a $502 million construction loan from a group of banks including JPMorgan Chase in a deal brokered by Meridian Capital Group. Xu’s partners on the project include FSA Capital’s Brian Pun, Hong Kong developer Risland U.S. Holdings LLC and Henry Yeung.

The 67-story tower is aiming for a sellout of $1.09 billion, according to filings with the attorney general’s office. It’s the first condo in Queens to try for a billion-dollar sellout.
The building has had its ups and downs since sales got underway in 2018. A high point came in November of that year when Amazon announced that it would open an East Coast headquarters in Long Island City and staff it with 25,000 well-paid employees.
A low point came the following Valentine’s Day, when Amazon abruptly canceled the project in the face of opposition by Sen. Michael Gianaris, Rep. Alexandria Ocasio-Cortez and others.
Some 22 percent of Skyline Tower’s sales came in that three-month period. But Modern Spaces CEO Eric Benaim, whose brokerage has been selling the project since the start, said Amazon’s pull-out didn’t necessarily damage it, because for many buyers the saga put Long Island City on the map.

“People thought, ‘Hey, you know what, it was good for Amazon, then maybe I should check it out,’” he said.
A year after the retail behemoth bailed out, Covid arrived, triggering a terrible stretch for Skyline Tower. Contract signings slowed to a mere 35 in 2020 before bouncing back to 185 last year.

To be sure, 2020 was a slow year for new development sales in the city. Contracts reported were down 24 percent in Queens and 28 percent in the city as a whole, according to Marketproof. Last year they were up 48 percent and 93 percent, respectively.

Skyline has attracted individual investors more than its Long Island City counterparts have, as 21 percent of buyers offered their unit for rent within six months of closing, according to data from Smith. Only 9 percent of other buyers in the neighborhood last year did.
As would be expected, given the high percentage of investors, Skyline buyers have also been less likely to finance their purchases. Cash buyers have accounted for 27 percent of sales at Skyline, compared with 17 percent last year in the rest of Long Island City, according to Smith.
Although Skyline is unmatched in Long Island City in terms of height, it has plenty of competition. Luxury developments in the area include RockRose’s rental portfolio, Tishman Speyer’s Jackson Park, the Wolkoffs’ 5Pointz LIC and TF Cornerstone buildings. Ron Zeff’s Carmel Partners paid $200 million in March for a site adjacent to Skyline and could build more than 900 apartments there.

Condo and rental developers who bet on Long Island City — a former industrial neighborhood still dotted with manufacturing sites — were counting on its evolving into a residential area. That has largely happened. Target, Trader Joe’s and a Jacx & Co food hall are among the retailers to have moved in, and pedestrians in the area can find themselves dodging baby strollers.
Benaim continues to be bullish on Skyline. He said he expects the project to sell out by the first quarter of 2023. But to do so, it would need to triple or quadruple Modern Spaces’ current pace of 10 to 15 sales per month, which seems unlikely. Benaim said his brokerage had been orchestrating 20 to 30 deals monthly before economic factors, such as interest rates, took a toll.

It is unclear what benchmarks the building must achieve to keep its lenders at bay, but the hike in penthouse prices suggests Xu is not thinking about offering discounts. Shapiro, for his part, said a fire sale is not on the table.
“We’re slightly testing and slightly achieving a whole new price point and benchmark for Queens and for Long Island City. And the developer is patient, strategic,” the Nest Seekers CEO said. “There’s no rush, there’s no pressure. There’s a tremendous amount of equity behind the project, so there’s no stress into just getting it over with.”

David Goldsmith

All Powerful Moderator
Staff member

In New York City, the Demand for New Developments Is Bouncing Back​

But everything is not as it was, with Covid both accelerating some nascent trends and pushing builders in new directions.

Almost three years after Covid waylaid the New York real estate industry, the city’s new development market is tiptoeing into unfamiliar territory: normalcy.
The glut of luxury condos that saturated the Manhattan market long before the pandemic has largely been sold. Sale and rental prices have exceeded 2019 levels, with rents continuing to break records, according to market reports. And developers are once again moving forward with ambitious megaprojects.
“I see this as a period of moderation for new development — not a boom, but certainly not a laggard like before the pandemic,” said Jonathan J. Miller, the president of Miller Samuel, a real estate appraisal and consulting firm. “Call it reverting to the mean.”

But everything is not as it was, with Covid both accelerating some nascent trends and pushing builders in new directions. The average size of new apartments has shrunk, despite the growing demand for home office space, according to market reports. The luxury market, beaten down for years before the pandemic, is once again in a bright spot, fueled mostly by domestic — not international — buyers. Large projects in the boroughs beyond Manhattan, spurred both by rezoning and renters’ hybrid work schedules, are taking shape. And yet the new normal could be threatened by growing concerns about a recession.


Renters had many hopes at the start of the pandemic: that an early dive in prices would make the city more affordable; that a “good-cause eviction” bill to cap rent increases on market-rate apartments would pass; and that remote work would broaden the areas that they could consider renting in.
The eviction bill didn’t pass, and the median rent in Manhattan reached $4,000 for the first time in May, while Brooklyn and Queens continue to break records, according to the brokerage Douglas Elliman. But there is a wave of new development coming to the boroughs outside Manhattan that could help absorb some of the high demand for affordable housing.
Brooklyn is poised to be the biggest recipient, with 56,000 rental units expected from 2022 to 2025, more than three times what was built from 2011 to 2015, when an affordable-housing tax subsidy known as 421a was still in place, according to Nancy Packes of Nancy Packes Data Services. The recent surge was largely led by developers rushing to qualify their projects for a renewed version of 421a that expired in June.

One of the largest projects underway is a 1,200-unit rental development in the recently rezoned neighborhood of Gowanus, along the industrial waterfront in Brooklyn. A quarter of the apartments, 300 units, will charge below market-rate rent to tenants, the developers said; a majority of those units will go to renters making no more than 60 percent of the area median income, or about $72,000 for a family of three.

The project, designed by the architecture firm Fogarty Finger and developed by Tavros Capital and Charney Companies, will have four buildings. The biggest component, a pair of towers at 300 Nevins Street, will have 654 units and incorporate the buildings into a public esplanade that will hug the Gowanus Canal. The project is expected to be completed in 2025.
Outdoor space and wellness areas are important at this and other new projects, because apartments are becoming smaller, Ms. Packes said. From 2016 to 2022, the average new studio in Brooklyn was 476 square feet, 9 percent smaller than the average from 2010 to 2015, according to her firm’s analysis.
“Units got smaller — amenities got bigger,” she said.
Sam Charney, one of the developers of the Gowanus buildings, said the trade-off in space allows builders to incorporate perks that became essential during Covid — co-working areas, fitness space and a sense of community. One sweetener they’re experimenting with is a live-in physical trainer, who will have an apartment in the development and hold sessions with residents.

“We think this trend is here to stay,” Mr. Charney said of the health perks. “It’s not about some gimmicky ‘Let’s clean your water’ or ‘wash your air’ kind of health, but more about wellness.”


When Covid gripped the city in early 2020, Manhattan already had a huge overhang of new condos — over 8,000 unsold units, which would have taken more than eight years to sell at the time, Mr. Miller said. A healthy market can sell out between two and two and a half years.

But after a period of ultralow mortgage rates, a stock market frenzy and sellers finally being realistic with pricing, the current sellout rate is just three and a half years — a remarkable turnaround for a once bloated market.

Prices, too, have rebounded. The median sale price for a new development unit in Manhattan was $2.6 million in the second quarter of 2022, up 5.3 percent from the same period last year and up 6.3 percent from the same time in 2019, before the pandemic, according to Mr. Miller.
“The headline is that the new-dev market is stronger than you think,” said Kael Goodman, the chief executive of Marketproof, a real estate analytics company. He pointed to a $74 million contract signed for a nearly 6,800-square-foot penthouse at Aman New York, the recently opened hotel and condo in the Crown Building in Midtown Manhattan, across the street from Trump Tower. While it may be the most expensive new development sale of the year, it is still a far cry from the city record-holder, the 2019 sale of a nearly $240 million penthouse in a skyscraper overlooking Central Park.
The comeback hasn’t been easy.
“I can’t even tell you how much more stressed and nervous my partners and I were,” said Van Nguyen, a partner at JVP Management, the developer of 96+Broadway, a new 23-story condo on the site of a former Gristedes supermarket on the Upper West Side.

His firm began excavating the site in March 2020, right when the city effectively shut down construction because of Covid. During lockdown, the developers completely changed tack, reducing the number of units to 130 from 150 to provide extra space for residents spending more time at home. In the common areas, they installed 13 ultraviolet filters in the ventilation system that are designed to neutralize airborne viruses. The rooftop, initially reserved for the penthouse owners, was redistributed to create a 2,800-square-foot terrace for all the residents, including several outdoor dining areas and a drive-in-style movie projector.

Prices ranged from $1.3 million for a 734-square-foot, one-bedroom apartment to $11.85 million for a 4,362-square-foot, four-bedroom penthouse with a large terrace, according to plans filed with the state.

But the condo market could be in for another shock, thanks to stubbornly high inflation. The number of contracts signed for Manhattan condo apartments, including resales, was down almost 34 percent in July, compared with the same month last year — a sign that buyers are becoming skittish as economic worries grow, Mr. Miller said. Still, with less new inventory coming up for sale, the outlook does not look nearly as dire as it did in 2020.
“Office towers are empty and yet residential housing, in rentals specifically, is booming,” he said. “And that bodes well for new development.”

David Goldsmith

All Powerful Moderator
Staff member

Barnett doubling down in Two Bridges​

Extell is buying Starrett Corporation’s 765-unit development site​

If Gary Barnett’s $250 million listing on Billionaires’ Row didn’t tell you he was bullish on the residential market, his latest deal will.
The Extell Development chief is buying a Two Bridges development site next to his One Manhattan Square condo tower for a price approaching $100 million, sources said.

Barnett is in contract to buy the Starrett Corporation’s site at 259 Clinton Street, which can be developed into a 61-story tower with up to 765 apartments. The Real Deal previously reported that Starrett filed plans to put a foundation in place by the spring so the site would qualify for the 421-a tax break, which expired in June.
Starrett put the site on the market late last year with an Eastdil Secured team led by Gary Phillips and Will Silverman eying a price of $100 million. The contract price is not quite $100 million but is close, according to a source. The deal is expected to close this year.

A spokesperson for Extell did not immediately respond to a request for comment and a representative for Starrett declined to comment on the deal.

Barnett started the trend of developing mega-towers along the East River waterfront north of the Manhattan Bridge with his One Manhattan Square condo at 225 Cherry Street.
He was followed by Starrett, Michael Stern’s JDS Development Group and a partnership between CIM Group and L+M Development Partners, which planned four towers among them and defeated a legal challenge that claimed City Council approval was necessary. The case was resolved in May 2021.

CIM and L+M sold their site this spring to Joseph Chetrit for $78 million.

David Goldsmith

All Powerful Moderator
Staff member

Eli Karp’s Hello Living says goodbye to Flatbush project​

Jeff Simpson’s Arch Companies won foreclosure auction, but hurdles remain​

Eli Karp’s Flatbush apartment project just said hello to a new owner.
The property’s mezzanine lender, Jeff Simpson’s Arch Companies, won a UCC foreclosure auction for equity interests in Karp’s Hello Nostrand, according to a source familiar with the matter. By acquiring the interests, Arch Companies is on track to take control of the site.

The development, at 1580 Nostrand Avenue, has been at the center of one of the most heated Brooklyn real estate battles in recent memory.
Greg Corbin, the head of bankruptcy and restructuring at Rosewood Realty, spearheaded the sale.
Karp’s Hello Living bought the site for $13 million in 2014 with plans to build an apartment complex.
But as construction started he ran into trouble with lenders. He pointed the finger at one in particular: Madison Realty Capital. In a lawsuit, Karp alleged Madison “manufactured defaults” on his loans in order to jack up interest rates to 24 percent. A website depicting Madison Realty’s Josh Zegen as a cartoon villain popped up, although Karp never explicitly acknowledged being behind it.
Madison Realty denied Karp’s allegations, claiming it was a responsible lender exercising its rights. A judge ruled in favor of Madison and dismissed Karp’s case.

Karp put the property — which includes a completed 93-unit building and an unfinished development — into bankruptcy in December to stop the foreclosure. The tactic can be used to buy time to find rescue financing or sell a property, but Karp did neither.
Madison sold the $6 million mezzanine piece and $73 million senior loan on the property in March to Arch Companies. Four months later, a judge dismissed the bankruptcy case and the foreclosure was back on.
Arch still has some hurdles to clear before it can take possession. The lender alleges Karp entered into a master lease with another tenant without the consent of the court. The lease would prevent Arch from qualifying for a 421a tax break, according to a lawsuit filed by the lender.
On top of losing the 421a incentive, the master tenant has already been listing and leasing out apartments at the property, according to Arch Companies’ court filing.
“Simply put, borrower and master lessee have colluded in a deceitful attempt to swipe some security deposits and rent during the pendency of the foreclosure,” Arch’s lawsuit alleges.
Karp’s lawyer argues that Arch was aware of the master lease agreement months ago.
Matthew Mannion of Mannion Auctions was the auctioneer for the sale.
Karp and his attorney failed to return a request to comment. Arch Companies also did not return a request for comment.