New Development

“We’re Going to See Some Real Distress”: Witkoff

Steve Witkoff isn’t known for pulling punches. And he wasn’t about to start today.

“I believe that we’re going to see some real distress,” the developer said Tuesday, sounding alarm bells over the state of New York’s new development market.

Speaking about the new development market at Weiser Mazars’ Commercial Real Estate Summit, Witkoff said “Miami is a brewing storm and it’s going to get even worse out there (…) and I think in part we’re going to see it in New York.” His firm, he claimed, tracks at least 15 new projects in New York that sell just one percent of their units per month.

“That’s a 100-month sellout. Unless you’re MaryAnne Gilmartin or Larry Silverstein you can’t withstand a 100-month sellout.”

Gilmartin, the CEO of Forest City Ratner, and Marty Burger, CEO of Silverstein Properties, happened to share the stage with Witkoff for the panel, which also included Howard Hughes Corp. CEO David Weinreb, Ackman Ziff’s president Simon Ziff, and Cole Schotz attorney Leo Leyva.

Two years ago, such a panel would have been an occasion to gush about never-ending demand from foreign investors. But Tuesday’s talk was more somber, focusing on the numerous challenges facing a swooning market. Top of the list:tighter financing.

“A lot of investors hit the pause button,” said Ziff, whose firm specializes in capital markets brokerage. He said demand from investors has cooled across the capital stack, be it senior debt, mezzanine financing or equity.

“It’s just taking a lot more conversations to get a lot fewer people to the table,” he said.

Weinreb stressed the importance of building up cash reserves as financing grows tighter, while Leyva observed that developers are forced to spend more on loans. “Strong sponsors trying to go to the banks are not getting financing,” Leyva said. “You’d be surprised as to the names of some of the sponsors or developers that are using non-traditional financing. This year we’ve seen a huge surge in bridge lending.” Howard Hughes Corp., he revealed, plans to finance its South Street Seaport commercial development through its own balance sheet.

Panelists also complained about rising construction costs and delays, caused by booming demand for a limited number of contractors. Over the past three years, “I would bet you that you can’t name me one single project that was on time and on budget” Witkoff said. “That’s how stretched ;subcontractors] are, that’s how bad schedules are.”

“The risk-reward equation has changed dramatically for sensible people,” he added, arguing that rising construction costs and increasing delays discourage developers from building.

Burger agreed. “We’re always trying to get the A team from our contractor, but the A teams today are stretched across seven or eight projects when they should only be working on three or four,” he said. “The architects, consultants and engineers are all stretched. It’s really hard to get quality work out of anyone because they’re taking on too much work.”

Gilmartin bemoaned a lack of government support for new development in New York, pointing to the expiration of 421a and uncertainty over the future of the EB-5 visa program, both programs Forest City has made repeated use of.

“The debacle over 421a will have far reaching implications for ground-up residential construction,” she said.

Ian Schrager Carves Up $80M Penthouse at 160 Leroy Into Two Units

Call it the (overpriced) penthouse effect.

After shooting for the stars with an $80 million penthouse at 160 Leroy Street, Ian Schrager is the latest developer to fall back to Earth with two smaller and less expensive units.

The Studio 54 co-founder – apparently taking a page from projects like 432 Park Avenue and 10 Sullivan Street – has divided what would have been a 12,200-square-foot spread at his curvy ultra-luxe West Village condominium into two units measuring approximately 7,700 square feet and 4,800 square feet, according to filings with the New York State Attorney General. The smaller apartments have price tags to match: $48.5 million and $29.5 million, respectively.

“We thought it would be better for the marketplace; it’s what people were asking for,” said Howard Lorber, president and CEO of Vector Group Ltd., whose New Valley subsidiary is an investor in the project along with the Witkoff Group and Ares Real Estate.

“Buyers said, ‘We love the top floor, but we don’t want to spend $80 million,’” said Lorber, who is also chairman of Douglas Elliman, which is handling sales at 160 Leroy. “So we figured we’d give them what they want.”

The $80 million penthouse at the Herzog & de Meuron-designed project isn’t the only unit the developers retooled.

They’ve also altered the building’s unit mix to include 56 apartments instead of 48, according to an amendment filed with the AG in February and obtained by The Real Deal. In doing so, the developers carved out several smaller units, replacing larger (and pricier) ones.

Five planned penthouses – the smallest of which measured 6,100 square feet and was asking $24.5 million — have been replaced by eight smaller apartments, the amended plans show. The smallest of the eight pads measures 3,562 square feet and is listed for $13.75 million, according to AG filings.

Lorber said the developers’ decision was in response to buyer demand for slightly smaller condos, which are selling at a brisk pace. “The market is strong,” he said. “The main reason was to create some [more units like] a line that had sold out.”

In an interview with Bloomberg last month, the hotelier and developer said he was “mindful but not worried” about the luxury condo slowdown.

“If you have a really great product, it sells irrespective of the time on the market,” Schrager said. “Apple comes out with a product — it sells. People don’t even know they need a new iPhone or iPad. It still sells because it’s so well-executed and that’s what we’re trying to accomplish.”

Schrager obtained a $265 million construction loan for the project in February and said in mid-April that the building was more than 60 percent sold. Schrager himself is a buyer there, having scooped up a 12th-floor apartment for about $15 million earlier this year.

The developers of 160 Leroy are not alone in carving out multiple units from large apartments amidst a waning luxury market.

Last year, CIM Group and Macklowe Properties divided the full-floor units on five floors at 432 Park. And in February, Madison Equities and Property Markets Group’s chopped the $45 million triplex penthouse at 10 Sullivan Street into two units asking $11 million and $29.5 million.

A TRD analysis of StreetEasy data in April found that 35 percent of penthouses on the market have seen price chops

Sony Building Sold to Saudi Group, Will Remain an Office Tower

A subsidiary of Saudi investment conglomerate Olayan Group has acquired the Sony Building for $1.4 billion to $1.5 billion. The Real Deal first reported the transaction Monday. Olayan American, along with Chelsfield Group, a London-based property investment company, bought the 850,000-square-foot office tower at 550 Madison Ave. from Chetrit Group and Clipper Equity. Chelsfield will have a minority stake in the property.

Chetrit and Clipper, which bought the Sony Building for $1.1 billion in 2013, planned to convert the officer tower into luxury condos and a hotel. They expected to sell units for $4,000 a square foot. That plan has been abandoned by the new owners, who will maintain the Sony Building as a commercial space.

The electronics giant has closed its retail store at the base of the midtown building and will reopen it at its new headquarters farther south at 11 Madison Ave.

Downtown's Tallest Residential Tower Completes World Trade Center–Area Transformation

In late summer, the 175-room Four Seasons Hotel at the newly built 30 Park Place is scheduled to open to guests. The 926-foot-tall, 82-story tower, which has 157 condos starting on the 40th floor, will be the tallest residential tower in downtown Manhattan, besting current record holder 70 Pine St. by 76 feet (though 70 Pine’s tip stretches to 952 feet, well beyond its 850-foot roof).

The tower caps a post-9/11 era of change for the blocks around the World Trade Center. The developer of 30 Park, Silverstein Properties, owned the lease on the former Twin Towers and surrounding buildings. Silverstein has already rebuilt 4 and 7 World Trade Center and is building towers at 2 and 3 World Trade Center.

Silverstein acquired the site for 30 Park Place in 2006. Two years later, at a breakfast event at Cipriani’s in lower Manhattan, Chairman Larry Silverstein unveiled plans for what would have been the city’s tallest residential building. But the Great Recession made financing difficult—and any luxury-condo sales less assured. 

In early 2013, Silverstein finally landed $660 million in financing from Children’s Investment Fund Management LLP, and construction started soon after. Robert A.M. Stern, dean of the Yale School of Architecture, designed the limestone tower, and the Four Seasons brand will provide services to hotel guests and condo owners.

Ten units are listed on the tower’s website, with prices ranging from $3.645 million for a 1,108-square-foot one-bedroom to $32.5 million for a 6,127-square-foot, five-bedroom penthouse.

Luxury-rental plan abandoned at One57 condo tower

Thirty eight units that were once rentals will be sold at prices starting at $3.45 million, much lower than what other units in the West 57th Street building sold for

Thirty eight units that were once rentals will be sold at prices starting at $3.45 million, much lower than what other units in the West 57th Street building sold for

Manhattan builder Extell Development Co. is retreating from a plan to list 38 units at its One57 tower for lease, choosing to sell them instead as demand for luxury rentals slips amid an abundance of supply.

The apartments, on the 32nd through 38th floors of the West 57th Street skyscraper, will be listed for sale as condominiums at prices starting at $3.45 million, Extell said in a statement on Monday. The builder has concluded that the market for condos in that range, toward the lower end of what's considered luxury, is better than the one for high-end rentals.

"We recognize the demand for efficiently sized, luxury inventory below $10 million,"  Gary Barnett, president of Extell, said in the statement. "There is absolutely no comparable product currently on the market."

Luxury rentals are proliferating in Manhattan as buyers of pricey condos, in many cases out-of-town investors, take possession of their apartments then quickly list them for lease. The added supply is pushing down rents for the most-expensive units. The median monthly rent for a Manhattan luxury apartment—the top 10 percent of the market—fell 3.5% in March from a year earlier to $8,228, appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate said in a report last week.

"I would be under the assumption that they had no traction on the luxury-rental tack," Jonathan Miller, president of Miller Samuel said of Extell's plan. "The weakest segment of the rental market is luxury rentals."

Extell, which initially planned to reserve the lower floors of the 1,004-foot tower for rentals, tried marketing units for lease on the 37th floor last May, according to listings website StreetEasy. Prices ranged from $13,350 a month for a one-bedroom apartment with 1,021 square feet to $50,366 a month for a three-bedroom home.

Extell had also sought to sell all 38 rental units in a single package to outside investors for $250 million, the Wall Street Journal reported in November.

Fully furnished

The units now listed for sale—the largest of which is a 4,635-square-foot, four-bedroom duplex—will be delivered fully furnished, according to the builder's statement. Seven of the 38 units will be priced at more than $10 million, said Anna LaPorte, a spokeswoman for Extell.

The sale prices will be lower than much of what's already been purchased at One57, where a penthouse that sold for $100.5 million is Manhattan's most expensive completed residential deal. Like residents on the higher floors, buyers of the new units will have access to hotel services from the Park Hyatt New York at the base of the building. Amenities at One57 include a screening room and performance space, on-site parking, an indoor swimming pool and library.

"This is a great opportunity for buyers to have access to the One57 quality, lifestyle and amenities, all at this price point," Barnett said in the statement.

100 Varick could become first NYC development funded (almost) entirely from China

Renzo Piano-designed 100 Varick Street could become the first major New York development to get debt, equity and mezzanine financing all from China. The developers’ turn to China comes as U.S. lenders increasingly shy away from funding luxury condo development.

Bizzi & Partners Development, Halpern Real Estate Ventures and Aronov Development are raising EB-5 funds for their 115-unit, 320,000 square-foot luxury condo development in Soho, according to a press release from the leading Chinese EB-5 placement agency, Wailian Overseas Consulting Group. The developers already secured a $320 million construction loan from Bank of China and a $135 million equity investment from Cindat, the U.S. subsidiary Chinese investment firm Cinda Asset Management, as Crain’s reported in January.

It wasn’t immediately clear how much money the developers are raising through the EB-5 program, which offers foreigners U.S. visa in return for investments. Bizzi & Partners declined to comment, while Halpern and Aronov did not respond to requests for comment.

EB-5 investors typically provide mezzanine financing. If Bizzi and its partners manage to raise the funds, 100 Varick would become the first major New York development to get all three major layers of the capital stack – debt, mezzanine and equity – from Chinese sources. Presumably Bizzi, Aronov and Halpern hold equity stakes in the project, meaning it still won’t be entirely Chinese-funded.

Other projects have come close. Vornado Realty Trust secured senior and mezzanine financing for its luxury development at 220 Central Park South from Bank of China, but not equity. Meanwhile, Chinese developers in New York tend to mix in domestic financing. For example Xinyuan Real Estate secured a $165 million construction loan from U.S.-based Fortress Investment Group for its Oosten condo development at 429 Kent Avenue in Williamsburg.

As The Real Deal recently reported, domestic lenders are increasingly shying away from financing luxury developments amid slowing condo sales and global capital markets turbulence.

“Everyone’s a little worried,” Michael Stoler, a managing director at investment firm Madison Realty Capital, told TRD in February. “With anything at $2,500 (per square foot) or more, lenders are very cautious.”

Plans for Karim Rashid's Futuristic Soho Building Have Been Filed

Last summer, provocative designer Karim Rashid held a contest on his Facebook page, letting fans vote on the design of his forthcoming NYC building at 30 Thompson Street. Now, nearly a year after the contest was opened, 6sqft reports that plans for the building have been filed with the city's Department of Buildings.

Here's what we know about it so far: The building will rise about 113 feet, and will have eight apartments over as many floors, in addition to a lobby and off-street parking. According to YIMBY, the apartments themselves (each of which will occupy a full floor) could average as large as 1,700 square feet.

As for the look of the building itself, 6sqft reports that this trippy design was the fan favorite, winning the contest that Rashid had opened up on his Facebook page. True to form for the designer, it's slightly futuristic, with a white exterior and geometric windows overlooking the street.

Ceiling heights are movin’ on up in NYC

Design styles fall in and out of fashion. And just as skirt hems tend to rise, so do ceiling heights.

“Today, 11-foot ceilings are the new eight-foot ceilings,” said Izak Senbahar, the president of the Alexico Group, a developer behind the TriBeCa condo tower 56 Leonard.

One of the luxuries of building a new development is being able to incorporate features that cannot be made by simple renovations in existing buildings. Taking this into account, developers are starting to construct their tony new developments to include ceilings that are higher than the current norm — some from a whopping 11 feet to a sky-high 19 feet.

While creating these expansive spaces is far more costly–  both in construction costs and also in lessening the number of floors — it also distinguishes the building from the competition.

The New York Times reports Arthur Zeckendorf, a principal of Zeckendorf Development, estimated that placing 11-foot ceilings in the 33 units at 520 Park Avenue was adding an extra 10 percent to his building costs, and adding 10 percent more time to the construction schedule for the 54-story structure.

But there is a pay-off. buyers will often opt to pay more for spaces with higher ceiling heights because they offer more comprehensive views and better display areas for art collections, not to mention eliminating any feeling of claustrophobia.

Ashwin Y. Verma, a founder of Siras Development — which is building Soori High Line where 80 percent of the 31 condo units will have 13-to-18-foot ceilings — says new construction will incorporate higher ceiling heights from now on.

“As a developer, the New York market is one of the few places where you can change the story on architecture like this and still get rewarded,” he explains.

Going to New Heights to Please Buyers

Until recently, if you were looking to buy a condominium with high ceilings, your choice was limited to prewar apartments, lofts or penthouse units. Now several developers are offering new condo projects that have soaring ceilings in more than half the building, giving buyers the option of taking a unit on a lower floor with ceilings 11 feet or higher.

“Today, 11-foot ceilings are the new eight-foot ceilings,” said Izak Senbahar, the president of the Alexico Group, a developer behind the TriBeCa condo tower 56 Leonard.

Unlike a kitchen that you can renovate to your liking, a ceiling can’t be pushed higher once the building is constructed, he said. The 60-story condominium at 56 Leonard incorporates ceiling heights of 11 to 19 feet in each of its 145 units.

“You can’t fake the sense of space, air and light without high ceilings,” Mr. Senbahar said.

Higher ceilings generally translate into higher construction costs, but some developers feel the money is well spent, since high ceilings can help create grander spaces. The extra height can set a development apart from the pack and be a helpful marketing tool as the city’s high-end real estate market begins to soften.

On a national level, most buyers of a standard home prefer nine-foot ceilings on the first floor, according to a 2015 survey conducted by theNational Association of Home Builders. In New York City, while prewar buildings tended toward nine-foot ceilings, most postwar buildings were built with eight-foot ceilings because it was more affordable to do so, according to Richard Lambeck, clinical associate professor and chairman of the construction management graduate program at the New York University School of Professional Studies Schack Institute of Real Estate. Apartments were compact, which also coincided with the availability of portable air-conditioning units, he said.

“With high ceilings, developers can lose an entire floor and, at the same time, add another 15 percent to their construction costs,” Mr. Lambeck said.

The need to use multiple sheetrock panels for the walls, add more bolts, and order customized doors and windows all add to the cost of the final product. Increasing the ceiling height from eight to nine feet adds an extra $4,000 to the cost of an average home, according to the home builders’ survey.

Arthur W. Zeckendorf, a principal of Zeckendorf Development, estimated that placing 11-foot ceilings in the 33 units at 520 Park Avenue was adding an extra 10 percent to his building costs, and adding 10 percent more time to the construction schedule for the 54-story structure.

Nicholas Werner, a founder of Largo Investments, one of the developers of the Fitzroy in Chelsea, where all the rooms will have 11-foot ceilings, said, “There’s no need to build a room that’s an echo chamber, but we wanted to build a home that seemed gracious and proportionate.”

Technological advancement in building materials has also made it easier for developers to expand in volume, Mr. Werner said. For example, residences at the Fitzroy will have hydronic radiant floor heating, and not just in the bathroom, where it is customarily found, to better heat the entire home, since warm air rises. Larger windows that were selected in proportion to the higher ceilings add more natural light, which cuts electricity costs, he said.

Vickey Barron, an associate broker at Douglas Elliman, said she started to notice clients’ asking about ceiling heights about five years ago. “I now have clients who will give up having a pool or other amenities in a building, but will not budge on ceiling height,” she said. “Buying a home is an emotional thing, and that ‘wow’ factor a high ceiling provides is something you can’t replace.”

Lori Goldstein, a fashion stylist and creator of the LOGO clothing line, is one such buyer. After living in a Chelsea loft for almost 15 years, she is set to close on an apartment at 10 Sullivan Street, a new condo complex on the southwestern edge of SoHo that has ceiling heights of 11 feet in all 22 units in the tower. In addition, four townhouses in the complex have 11.7-foot ceilings.

“I can’t stand being claustrophobic,” Ms. Goldstein said. “There’s something about a room that’s taller than it is wider.”

To show potential buyers how one feels in an expansive room, some developers have taken the extra step of finding a showroom large enough to build an exact replica of a room with such height — no small task in itself.

Joseph A. McMillan Jr., the chief executive of DDG, one of the developers behind a new condo building at 180 East 88th Street, said he looked at 30 to 40 commercial spaces before finding one on Third Avenue and East 64th Street where he could build a room with 14-foot ceilings.

“It’s impossible to explain” the impact of ceiling height, he said. “You have to experience it.”

It took the developers behind 20 East End Avenue, where units will have 11-foot ceilings, about a year to find a commercial space for their showroom, according to Nicole Siciliano-Trazzera, the sales director at the Corcoran Sunshine Marketing Group, who is marketing the new building. “It’s been the best sales tool,” she said. “The reaction is utter amazement.”

Homes with large rooms and high ceilings are often sought by buyers with art collections. Every livable room at 180 East 88th Street will come with art rails that hang a few feet below the ceiling. Not only are the rails convenient for hanging art, but they also help bring one’s sight line just a bit lower, making you feel more grounded in a room that is extra tall, Mr. McMillan said.

And sometimes it’s all about the view. When designing the Gibraltar, a new six-story condo building going up at 160 West Street in Greenpoint,Brooklyn, the architect Joseph Eisner said he wanted future residents to enjoy the views of Manhattan and the East River from the living room, which will have 11.3-foot ceilings.

“I didn’t consider lower ceiling heights, because I wanted the cleanest, freest feel,” so common areas feel larger than they are, Mr. Eisner said.

How to incorporate a sense of space in home design has always been part of the discussion for architecture students, said James Garrison, an architect and adjunct associate professor at the Pratt Institute’s School of Architecture. “Sure, you can have bragging rights when you have high ceilings, but people can really feel space,” he said. “And the way you design a room with height can bring a hierarchy to how certain rooms are utilized.”

Ashwin Y. Verma, a founder of Siras Development, which is building theSoori High Line on West 29th Street, where about 80 percent of the 31 condos will have 13- to 18-foot ceilings, says new condo construction will incorporate higher ceilings from here on.

“I think the market is moving toward” measuring rooms in cubic feet, he said. “As a developer, the New York market is one of the few places where you can change the story on architecture like this and still get rewarded.”

Correction: March 25, 2016
An earlier version of this article included a picture caption that misstated the location of a showroom. It is for 56 Leonard, not 180 East 88th Street.

8 The megaproject, developed by Eliot Spitzer, will bring nearly 900 apartments to Brooklyn

Last year, erstwhile New York governor Eliot Spitzer revealed plans to bring three blocky towers to the South Williamsburg waterfront, each of which will rise 24 stories and will hold, in total, around 850 apartments (20 percent of which will be affordable).

While some exterior renderings had been revealed (and deemed "offensive" by Brooklynites and De Blasio advisers alike), a new batch of images discovered by 6sqft shows some new looks at the building. The new images show the public park and waterfront esplanade that will sit between two of the buildings, along with a close-up view of a tower and one of its rooftop pools.

The buildings are designed by ODA New York, and true to the firm's reputation, the towers have a boxy, Jenga-like feel, with plenty of outdoor space built into the design. Per 6sqft, excavation work on the site has already begun, paving the way for this development to mold the future of the neighborhood (along the Domino Sugar Factory development, a SHoP undertaking developed by Two Trees).

432 Park Avenue's First Closed Sale Appears As $60K Rental

The ink has barely dried on the deed for the first recorded sale at 432 Park Avenue, and already that apartment—a three-bedroom unit that sold for $18 million—is back on the market. Well, the rental market, anyway: It popped up on StreetEasy recently, asking $60,000 per month. (That's $720,000 a year for those playing along at home—which hardly puts a dent in the sale price, but hey.) The buyer of the apartment was a generically-named LLC—432 Parkview—so it's no big surprise that the rental turnaround happened this quickly. Per the listing, the apartment measures 4,003 square feet, and it has an eat-in kitchen, two master bathrooms, an entrance gallery, and a private elevator. Also notable: There appear to be actualphotos of the apartment, not just the same renderings we've seen before, offering an unadorned look inside the building.

· Listing: 432 Park Avenue #35B [StreetEasy]

New Looks At the $60M Crystal-Adorned Baccarat Penthouse

Since the condos atop the super ritzy Baccarat Hotel on West 53rd Street hit the market in 2013, real looks inside of them have been kept pretty exclusive. But it appears the building is turning a new leaf, and letting just about anyone in on the condos' tricked-out crystal splendor. In an attempt to put out a contract for its $60 million crowning penthouse, which has been on the market since August, the folks marketing the apartment have sent Curbed a look inside the newly-staged digs.

The 7,400 square foot penthouse's more notable features include, but are not limited to, a glass and marble staircase, a master suite that's larger than most peoples' apartments at 1,150 square feet, a 600 square foot loggia, a master bathroom with honed and radiant-heated marble slab floors, and access to all of the amenities the Baccarat Hotel has to offer, like the Spa de la Merby the eponymous skin care brand, a marble-clad pool, and multilingual concierge services. So, is all of this worth $60 million?