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July 2010

July 2010 » Market Analysis » NY New Developments

July 2010 New York New Developments

New York Developments

The closure of St. Vincent's Hospital in Greenwich Village dominated the news, neighborhood institution succumbing to financial troubles. Despite the credit crunch, New York-area hospitals are finding ways to fund major expansion projects. Through the support of philanthropists, often from the real estate sector, there's funding to build state-of-the-art health care institutions, keeping New York a world leader in health care.

The Port Authority of New York & New Jersey yesterday approved an agreement with the city, under which the city will reimburse the agency up to $44 million for building underground foundations and infrastructure for a performing arts center at Ground Zero. Lower Manhattan Development Corporation, which controls $50 million in federal funds earmarked for the project, has explored the nearby Deutsche Bank at 130 Liberty Street as an alternate site.

Upper East Side tenants displaced by the Metropolitan Transportation Authority's Second Avenue Subway construction stand to get hefty windfalls when the agency temporarily boots them from their homes for four to eight weeks. Relocated residents of the seven apartment buildings on which the MTA is planning critical repair work have been given two options: stay at the Hotel Marmara at 94th Street and Second Avenue for free, or take a daily stipend for room and board. The second option consists of $4,810 per month for studios, $6,000 per month for one-bedrooms and $9,000 per months for two-bedrooms, plus $40 per day per household member for food and moving and storage costs.
The Royal Bank of Canada has sued to force a sale of the Lipstick Building at 885 Third Avenue, the 34-story office tower that served as the backdrop for Bernie Madoff's $65 billion Ponzi scheme. Haim Revah's Israel-based Metropolitan Real Estate Investors, which purchased the property for $648.5 million from Tishman Speyer in 2007, defaulted on a $210 million loan from Toronto-based Royal Bank.

The Securities and Exchange Commission sued ICP Asset Management and its founder alleging that they defrauded clients in pooled mortgages totaling $11 billion, including deals that were insured by American International Group. AIG and Financial Guaranty Insurance provided insurance on the mortgages and had to sign off on any new securities purchases. The federal government bailed out AIG in 2008 in part because of souring CDOs that the firm had insured. The SEC is also alleging that as the credit markets were deteriorating in 2007 and 2008, Priore caused the Triaxx CDO holders to buy bonds at inflated prices to benefit ICP or another CDO under distress.

Gateway Center at Bronx Terminal Market, a 1-million-square-foot, $500 million project, has been awarded LEED Silver certification by the U.S. Green Building Council, making it the second largest project to achieve core and shell LEED certification in the Northeast. Related Companies built the market as the first national retail complex in the Bronx. Gateway Center is 95 percent leased, 91 percent occupied and includes a mix of retailers and restaurants.

JPMorgan Chase's sale of $720 million worth of commercial real estate loans was a promising sign to those in the real estate industry that funding for commercial mortgage-backed securities had returned. Typically, CMBS are packages of real estate loans that are diced up and sold to investors. Their rise helped fuel the real estate boom a few years back, but a series of disastrous deals ultimately triggered the bust.

The city is making a push toward cleaning up its vacant, underused brownfields and turning them into land usable for real estate development and open space. The new Brownfield Incentive Grant Program will award grants to developers and community organizations that study, clean up and develop contaminated land through more than $9 million in city funds, which will be made available over the next several years.

Neighborhood advocates are pleased over a proposal to turn the Bronx's Grand Concourse into a landmarked historic district. A section of the century-old concourse between 153rd and 167th streets is up for review, with a public hearing scheduled by the Landmarks Preservation Commission. The hearing will be the last step needed before the committee votes on whether to designate the space as an historic neighborhood.

U.S. banks are now beginning to expand their commercial mortgage-backed securities business, two years after the financial crisis slowed down that process, and triggering a wave of industry hiring. Several banks have hired lenders to focus on making new commercial real estate loans to package into bonds. Analysts and bankers have long worried that the CMBS market, like that of home mortgages, would crater and upset the U.S. economy.

The international law firm Milbank, Tweed, Hadley & McCloy headquartered at 1 Chase Manhattan Plaza in the Financial District is in the market for about 350,000 square feet. The firm occupies about 300,000 square feet in the building. The requirement is one of the largest in the city currently. There are about a half-dozen companies looking for more than 300,000 square feet.

Frederick Douglass Boulevard is steadily blossoming in the years since its 2003 rezoning. Developers, like that of the 80-unit condominium 2280 FDB, the Douglass, the Livmor and SOHA 118, have capitalized on their newfound ability to build high-rise housing with expanded ground-floor retail space, transforming an area once dominated by vacant lots and boarded-up buildings.

While ground broke on the new Barclays Arena at the Atlantic Yards development in Downtown Brooklyn three months ago, little progress has been made on the construction site. The 18,000-seat arena is to open for the 2012 basketball season.

Ashkenazy Acquisition, Crown Acquisitions and Highgate Holdings have closed on their purchase of the former Knickerbocker Hotel and an adjacent 10,000-square-foot lot on West 42nd Street. The sale price: $180.5 million. The building would become a hotel, but not a chain. The buyers are interested in capitalizing on the 42nd Street side of the landmark building for advertising.
The price of the entire property is just 46 percent of the $376 million price Istithmar World paid for it in 2006. Istithmar lost control of the Midtown property in March to lender Danske Bank after defaulting on its $300 million mortgage.

Madison Square Garden, the host of about 400 events each year, is preparing to undergo an overhaul. The project is expected to cost between $775 million and $850 million, with the bulk of the work being done over three consecutive summers to minimize disruptions when the Knicks and Rangers are playing. The scheduled completion date is 2013.

Delta Air Lines is close to announcing the renovation of its outdated terminals at John F. Kennedy International Airport. The airline has been in talks with the Port Authority of New York & New Jersey about funding the move, which is expected to include demolishing the former Pan Am Worldport to make way for new facilities.

The developer chosen to run the $340 million Yankee Stadium parking system is two years behind on city rent and has yet to pay any property taxes on a 9,000-space garage. The new garages, which were expanded with the help of a $70 million cash injection from the state and tax-exempt financing from the city when the new stadium was built, are supposed to generate $3 million in rent revenues annual for the city. But a loophole through which the developer can defer payments in years with insufficient cash flow has allowed Bronx Parking Development LLC to ratchet up around $8.7 million in back rent and interest.

The InterContinental Hotels Group announced its plans to open a 600-room hotel in Times Square, the company is poised to deposit even more rooms on New York City in the coming years. The U.K.-based company already operates 22 hotels in the city and plans to develop another 15 in the near future. Among the possible new hotels is a boutique operation in Midtown, a Crown Plaza outpost in Long Island City and a Holiday Inn in the Bronx.

City and state officials are crafting an East Side waterfront plan that would include the construction of a new building for the United Nations. The plan, which is part of an effort to fill a 21-block gap on the East Side promenade between 38th and 59th streets, is still in its early stages. The total project would require the demolition of a local playground and could cost between $150 million and $200 million.

The number of hotel rooms in the pipeline in the U.S. is on the decline. There was a 30.3 percent decrease in the number of rooms year-over-year. The pipeline is comprised of 3,447 projects totaling 264,612 rooms, which includes projects in the initial planning, final planning and construction stages. Out of seven groups on a chain scale, the economy class experienced the largest decrease in total pipeline activity, with a 64.1 percent drop in the number of rooms between May 2009 and May 2010, bringing the current total to 5,824 rooms.

The YMCA of Greater New York has $313 million worth of expansion and renovation plans in the works for 10 facilities across the city, including new centers in the Rockaways, Ridgewood and Coney Island. The organization is also considering a sale of the landmark Harlem YMCA, to be replaced by a new facility as part of football star Emmitt Smith's $81 million hotel project in the neighborhood.

Smith wants $19.8 million in tax-exempt financing for the 200-room hotel and retail facility at 125th Street and Lenox Avenue, which is slated to have a Whole Foods on the ground floor, as well as a YMCA and a cultural center on the third and fourth floors.

Tishman Speyer's interim rent-adjustment agreement with tenants at Stuyvesant Town and Peter Cooper Village has been extended through December 2010. Tenants affected by last year's landmark Court of Appeals decision will continue to pay the lower of either their existing rent or their estimated rent-stabilized rent and will be granted certain rights under the city's rent stabilization law, including the rights to renew leases and family succession.

Ford Models has signed a five-year lease for 11,239 square feet on the top three floors of 57 West 57 Street, at the corner of Sixth Avenue.

Attorney General Andrew Cuomo filed suit against developer Yair Levy for $7.4 million, alleging he underfunded and illegally withdrew millions of dollars from the reserve fund at the Rector Square condominium in Battery Park City and used it for personal and unrelated business expenses. The civil suit, filed in New York State Supreme Court today, seeks restitution, damages and penalties and to bar Levy from selling condominiums and other securities in the future statewide.

Barclays is seeking to emblaze its own brand outside the top floors of its tower at 745 Seventh Avenue by turning the top floors exterior into a lantern and installing 10-foot letters and a 13-foot-6-inch-high version of the Barclays eagle emblem on all four sides of the exterior fa├žade.

Retail beauty Sephora has inked a lease for 4,500 square feet at 21-27 Ninth Avenue on the corner of 13th Street in the Meatpacking District. The property, which Bobby Cayre's Aurora Capital Associates took over last year in a 49-year leasehold, had an asking rent of $400 per square foot.

Harlem Village Academies, the successful charter school network, has closed on a deal to acquire a two-story, Con Edison-owned property at 32 West 125th Street for $14.9 million. With up to $42 million in funding from the city's School Construction Authority, HVA ultimately plans to open a five-story, 400-student charter school for grades 6 through 12 at the site. The purchase gives the city's other charter schools yet another reason to be envious of HVA, which has already drawn attention for its top-notch rankings and high test scores. At a time when some charters are scrounging for classroom space, HVA, which currently operates two middle schools and a high school, all out of leased Harlem spaces, is building anew.

A large hotel and retail development project in Harlem received approval for federal tax-exempt financing. The project, at 100 West 125th Street, is spearheaded by former Dallas Cowboys star Emmitt Smith. Smith's firm was approved for $19.7 million in Recovery Zone Facility Bonds, which it received through a city program to stimulate economic activity in struggling neighborhoods.

The president of Related Companies, is going ahead with his West Side rail yards project. Having signed a contract with the Metropolitan Transportation Authority he can now get started on the development and talk to potential tenants coming to the project. Construction has yet to be determined since no one knows exactly when to begin.

One World Trade Center, which will be the tallest office tower in the United States when completed in 2013, has risen to 260 feet above street level and will rise 50 stories by the end of 2010. This is the latest construction milestone for the 1,776-foot-tall office building, which now stands at the 26th-floor level. Once complete, One World Trade Center will restore the prestigious skyline of Lower Manhattan with 2.9 million rentable square feet of Class A office space.

As the commercial market continues to struggle in New York, an increasing number of developers are turning to strategic defaults to force lenders and special servicers to enter into negotiations for loan restructurings. The trend comes at a time when lenders are under increased pressure to keep their loans current. It also comes as developers are struggling to maintain the cash flow they promised their lenders during original loan negotiations. It is expected to rise even more in the near future.

In a cost-saving move, the Port Authority of New York & New Jersey plans to move 300 employees out of its 147,000 square feet of offices at 1 Madison Avenue into New Jersey when the lease expires in October 2011. The Port Authority has long had a policy of keeping equal numbers of employees in New York and New Jersey offices, but the move, which is expected to save between $20 and $30 per square foot, is only a temporary one until 4 World Trade Center is ready.

Lehman Brothers Holdings has asked for permission in bankruptcy court to invest $255 million in Broadway Partners' 237 Park Avenue, the 21-story office tower in which the liquidating bank already has a $437 million investment. Lehman loaned Broadway $1.23 billion to buy the property in 2007 and began negotiating a possible restructuring in August 2009, when it believed Broadway was in danger of imminent default on part of that loan.

The heir to the William Gottlieb real estate empire in Manhattan is selling two downtown buildings. The estate is asking $8.5 million for a 19th-century townhouse at 79 Horatio Street, the first of the two buildings being sold. The building is in poor condition and will likely be condemned and require a gut renovation. The second building, at 104 East 10th Street in the East Village, has an asking price of $6 million.

New York City's ailing construction industry is getting a major lift this year from a record amount of work by the City University of New York as it pursues its 10-year plan to become a world leader in science research and teacher training. But budgetary pressures are likely going to slow the pace of CUNY development. The university has some $1.2 billion worth of projects in the planning stage, some of which will be slowed by state and city fiscal constraints.

A $1 billion increase in Manhattan loan delinquencies caused a surge in U.S. CMBS delinquencies, bringing the total to 7.97 percent in May. There are currently a dozen loans totaling $3.5 billion that are delinquent in Manhattan. Four loans secured by New York City properties, totaling $30 million, were delinquent, representing 0.3 percent of delinquencies nationwide. Of that total, Stuyvesant Town and Peter Cooper Village accounts for $2.8 billion. The total city delinquencies represent 9.8 percent of all U.S. CMBS delinquencies, a sharp escalation from a year earlier.

The $80 million loan for a 600,000-square-foot downtown Manhattan office building at 40 Rector Street was transferred to a special servicer. The owner of the property defaulted on the loan, which matured June. As a result it was transferred to a Va.-based special servicer that works out troubled loans. The Rector Street loan is secured by a 440,000-square-foot office property that Philips owns elsewhere in the Financial District.

The Port Authority of New York and New Jersey has begun sending out letters to West Siders whose stores and properties lie in the path of a tunnel-boring machine that will soon start creating an $8.7 billion commuter New Jersey Transit train line beneath the Hudson River. More than 90 business and building owners have received notice that the Port Authority might use eminent domain to acquire their properties.

Hidrock Realty is planning to develop its first Manhattan hotel in a near-empty office building near Herald Square. Hidrock, a family owned real-estate investment company, paid about $40 million for the 100,000-square-foot building at 960 Sixth Avenue and 35th Street, less than half of the $105 million the former owner paid for the property in 2007. Hidrock purchased the mortgage on the troubled property at a steep discount and then pursued a foreclosure action against the owner. That strategy succeeded last week when Hidrock took title of the 16-story building.

Sales of the city's distressed real estate rose by 40 percent year-over-year in the first quarter of 2010. During the three-month period, banks sold $575 million in distressed real estate assets, up from the $410 million they sold during the first quarter of 2009. While just 8 percent of New York City real estate loans are delinquent, distressed properties accounted for one-quarter of all commercial real estate sales both in this year's first quarter and in last year's.

Law firm Proskauer Rose signed a lease for more than 400,000 square feet at 11 Times Square, providing a major psychological boost to the Manhattan office market, but pricing remains flat overall and large blocks of space continue to come to market.

A vacant parcel facing Bryant Park where developers once planned to build a shimmering environmentally advanced condominium hotel called View at Bryant Park has been scheduled to be sold at auction later this month following the default of a $43 million loan. The four-parcel site includes about 189,000 square feet of buildable space with frontage on 39th and 40th streets.

The mortgage on Joseph Moinian's 1775 Broadway is now 60 days delinquent with around $249 million outstanding on the loan. The 26-story office property, the former General Motors building that Moinian bought for $130 million in 1999, still trails first-place Stuyvesant Town and Peter Cooper Village by a landslide. The 110-building complex has a loan balance of $3 billion. Harlem residential complex Riverton Apartments was bought at auction for $125 million with a $225 million loan balance.

WebMD, the online medical resource, has taken 50,000 square feet on the 11th floor of Worldwide Plaza as part of its national expansion plan. WebMD has headquarters at 111 Eighth Avenue. Since launching its expansion campaign in 2008, WebMD has signed leases in Chicago and Montreal, and also recently more than doubled its office space in Atlanta, Ga.

An offer of just over $140 million may have landed Joe Sitt's Thor Equities the coveted Takashimaya Building at 693 Fifth Avenue. The 20-story building, which contains less than 100,000 square feet, had drawn a number of notable bidders since the Japanese retailer announced plans in March to close the store and put the building on the market.

Nearly two years after Trump Soho developers claimed they had sold more than half of the building's total inventory, newly released documents show that less than 16 percent of the 391-unit condo-hotel is under contract.

The Architecture Billings Index fell from to 45.8 in May from 48.4 in April, after three straight months of improving. ABI tracks the approximate nine- to 12-month lag time between architecture billings and construction spending. Since any score above 50 indicates an increase in billings, the nearly 3-point decrease in the May ABI score reflects a continued decline in demand for design services.

Bank of America and JPMorgan Chase have sold $650 million in bonds tied to a loan at One Bryant Park, the 51-story, 2.1 million-square-foot skyscraper. This was the third sale this year of new commercial mortgage-backed securities that contained loans not backed by the government.

Deeds-in-lieu-of-foreclosure, voluntary transfers of property ownership from borrowers to creditors that make court-directed foreclosures unnecessary. Some of the largest mortgage servicers and lenders in the country are gearing up campaigns to reach out to carefully targeted borrowers with cash incentives that sometimes range into five figures, plus a simple message: Let's bypass all the time-consuming hassles of short sales and foreclosures. Just deed us the title to your underwater home and we'll call it a deal. We won't come after you to collect any deficiency between what you owe us on the mortgage and what we obtain from the home sale. We might even be able to wrap up the whole transaction in as little as 30 to 45 days.

Isaac Chetrit, is negotiating a deal to buy the senior debt at 315 West 35th Street, a 14-story office building that is being marketed for residential conversion. The talks comes less than two months after Chicago-based Wrightwood Capital filed suit in New York State Supreme Court to foreclose on the building's $13.5 million debt. According to a source, an agreement was signed last week to buy the debt for $10.75 million, with Chetrit likely to foreclose on the 63,000-square-foot property after buying the loan.

Developer Ziel Feldman's HFZ Capital Group took title to a development parcel facing Bryant Park. In January, HFZ Capital paid approximately $41 million for control of a defaulted note at 14-20 West 40th Street that had a value of about $46 million from an entity affiliated with Midtown-based Petra Capital Mortgage.

International Gem Tower at 44 West 47th Street is already receiving $49.6 million in tax breaks from the city for its 34-story. The building's future tenants are also expected to get in on the action with up to $100 million in state aid. The funding would amount to the state jobs program's largest-ever loan, and would go toward granting jewelry and diamond merchants low-interest loans of up to $5 million for the purchase of condominiums in the 748,000-square-foot tower. The financing is intended to help stimulate the U.S. diamond industry as it competes with diamond centers in Shanghai, Hong Kong, Dubai and Antwerp, accounting for 40 percent of diamond sales across the globe.

A $210 million Savoy Park loan, secured by an 1,802-unit apartment complex in Harlem owned by Vantage Properties and Area Property Partners is likely to default. The secured by seven mostly rent-stabilized rental buildings, including 45 West 139th Street, is severely overleveraged and does not produce enough income to cover its debt service. " The property has a loan to value ratio of 155 percent. In addition, the revenues from the property cover only 66 percent of the debt payments.

A federal judge has allowed foreclosure proceedings to begin at Stuyvesant Town and Peter Cooper Village, the 11,200-apartment complex that was turned over to creditors for owners failure to pay a $16.1 million debt payment on the property, which they purchased for $5.4 billion in 2006.

The New York Court of Appeals has upheld the state's use of eminent domain to seize land for Columbia University's proposed $6.3 billion, 17-acre West Harlem expansion plan. The Empire State Development Corp. had argued that the seizures were justified because the area was blighted. The Columbia project, the agency said, would improve the neighborhood with new housing, laboratories and two acres of public open space.
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