NEW YORK CITY-“What’s really happening” in the market, asked the title of a panel discussion at the Real Estate Board of New York’s fall members’ luncheon. The consensus answer from the panelists: it’s now possible to get deals done that were unlikely to happen amid the Wall Street meltdown, albeit under straitened circumstances that are likely to prevail for awhile.
Recalling that the capital markets shut down amid the collapse of Lehman Brothers but are now reviving, RCG Longview president Christopher LaBianca commented, “That was a two-year period it took to get back to some semblance of normalcy. I don’t know that we’re there yet.” He noted that on most of the transactions in which RCG has participated recently, it’s neither the properties or the owners that are distressed; it’s the lenders.
That being said, Eastern Consolidated’s David Schectman offered a case study of a deal that his firm finally consummated after two years of running into dead ends. On 20 Henry St., a residential conversion in Brooklyn, Eastern sought to replace AIG’s position after the insurance giant pulled out amid its massive financial woes. Equity wasn’t forthcoming until the Canyon-Johnson Urban Funds, which also recently provided a $22.6-million loan to complete the Isabella condominium project elsewhere in Brooklyn, stepped up with a $15-million loan that closed this past Friday.
“The exciting thing is that there’s now a construction lender behind the project,” said Schectman, a senior director with Eastern.
Jonathan Durst, president of the Durst Organization, cited his company’s securitized $1.3-billion refinancing of the Bank of America Tower at 1 Bryant Park. That deal, financed in part by one of the largest CMBS issues of the past two years, got done this past July only after the Durst Organization obtained a short-term refi a year earlier from a group mainly comprised of the project’s construction lenders, he said. With the help of BofA, Durst’s partner and anchor tenant at the 2.4-million-square-foot office tower, a $650-million securitization was completed in a deal that also involved a similarly-sized issue of Liberty Bonds.
Asked by moderator Glenn Weiss, SVP and director of leasing with Vornado Realty Trust, whether the market now supported development deals, Durst demurred. “We don’t see too much promise on the commercial side,” he said. “The lower rents just don’t justify ground-up construction.” Things are a little more promising in the residential space, Durst added.
One effect of the market uncertainty is that the barrier to entry into the New York City market has been lowered by a"de minimis" amount, Schectman said. Whereas a Dallas investor told Schectman a few years ago that he felt there was no room for those outside the exclusive “club” of New York players, investors new to the area now have a somewhat easier time gaining admission, and foreign entities in particular “have gotten over the high hurdle.”
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Paul Bubny
Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.
