30.3.12
Whither Goest 25 Broad...
...45 Broad will follow.
The Full Story below brings us news that Lehman has finally cut through the red tape and it's own (strategic?) torpor to put 25 Broad on the auction block. One of the more high profile casualties of the Lehman collapse and the condo boom, 25 Broad was being developed by Kent Swig into luxury condos. Reworked with minimal effort by LCOR associates into high end rental, the property hits the block with $338M in liens on it.
What isn't mentioned in the Full Story below, is the accidental controlling interest that 25 Broad has in whatever goes on at nearby 45 Broad. Originally slated to be a 62 story Nobu branded hotel, also defaulted on by Swig, 45 Broad was auctioned in late 2011. It was repurchased by Lehman for $77M. The difficulty with transforming 45 Broad from it's current empty lot status (other than the $550/buildable SF Lehman repurchased it for), is that it is landlocked on it's block. Hemmed in on the north by the Leman Prep Academy (yes that is Leman , not Lehman) and the south by the 31 story 55 Broad Street, 45 Broad Street only has 63' of street frontage. On the back- 25 Broad, with possibly the most bizarre T shaped lot and footprint in all of NYC realestate, occupies the entire rear lotline of 45 Broad and seals it in from having any hope of a service entrance, loading dock or similar facility required of any inevitable large building development.
A future developer of 45 Broad will need to cut a deal with 25 Broad for use of one if it's old parking units to gain access to the rear of the lot by way of a common alley that runs alongside the nearby William Beaver House on South William Street. Without this access, it will be very tough to establish an A-class street presence, for whatever gets built.
At Cubed Advisory we know that not all real estate problems are about $/SF or zoning or construction methods. Sometimes it is as simple as property geometry, who your neighbors are and how much they want to charge you to be friends.
Labels: 25 Broad, 45 Broad, development, Kent Swig, LCOR, Lehman
27.3.12
[Update] Praedium Buys Low to Sell Not Quite as Low?
At Cubed Advisory, we don't always like waiting on news.
The Praedium Group must feel the same way. After noting yesterdays
news of Praedium purchasing 109 Gold Street, our prediction was a quick
move away from condo into rental. Quick indeed. Today Praedium announced exactly that.
Labels: Condo to Rental, DUMBO. Vinegar Hill, Praedium Group
26.3.12
Praedium Buys Low to Sell Not Quite as Low?
Long suffering Brooklyn development 109 Gold Street has been scooped up by Praedium. As we are told in the Full Story below, Praedium's $14.5M purchase got them 33 empty condos. But will Praedium stick with the condo plan? Massey Knakal brokered the sale and touted in their set up that the area was commanding prices of upwards of $1000/SF. With Praedium buying at $392/SF, the deal seems like easy money.
Located several blocks from the DUMBO core (this is Vinegar Hill afterall) and directly across the street from the Farragut Houses, $1000/SF seems unlikely. A slow $600/SF seems possible. With that kind of margin, the money is less easy.
At Cubed Advisory, we will be watching 109 Gold Street closely to see if Praedium wants to wait for the likely 2 year absorption time for their $208/SF margin. Our expectation is that they will pick up $45/SF as a rental and start making money now on a longer play.
Labels: Condo to Rental, DUMBO. Vinegar Hill, Farragut Houses, Massey Knakal, Praedium Group
20.3.12
Williamsburg Gains Inclusionary Housing
The Full Story below makes note of the $50M construction loan secured by LCOR to develop a large assemblage in Williamsburg at 250 North 10th Street. Being new development on empty lots, it's the kind of story that we at Cubed Advisory like to hear about. We could back out the numbers to estimated cap rates, construction cost/SF, unit cost etc., but there is another story buried in the numbers of this one.
Inclusionary housing.
Although not explicitly mentioned in the article, there is just no other way to take a 50,000+/-SF lot like 2050 North 10th, with a FAR of 2.7 and turn it into the 185,000SF development cited in the Full Story below. 185000SF is however what one gets if the site is developed to max out the inclusionary housing bonus and bring the FAR up to 3.6 (yes it doesn't work out exactly, but given rounding, mech shafts, etc. it's close enough). In the particular zone that 250 North 10th is in, developed inclusionary housing SF comes back at 125% bonus SF. For example, if one builds a 500SF inclusionary unit, one gets a 750SF floor area bonus above what the FAR would allow. This backs out to the inclusionary housing accounting for 20% of the total development.
Since inclusionary housing is mandated to rent at a less than market rate, there is clearly a trade-off here. Currently NYC caps rent for apartments in this zone at approximately $21/SF, while LCOR is looking to rent units in the mid $50s/SF- call it $55/SF. With 20% of the SF earning $21/SF and the remaining earning $55/SF, the blended price works out to $48/SF.
That's 12% less $/SF in rent (bad) over 33% more floor area (good) bringing in 16% more gross income- or roughly $1.3M annually (very good). Do we even need to mention what low income housing tax credits can do for this deal (really very very good)?
Which is the better story in the Full Story below? $50M construction loan or a $1.3M increase in revenue through smart use of zoning? Chicken and egg?
Labels: development, inclusionary housing, LCOR, multifamily, Williamsburg
15.3.12
No Land for You!
So says Gabriel Bullaro in the Full Story below as he represents the sale of a land lease for 216-222 West 30th Street. Bullaro suggests that the property would work well for a residential development or hotel.
He is half right.
Situated a couple of blocks from Madison Square Garden, in what remains of the Garment District, the neighborhood is not exactly 'move-in ready'. A luxury loft rental building on the same block is only able to eke out mid $30/sf to mid $40/sf. Rates like that work out to an approximate cap rate of 3-5% on a valuation based on estimated construction cost. This is not a bad number, but definitely one complicated by the land lease. Depending on the terms of the land lease, rent escalations could bite into the cap rate or the equity value of the building will diminish closer to the term date as refis become more difficult. Neither is appealing on an already slim margin.
Condos? Not likely. With a market soft for most product except high $/sf 'luxury' development, this location just won't cut it. Combined with NYC's ever diminishing appetite for land lease condo space- this is a non starter.
That leaves us with a hotel. Which starts to make some more sense when you look at the numbers. Bullaro's suggested annual rent of $1.2M would yield a 25 year mortgage of $17M. At 96,280SF buildable, that is an equivalent land cost of $183/SF buildable. Even factoring in rent for the expected full 50 year term, the equivalent land cost is $500/SF buildable- assuming a balance between escalations and inflation. It is cheap land and best and has an average price tag at worst. Either way, if you are basing your required return on the income rather than the equity or sell through value- it is a good deal. With current NYC hotel occupancies rates and ADR's, a gross income of $200/sf would not be unreasonable.
Hotel guests won't mind the possible land lease mandated check out time of 2062 either.
Labels: development, Gabriel Bullaro, Garment District, land lease
13.3.12
Sweet News On the Waterfront
Big news from Brooklyn... maybe. The Community Preservation Corporation and it's partner, the Katan Group, may or may not be looking to sell the Domino Sugar Factory.
Per the Full Story below, all or part of it is being shopped around.
How much of it? For how much? To Whom?
Originally purchased in 2004 for just under $56M, CPC and Katan spent several years and an unknown sum of money pushing the M3-1 zoned lots of 774600SF through a variety of levels of city and state government. As of May last year, they succeeded in having the entire parcel rezoned as R8 with a small lot on the east side of Kent Avenue made into an R6. The total buildable SF now stands at over 4.6M.
To put those numbers in
some kind of context, the ground area is equal to 3 full size midtown
blocks and the buildable SF is enough for 1.75 Empire State Buildings.
The CPC Katan partnership planned to fill this volume with 2200 housing
units and several hundred thousand SF of commercial and community
facility space.
So
what is it worth? How much can it make? At Cubed Advisory, we help
many clients figure out exactly that. In this case though, the analysis
goes much deeper than blog post math. One needs to balance the
potential earnings of the site against the cost of construction, which
in this case includes significant infrastructure and an enormous amount of demolition. Hazardous material
remediation is a factor as the existing structures are full of
asbestos. Lower returns from 220 low income housing units cemented into the rezoning deal can be balanced by possible tax incentives.
Possible city partnerships for waterfront development? Correct balance
of rental/condo mix? The number of variables grows very quickly.
As
potentially the first significant Brooklyn development after the condo
crash and coming in on the run up of a hot rental market- expect this
project to dictate the pace and price point of development in Brooklyn.
Provided of course that deep enough pockets can be matched to the
ambitious amount of SF to build. Labels: Community Preservation Corp, CPC, development, Domino Sugar, Katan, Williamsburg
9.3.12
Has Anyone Checked the Comps?
At Cubed Advisory Services, we are always in favor of thinking big and thinking out of the box. It is the fresh ideas that make for interesting development in NYC and brings change to the urban fabric. Even so, we are having a hard time with the numbers presented in the Full Story below.
JDS Development and Property Markets Group are teaming up to redevelop an old Verizon exchange building in Chelsea into luxury condos. The building is an existing 23 floors and will be fully gut renovated with heated floors, coffered ceiling, and french oak floors. It is to be marketed at $3000/SF to $10000/SF.
There had better be some unicorns and fairydust in the renovation schedule- the $/SF they are looking for are in the territory of 15 CPW.
The $88M oil baron's daughters crash pad came in at $13k/SF... a more humble 35th floor unit is priced at $10k/SF.
Who underwrote this project? Would someone please get them a calendar that goes past 2007.
Labels: Chelsea, comps, JDS Development, Property Markets Group, redevelopment
5.3.12
How Much for the Air?
Air rights are a big thing in NYC. Allowing a developer to build bigger (and typically higher) than permitted as-of-right, air rights purchases from adjacent buildings are the next best thing to buying empty land. Since most air rights (the exceptions and convolutions are a post of their own) are transferable only to adjacent buildings, the market for such sales are limited. If your neighbors don't want to buy any excess SF that your property may have, then there is zero market for those SF and they have zero value. It is this kind of math that has kept air rights valued at 50-70% of the equivalent land value.
As we can read in the Full Story below, this is different in Chelsea.
When NYC created the special West Chelsea Zoning District in 2005, the intent was to use the Highline as a point of focus. It was written into the zoning code that unused development rights adjacent to the Highline could be transferred to just about anywhere else in the special district. This would encourage development and preserve the light, air and focal element that the Highline has become.
What it also does, is create a market for air rights that is no longer dependent on whether or not your neighbor wants to buy. By making the air rights more fungible, it also makes them more valuable.
Which is why Sherwood equities can offer their air rights for $500/SF- basically the full cost of land in NYC. In doing so, they can expect to pocket $9.6M or $2.3M more than they paid for the unfinished 4 story shell currently on the site.
All in all, a very smart move by Sherwood that makes for an unusual NYC real estate play- making great deal of money by NOT building something.
Labels: air rights, Chelsea, highline, Sherwood Equities
2.3.12
Multifamily Unsticks the Stuck
683 Fourth Avenue in Brooklyn has been an empty lot and a typically stalled project since 2007. As land purchased by Issac Katan in 2005 with plans to build 16 units of condo and then hitting financial problems by 2006, the project followed a common trajectory of many condo jobs of the time. But, as the Full Story below tells us, good news is coming in the form of 'Greenwood on Fourth' developers.
Greenwood intends to take the existing plans, and build out the structure (currently a 421a approved basement) as a 16 unit multifamily.
Here at Cubed Advisory, we are always in favor of seeing stalled condos restarted and turned into productive and currently lucrative multifamily projects. With currently solid rents across the city, low vacancy and a general shortage of units on a per capita basis, multifamily is a no brainer. Our back of the napkin analysis estimates that the land, development and construction cost are valued around $8M. This number could be lower with savings realized for the extant basement and complete predevelopment work. Given the neighborhood comps, it seems unlikely that Greenwood will be able to realize their $45/SF rental target, with mid $30s being a more likely number for well done new development in the immediate area. This will provide a cap rate of almost 5% to just over 6%. Certainly beating the likely debt load and setting up the new development for long term success.
Multifamily construction > condo!
Labels: development, Greenwood on Fourth, Katan, lots, multifamily, Park Slope