[Update] Sweet News On the Waterfront

In the Full Story below we find the conclusion to a story we posted on back in March.  Two Trees has purchased the Domino Sugar site for $185M.  The Katan Group seems to be unwilling to let it go, but short of a specific term of contract, it is looking like a done deal.
That is a shockingly cheap price at only $40/SF buildable.  Even so, it is still a likely break-even for the sellers (CPC and Katan) who owed their lenders in excess of the $130M or recorded debt.  The low $/SF buildable price is a bit of a discount that takes into account the condition of the site.  As we mentioned in our blog post of March, there is enough work to do to get the site 'shovel ready' to last at least a year.  A year and a half would not be surprising at all. Because of this, the project carries a large cash burn before it can begin to make it's money back.  It will be an interesting project to watch going forward for the same reasons we brought up previously, of funding, tax breaks, waterfront development, etc.
At Cubed Advisory, we are expecting the construction bill to top $1B and likely push $1.5B by the time it is done.  Our Cubed Advisory 'back-of-the-napkin-estimate' is suggesting that residential is going to occupy around 2.8MSF with only 1.8M - 2MSF of that producing rents that will sustain the development.  Expect as much retail as possible to be packed into the site to carry some of the financial load.  Given the dearth of proper grocery facilities to serve the ever burgeoning Williamsburg neighborhood, a Whole Foods or similar brand would surely flourish and provide a solid rental income.

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The Tail That Wags the Dog
Sometimes it's the shape of a lot, more than anything else that can determine the use or the usability of a piece of NYC real estate. The Full Story below brings us just such an example. 246 Fifth Avenue is hitting the auction block in a sale managed by NGKF and Auction.com. A slightly neglected building with a defaulted loan of $14.5M, it now owes around $18.5M with interest and fees. With 32kSF extant and another 24kSF buildable as of right, the full value of the outstanding note works out to a reasonable $320/SF buildable. NGKF states that the property and it's potentially reasonable price could be a "opportunity for residential redevelopment, an office building or boutique hotel". What isn't mentioned is the properties 'L' shape which relegates just over 10kSF of the existing floor area to a 25' wide "tail" that is interior to the block and tightly hemmed in by the adjacent buildings. Residences and hotels both like windows that open up to more than the brick wall of the next building. Offices that aspire to being more than simple tax payers do as well.
In many cases, a problem can be the root of opportunity. An oddly shaped lot such as 246 Fifth Avenue, would be the perfect seed lot for the start of an assemblage. Slowly purchasing adjacent Fifth Avenue lots that back on to 246s "tail" would eventually lead to a very nice sized corner lot. Unfortunately, sitting in the North Madison Historic District ensures that nothing could ever be done with such an assemblage and therefore this is not one of those opportunities. A landmarked district means no transformative changes to the property, no assemblage redevelopments and limited use of unbuilt FAR. A lack of useful windows on the interior tail severely limits any residential or hotel options and the narrow dimensions of the lot ensures only lower rent offices will take space.
The only thing this property is truly useful for would be transferable development rights- TDRs.
The limitations of the historic district prevent any utility from being gained by a typical transfer to an adjacent lot or to a lot directly across the street. This frees up the FAR to become TDRs and move a bit further afield. Such a move would require the approval of the local CB, the CPC and a ULURP process but it would be easier than trying to squeeze residential units of any value out of the tail of 246 Fifth Ave. A more adventurous play would remove the useless tail completely and roll that SF into TDRs as well.
At Cubed Advisory, we not only help purchasers plot out the potential of new developments, but we also help brokers properly position properties they have for sale. As 246 Fifth Avenue goes to auction, would you rather bid on $18.5M of debt on 22kSF of useful building and have the tail wag the dog to a price of over $800/SF of useful buildable SF? Or would you rather bid on the same debt for the same amount of useful building and a minimum of 24kSF of TDRs possibly up to 34kSF?
We know which sounds better to us.

Full Story

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SL Green- Rezoning Guinea Pig?
At Cubed Advisory, we have been chewing on the Full Story below for a little over a week now.  It outlines how SL Green has tapped Hines to help it with a ground up development.  Having purchased the last of four lots that comprise the block on the NE corner of Madison and 42nd Street in December, SL Green is talking up its plans.  Those plans include a 'trophy' building of 1.2M SF with a transit tie in.  The transit link makes perfect sense being across the street from Grand Central, but will also tap a zoning incentive that boosts the FAR on the 1 acre site from 15 to 18- for a total buildable SF of just over 779kSF.  SL Green also plans on rolling over air rights it retained on the 2011 sale of 110 East 42nd Street, adding around 150kSF and raising the total to 929kSF.
You see the problem here right?
929kSF as of right does not equal 1.2MSF 'trophy' building.
Where is the extra space coming from?  Our best guess here at Cubed Advisory is that SL Green is planning to take advantage of Bloomberg's expected midtown rezoning.  No firm details have been released as of yet, but the area in question would be centered on Grand Central, comprise of around 85 blocks and is expected to provide a SF boost of around 25%.
929kSF x 1.25 = close enough to 1.2MSF for a press release.
With Bloomberg's term expiring in 18 months and the finalized proposal to go before city council before then, you can count on the fact that SL Green is banking heavily on this rezoning, if they aren't actually helping to write it themselves.
Current midtown zoning has some very stringent and mathematically complex rules that govern the shape of towers built in the area.  SL Green's recently acquired midget block would limit a tower to floor plates of 22-24kSF.  With current trends looking for floorplates starting at 25kSF, we at Cubed Advisory are expecting to see a rewrite of the zoning bulk rules that will affect the setback requirements along major avenues.  If the intent of Bloomberg's midtown rezoning is for NYC to create globally competitive building stock through SF incentives, it is also going to have to address the usability of that space.
SL Green looks poised to be the first guinea pig of this upcoming rezoning- we will be watching closely.

Full Story
(summary link for those without a WSJ subscription)

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Where to put a Convention Center?
There has been no shortage of news in the last couple of days regarding Governor Cuomo's failed bid to locate a casino and convention center at Aqueduct.  The Full Story below covers some of the details in case you missed it.
The selection of Aqueduct seemed odd from the start.  A facility ostensibly planned for a non NYC user base, it clearly suffered on three basic rules of real estate- location, location and location.  Although the coming days are likely to bring many further stories in the press about just how this location came to be (it's the other rule of real estate- money), the bigger question is where will it now be located.
Bob Knakal has suggested Governors Island (3rd & 4th paragraph).  A pie in the sky idea that would clearly redevelop an underutilized section of NYC, it unfortunately suffers from the need for 'a bridge or year round ferry service' and some heavy lifting of deed restrictions.  Even Bloomberg's recent announcement of a $260M investment in Governor's Island wouldn't scratch the surface of required transportation infrastructure to start locating a serious hotel/convention center on the island.
Today brings news of up to seven casinos scattered through the state as part of the state constitutional amendment required that would permit Vegas style gambling and create a programmatic pairing for the NYC located convention center.  Clearly, sprinkling seven casinos in locations as diverse as the Catskills, Belmont Racetrack, Manhattan and the vaguely define 'Western New York' are blatant carrots being dangled infront of voters in the form of regional investment to ease the debate around cost and location of a convention center.  Blatant and cynical actually.  Studies have shown that construction of a casino alone does little to spur local development without well considered planning and integration of the casino footprint and function with the surrounding neighborhood (pages 153 onwards).
At Cubed Advisory, we have said it before and we will say it again....
A casino/convention center/ hotel should be located at Coney Island- period.  The proximate subway with an express train to Times Square for the tourists obviate the necessity of bridges across the harbor or dedicated ferry service.  This alone saves hundreds of millions in transportation rethinks.  The zoning that has already been put in place favoring large scale development.  This means that consideration has already been given to the form of the area and how it can support convention/casino/hotel complexes.  Years of further study and the associated cost wouldn't be required.  Even the regional neighborhood unscientifically supports it.  The beach, the amusements and the aquarium all create destination points in the area that are outside the possible main development, creating the foot traffic that would spur further smaller scale development between urban attractors.
With fundamentals like this in place, why is it even a discussion? Oh, right.
Joe Sitt... the Governor's palm is waiting to be greased.

Full Story

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