Are developers playing "chicken" with the market?

David Goldsmith

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This week's New Development Report from Sotheby's Kevin Brown Team.
 

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John Walkup

Talking Manhattan on UrbanDigs.com
Interesting the ppsf remains (at least in this report) in-line with last year. Not sure if that's by design or a samplee size issue, but if that holds, that's gotta be a big win for the new dev pool.
 

David Goldsmith

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This week's New Development Report from Sotheby's Kevin Brown Team.
 

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David Goldsmith

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HFZ, Ziel Feldman sued for default on Upper East Side loan

W Financial REIT alleges developer has paid nothing on $44M loan since June​


Another day, another lawsuit for HFZ Capital Group and its founder, Ziel Feldman.
Great Neck, New York–based W Financial REIT is suing an affiliate of HFZ and Feldman for defaulting on a loan tied to five Upper East Side properties.
W Financial REIT provided the $43.6 million loan in February for five properties: 150, 152 and 154 East 79th Street, and 1131 and 1135 Lexington Avenue. The lender alleges that Feldman, HFZ’s managing principal, personally guaranteed the loan.

The suit, filed Tuesday in Nassau County Supreme Court, alleges that HFZ first defaulted on the loan in June and again in the following months. The lender alleges HFZ still has not repaid the loan.
The lender is also seeking accrued interest and other fees in addition to the $43.6 million principal. In total, W Financial REIT aims to collect about $48.6 million.
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The Upper East Side acquisition was possibly part of an assemblage to build a larger development.
HFZ had purchased the three properties on 79th Street in March 2020, having acquired the two Lexington Avenue sites in 2017 and 2018. The firm paid a combined $78.75 million for the five properties, records show.
Neither W Financial REIT nor its attorney responded to a request to comment. HFZ also did not respond to a request to comment.

The case adds to the growing list of lawsuits against the New York development firm and its founder.
HFZ was once one of the city’s most prolific condo developers, but it has become entangled in liens and litigation. At its trophy project, the XI condo development in Chelsea, construction has come to a halt. And sources previously told The Real Deal that its lender, the Children’s Investment Fund, was in talks to bring on a new developer to finish the project.

Feldman, who founded the firm in 2005, guaranteed a number of the loans financing HFZ’s projects. Many of these loans are now in default, leaving Feldman personally on the hook to cover the shortfalls.
In the meantime, Feldman has been unloading his personal residences including one in the Hamptons, which fetched $50 million.
 

John Walkup

Talking Manhattan on UrbanDigs.com
The lender is also seeking accrued interest and other fees in addition to the $43.6 million principal. In total, W Financial REIT aims to collect about $48.6 million.
I wonder what they are hoping to receive in the end. Cash? Control? I don't know a lot about the inner workings of this world but would love to learn.
 

John Walkup

Talking Manhattan on UrbanDigs.com
Interesting that despite ~30% fewer contracts, the sales volume for the week was way up. Is that a sign that the luxury buyers are coming back?
 

David Goldsmith

All Powerful Moderator
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Investor eyes condo projects struggling to hit key sales threshold​

Urban Standard Capital wants to buy 15% of units needed to make offering plans effective​


One unintended consequence of New York’s 2019 rent law overhaul is that developers who want to switch new condo projects to rentals as a Plan B are required to sell the majority of those units to their tenants if the market improves in order to revert the project to condos.
Many developers say that makes those conversions virtually impossible, but one investor sees an emerging market in buying enough unsold units — at a nice discount — so developers can avoid falling under that new requirement.

“We’re telling a developer, what this does is it buys you time and it buys you optionality,” said Urban Standard Capital president Seth Weissman.

Weissman’s company has a new $100 million investment platform for bulk-buying residential condominiums at projects where developers are struggling to hit the threshold of units in contract — 15 percent — to have their offering plans deemed effective.
Once the plans are deemed effective, the developer and Weissman can rent the unsold units out and wait for the condo market to rebound before putting those units up for sale.

That had long been the playbook for developers when sales markets were bottoming out, but things changed when New York state made sweeping revisions to the rent law in 2019. One element of the overhaul required developers who are converting rental apartments into condos to sell 51 percent of those units to tenants.
Real estate experts believe the intent of the law was to discourage predatory landlords who would buy buildings and drive out rent-regulated tenants in order to convert apartments to more profitable condos. But they say lawmakers overlooked the impact on condo projects that had been approved prior to the law and now want to fall back as rentals.

Once a condo developer starts renting out units instead of doing sales, Weissman said, it voids the project’s offering plan. If the developer decides that in two or three years they want to return to the sales plan, they have to file for a new offering plan, which will be subject to the 51 percent rules.
Urban Standard’s platform is designed to help developers avoid that situation by buying enough units to hit the 15 percent sales threshold necessary to get the original plan deemed effective.

Weissman said there are some 300 condo projects across the city that are still trying to get to the 15 percent threshold to get their plans deemed effective. The company is targeting projects where it can buy blocks of up to 50 units roughly in the $2 million to $3 million price range, and will look to buy at a discount of 25-30 percent from pre-Covid prices.

The platform is backed by family offices and foundations, Weissman said, groups that have a longer-term timeline than other types of investors seeking quick, high returns.
Although Weissman touts the platform is a win-win for his investors and condo developers, there is one ripple. Once Urban Standard owns a block of 15 percent of a condo project’s units, it essentially becomes a competitor to the developer — and one with a lower cost basis who can undercut the sponsor.

Weissman said part of his agreements with sponsors include a timeline for when he can release his units, and it’s a deal he feels many will be willing to make.
“Most developers we speak with aren’t in the business of trying to make a profit at this point,” he said. “They’re trying to recover as much capital as possible and move onto the next thing.”
 

Noah Rosenblatt

Talking Manhattan on UrbanDigs.com
Staff member

Investor eyes condo projects struggling to hit key sales threshold​

Urban Standard Capital wants to buy 15% of units needed to make offering plans effective​


One unintended consequence of New York’s 2019 rent law overhaul is that developers who want to switch new condo projects to rentals as a Plan B are required to sell the majority of those units to their tenants if the market improves in order to revert the project to condos.
Many developers say that makes those conversions virtually impossible, but one investor sees an emerging market in buying enough unsold units — at a nice discount — so developers can avoid falling under that new requirement.

“We’re telling a developer, what this does is it buys you time and it buys you optionality,” said Urban Standard Capital president Seth Weissman.

Weissman’s company has a new $100 million investment platform for bulk-buying residential condominiums at projects where developers are struggling to hit the threshold of units in contract — 15 percent — to have their offering plans deemed effective.
Once the plans are deemed effective, the developer and Weissman can rent the unsold units out and wait for the condo market to rebound before putting those units up for sale.

That had long been the playbook for developers when sales markets were bottoming out, but things changed when New York state made sweeping revisions to the rent law in 2019. One element of the overhaul required developers who are converting rental apartments into condos to sell 51 percent of those units to tenants.
Real estate experts believe the intent of the law was to discourage predatory landlords who would buy buildings and drive out rent-regulated tenants in order to convert apartments to more profitable condos. But they say lawmakers overlooked the impact on condo projects that had been approved prior to the law and now want to fall back as rentals.

Once a condo developer starts renting out units instead of doing sales, Weissman said, it voids the project’s offering plan. If the developer decides that in two or three years they want to return to the sales plan, they have to file for a new offering plan, which will be subject to the 51 percent rules.
Urban Standard’s platform is designed to help developers avoid that situation by buying enough units to hit the 15 percent sales threshold necessary to get the original plan deemed effective.

Weissman said there are some 300 condo projects across the city that are still trying to get to the 15 percent threshold to get their plans deemed effective. The company is targeting projects where it can buy blocks of up to 50 units roughly in the $2 million to $3 million price range, and will look to buy at a discount of 25-30 percent from pre-Covid prices.

The platform is backed by family offices and foundations, Weissman said, groups that have a longer-term timeline than other types of investors seeking quick, high returns.
Although Weissman touts the platform is a win-win for his investors and condo developers, there is one ripple. Once Urban Standard owns a block of 15 percent of a condo project’s units, it essentially becomes a competitor to the developer — and one with a lower cost basis who can undercut the sponsor.

Weissman said part of his agreements with sponsors include a timeline for when he can release his units, and it’s a deal he feels many will be willing to make.
“Most developers we speak with aren’t in the business of trying to make a profit at this point,” he said. “They’re trying to recover as much capital as possible and move onto the next thing.”
yep, Carol Staab emailed me about this as well. Very interesting. I asked her to start a separate thread on this so we can openly discuss
 

David Goldsmith

All Powerful Moderator
Staff member
I'm not 100% up to date on the new law, but I thought under the old law these types of transactions didn't count towards having a plan declared effective.
 

David Goldsmith

All Powerful Moderator
Staff member
Sponsor selling pool of unsold New Dev at $1,100/SF over 40% discount. How would you feel if you were one of the other buyers in this project?
Perhaps any buyer who is thinking of signing a New Dev contract should consider the possibility something similar will happen to them.

This is definitely not the type of thing which happens if the smart money actually believes the market is improving.

Tishman Realty strikes bulk condo deal with Elad Group​

Developer to buy 76 units in Hell’s Kitchen for $90M​


In a sign of the increasing pressure faced by Manhattan’s condo developers, the Elad Group is selling a large block of the remaining units at its Hell’s Kitchen new development for roughly $90 million.
It’s believed to be one of the first big new-development bulk condo deals of the cycle, and could foreshadow more deals of its kind as sponsors look to move on from challenged projects.
Elad, headed by Israeli businessman Yitzhak Tshuva, is in contract to sell 70 units at its Charlie West tower to Tishman Realty for $87.37 million, sources familiar with the agreement told The Real Deal.

The purchase price works out to about $1,100 per square foot, a significant discount from the listed price for condos in the building. The average price for the 11 units currently in contract at the tower is around $1,850 per square foot, according to StreetEasy.
A spokesperson for Tishman Realty said that Elad and its development partner, Mi & Co, “created the right product for the right neighborhood,” with the potential for growth as New York recovers.

A representatives for the Elad Group could not be immediately reached for comment. Brokers Yoav Oelsner and Glenn Tolchin of Upland Property Advisors negotiated the sale on behalf of Elad. The brokers declined to comment.
Tishman Realty, not to be confused with Tishman Speyer, plans to sell the apartments over time at a discount to the pricing Elad is currently asking. The developer is in the market now with a Newmark team headed by Dustin Stolly and Jordan Roeschlaub seeking a joint-venture partner and debt financing for the purchase. The brokers declined to comment.

Elad developed the 123-unit Charlie West at 505 West 43rd Street in 2019. The project is considered “affordable luxury,” with modestly sized apartments mostly asking less than $2 million.
The developer’s deal with Tishman could be a sign of more to come, as new development sponsors have become increasingly open to selling condos at struggling projects for a discount and moving on.

For sponsors, such moves can often wipe out any remaining equity in the project. But for the bulk buyers, it represents an opportunity to come in at a time when large blocks of apartments can be picked up for a discount, then sold at below-market pricing.
Not only is the number of developers looking to cut bulk deals on the rise, but so is the number of investors looking to make such deals.

Seth Weissman’s Urban Standard Capital recently launched a platform to buy enough unsold condo units at buildings to get sponsors past the key 15-percent sales threshold needed to have their offering plans deemed effective.
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David Goldsmith

All Powerful Moderator
Staff member
HFZ loses control of 4 Manhattan condo projects

CIM Group takes over after UCC foreclosure auction​


HFZ Capital Group has lost control of four Manhattan condo conversion projects as the developer fights for survival amid a blizzard of legal and financial problems.
Los Angeles-based CIM Group, one of HFZ’s lenders, last month foreclosed on the junior mezzanine positions tied to four properties: 88 and 90 Lexington Avenue; The Astor at 235 West 75th Street; and Fifty Third and Eighth at 301 West 53rd Street. Property records filed with the city Thursday show the transfer took place Jan. 7.

The handover puts an end to the back-and-forth between HFZ and CIM over control of the properties.
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CIM first planned a UCC foreclosure sale in November, but it was halted by a New York State Supreme Court judge who ruled the process “created confusion in the marketplace” and required an “unreasonably high deposit to qualify to bid.”
But the ruling only stopped the sale temporarily. CIM initiated another UCC foreclosure auction for Jan. 7 and then made a credit bid — a bid using its existing debt — on the positions.

The positions had pledges of equity interest, which allowed the lender to take control of the properties. CIM will still be responsible for making the senior loan payments.
Marketing materials for the foreclosure sale showed that CIM’s junior mezzanine loans held a balance of $90.5 million. The properties’ total debt, including senior loans and senior mezzanine loans, amounted to $249 million.

The attempted conversion of the four pre-war rental buildings into condos was one of HFZ’s most ambitious undertakings.
The development firm, led by Ziel Feldman, initially paid Westbrook Partners $610 million for the four properties in 2013, teaming up with Fortress Investment Group on the buy. The portfolio consisted of 743 rental units, and the partners subsequently began the process of converting the buildings into residential condos.

The Manhattan condos are among several properties HFZ has relinquished in recent months. In December, Monroe Capital, one of the firm’s lenders, foreclosed on HFZ’s stake in a national industrial portfolio. And last month, Westbrook, its partner on the Belnord condo conversion in Manhattan, told The Real Deal that the developer’s “only remaining connection to the project is that it holds a minority non-controlling residual economic interest.”

Newmark’s Brock Cannon, Evan Layne and Brett Siegel led the foreclosure sale along with Dustin Stolly and Jordan Roeschlaub. CIM Group declined to comment. HFZ did not respond to a request for comment.
At HFZ’s marquee project, the $2 billion XI condo-hotel development in West Chelsea, lender Children’s Investment Fund filed a lawsuit last month seeking $160 million in summary judgment from the developer, which may be forced out of the project. The Zeckendorfs are reportedly in talksto take over the struggling development.
Elsewhere, HFZ is facing another UCC foreclosure action on the development site for its planned 600,000-square-foot office tower in NoMad. That site consists of eight parcels on the block between Fifth Avenue and Broadway and between West 29th and West 30th streets, with another under contract. With additional air rights and a bonus for a public plaza, the assemblage has 617,167 square feet of development rights.

The turmoil across the portfolio has rippled through HFZ’s offices. Last year, the developer laid off some 30 employees from the construction management side of its business.
And before the new year, Feldman split with his longtime partner, Nir Meir.
HFZ announced in January that it had brought on William Henrich — an adviser at the firm Getzler Henrich & Associates — as interim chief operating officer to oversee the development firm’s financial restructuring.

Henrich did not immediately respond to a request for comment on the transfer to CIM.
 

David Goldsmith

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Staff member

To stop foreclosure, Westchester condo developer files for bankruptcy​

Sale had been scheduled for Feb. 18​

Westchester County developer DeNardo Capital filed for Chapter 11 bankruptcy Tuesday, stopping a planned foreclosure auction on its luxury condo project.
Greenwich, Connecticut–based SilverPoint Capital was planning a UCC foreclosure sale on interests in the Marker 27 project in Irvington, New York. The sale was scheduled for Feb. 18, according to marketing materials reviewed by The Real Deal.

SilverPoint Capital claimed it was owed over $1 million on a mezzanine loan it provided in 2018. The foreclosure sale would give the new buyer or Silverpoint control of the 252,648-square-foot site, which is near the Hudson River and only 20 miles north of Manhattan.
The planned development was supposed to consist of 12 two-story buildings that resembled single-family homes. In total, there would be 27 condo units, of which six would be affordable.

Buyers had the option of choosing from two floor plans and each unit would have three bedrooms and three and a half bathrooms, according to the marketing materials. Prices for the market-rate condos started at $1.4 million.
Bloomberg first reported news of the bankruptcy. The Commercial Observer first reported news about the UCC foreclosure action, which was initially scheduled for December.

Rosewood Realty Group’s president of bankruptcy and restructuring, Greg Corbin, was marketing the foreclosure sale. Corbin declined to comment.
Irvington, New York-based DeNardo Capital Management’s bankruptcy filing said it had between $10 million and $50 million in assets and liabilities.
SilverPoint declined to comment. Attorneys representing DeNardo Capital did not immediately return a request for comment.

While a moratorium on traditional commercial foreclosures is in place, lenders are allowed to proceed with UCC foreclosures as these actions can bypass state courts.
Other New York developers have filed for bankruptcy to avoid a UCC foreclosure. For example, the owner of the Tillary Hotel in downtown Brooklyn filed for Chapter 11 in December the same day that a UCC foreclosure sale was planned.
 

David Goldsmith

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This week's New Development Report from Sotheby's Kevin Brown Team.
 

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David Goldsmith

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Manhattan's condo market has been oversupplied for several years

Investors are on the hunt for big discounts in Manhattan, hoping developers of luxury condominiums desperate to unload units will sell at bargain prices.
The buyers are looking to purchase between three and 100 units at one time, in exchange for a significant reduction in the asking price, The Wall Street Journal reports. Most recently, Elad Group agreed to sell 70 units at its Charlie West tower in Hell’s Kitchen to Tishman Realty for $87.4M, The Real Deal reported.
Bulk condo sales can be attractive to developers with scores of product to move and who have faced an oversupplied luxury residential market for years — and that was before an exodus of wealthy Manhattanites spurred by the coronavirus pandemic.
Douglas Elliman Real Estate broker AnneMarie Alexander told the WSJ she has worked with investors who have offered as much as 35% off the asking price for dozens of new development condominiums.
“They might not admit it and it’s all very sort of confidential and behind the scenes, but almost every [developer] is trying to do the same thing right now. And that’s to do bulk transactions,” she said.
Developers go to great lengths to keep the bulk sales under wraps, as it signals to buyers they are willing to sell units for far less than list price. But news of some of these deals has come out. In addition to the Tishman acquisition, Tremada Properties bought 36 units for $11.5M units at a building on East 48th Street, per the WSJ.
James Nelson, Avison Young's head of Tri-State investment sales, has formed a partnership with property investment platform Republic Real Estate to raise $50M to find bulk sales of units between $1M and $3M. Avison Young is not involved in the venture, Nelson told Bisnow Tuesday.
Still, while the option may seem attractive to sponsors with lingering apartments, these types of deals are not widespread in the city just yet because many of the developers have arrangements with banks that don't allow them to reduce unit prices below a certain level.
The condo market in the city, particularly at the high end, has faced a major oversupply for several years now. The impact of the virus, as well as the mansion tax that was introduced last year and the looming pied-à-terre tax, are all said to be depressing pricing and activity.
 

nicolebeauchamp

Active member
Manhattan's condo market has been oversupplied for several years

Investors are on the hunt for big discounts in Manhattan, hoping developers of luxury condominiums desperate to unload units will sell at bargain prices.
The buyers are looking to purchase between three and 100 units at one time, in exchange for a significant reduction in the asking price, The Wall Street Journal reports. Most recently, Elad Group agreed to sell 70 units at its Charlie West tower in Hell’s Kitchen to Tishman Realty for $87.4M, The Real Deal reported.
Bulk condo sales can be attractive to developers with scores of product to move and who have faced an oversupplied luxury residential market for years — and that was before an exodus of wealthy Manhattanites spurred by the coronavirus pandemic.
Douglas Elliman Real Estate broker AnneMarie Alexander told the WSJ she has worked with investors who have offered as much as 35% off the asking price for dozens of new development condominiums.
“They might not admit it and it’s all very sort of confidential and behind the scenes, but almost every [developer] is trying to do the same thing right now. And that’s to do bulk transactions,” she said.
Developers go to great lengths to keep the bulk sales under wraps, as it signals to buyers they are willing to sell units for far less than list price. But news of some of these deals has come out. In addition to the Tishman acquisition, Tremada Properties bought 36 units for $11.5M units at a building on East 48th Street, per the WSJ.
James Nelson, Avison Young's head of Tri-State investment sales, has formed a partnership with property investment platform Republic Real Estate to raise $50M to find bulk sales of units between $1M and $3M. Avison Young is not involved in the venture, Nelson told Bisnow Tuesday.
Still, while the option may seem attractive to sponsors with lingering apartments, these types of deals are not widespread in the city just yet because many of the developers have arrangements with banks that don't allow them to reduce unit prices below a certain level.
The condo market in the city, particularly at the high end, has faced a major oversupply for several years now. The impact of the virus, as well as the mansion tax that was introduced last year and the looming pied-à-terre tax, are all said to be depressing pricing and activity.
“has worked with investors who have offered as much as 35% off the asking price for dozens of new development condominiums “

what people are offering and whether or not transactions are coming together are two different things ...

it will be interesting to watch what occurs in the next year ish on this front ....
 

David Goldsmith

All Powerful Moderator
Staff member

All Year LLC opts for bankruptcy to stop Bushwick foreclosure​

UCC sale of mezz loan had been postponed following lawsuit​

Three weeks ago, Yoel Goldman’s All Year Management sued Mack Real Estate to stave off the foreclosure of $65 million in mezzanine debt. The move bought the developer time to protect his Denizen Bushwick rental complex — but time ran out.
Yesterday, a day before the rescheduled UCC sale, All Year’s debtor LLC filed for Chapter 11 bankruptcy protection.

All Year and Mack had talked over the past few weeks about “potential sale structures with respect to the Denizen” but failed to agree on a solution, All Year chief restructuring officer Joel Biran wrote in a Southern District court filing.
Hence the LLC’s bankruptcy filing, which was made “on an emergency basis to protect the value of its property.”

Including principal, interest, and a forbearance fee, All Year’s outstanding debt on the mezzanine loan exceeds $73 million, according to the filing. All Year did not respond to a request for comment.

After plans for a big portfolio sale and refinancing last year fell apart, All Year’s financial and legal troubles began to escalate at the end of November when the developer missed an interest payment on bonds listed in Israel and delayed its quarterly financial reporting.

Biran was brought on as CRO in December, and the company’s four bond series have been delisted from the Tel Aviv Stock Exchange. Several groups of investors — including Criterion Real Estate Capital and Downtown Capital Partners; Madison Capital and Meadow Partners; Dabby Investments; and Churchill Real Estate and Graph Group — have submitted restructuring offers for the company in the past two months.

“The Denizen constitutes one of All Year’s most valuable assets and is central to All Year’s ongoing restructuring discussions,” Biran wrote in court filings, also noting that “because the Denizen’s value is derived from its rich amenities,” it was disproportionately affected by Covid shutdowns of shared spaces.
The Mack loan covers phase two of the Denizen, at 123 Melrose Street. A $170 million senior loan on the property provided by JPMorgan Chase is also in default. Phase one of the 900-unit complex, at 54 Noll Street, is the collateral for All Year’s Series E bonds.

All Year is not seeking any first-day relief in bankruptcy court. Biran says the firm intends to continue discussions with stakeholders and bring the court a restructuring solution that maximizes value for all parties with an interest in the Denizen.
In Tel Aviv Stock Exchange filing Sunday, All Year disclosed that Biran intended to “end his tenure” as CRO. An exit date had not been set.
 
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