January 14th 2011
The Wall Street Journal
Revived residential projects in the Financial District include 20 Pine St., top, where vault doors lead to the pool.
Busted condominium developments are coming back to life in Manhattan’s Financial District, which saw its rebirth as a residential area stymied by the downturn.
The recession hit just as about two dozen luxury developments were hitting the market or under way. Several boasted of high-end amenities like swimming pools or golf simulators, or sponsored marketing parties that featured entertainers like singer John Legend.
The recreation room at 111 Fulton St.
Many projects have sat half-empty or unfinished for long stretches. In recent weeks, a number of lenders and developers have taken steps to get them rolling again.
But as the neighborhood known as “FiDi” emerges from the downturn, it’s showing less swagger than what developers once envisioned.
The new owners of William Beaver House, for instance, are slashing condo prices. The creditors of the Setai Wall Street are selling their defaulted loan, a move expected to help closings resume there. The lenders to 25 Broad Street are foreclosing on the property, paving the way for converting it to rentals.
“People in the Financial District got a little over-ambitious, both in terms of prices and concepts,” says Frederick Peters, president of Warburg Realty. He said some developers became so obsessed with luxury amenities, they lost site of such basics as floor plans. “You can’t sell amenities and not the unit,” he says.
The Financial District’s residential community has been growing since the mid-1990s when the city began offering tax incentives to developers who converted obsolete office property into apartment buildings. The neighborhood’s population has doubled since 2001 to 55,000, according to a 2010 survey that the Alliance for Downtown New York did of Manhattan south of Chambers Street.
Detractors complain FiDi still lacks services like large grocery stores, and that condos converted from office buildings often have small kitchens, obstructed views and unorthodox layouts. Fans point to new schools, the expansion of the Fulton Street subway station and a growing variety of restaurants.
FiDi cobblestone street
“It’s very popular with young professionals or investors who have no trouble finding people to rent their apartments,” says Ariel Cohen, a Prudential Douglas Elliman broker who is active in the Financial District
The area’s average household income was $188,000 in 2009, the survey found (though that slipped from $242,000 in 2007). Luxury retailers like Hermès and boutique hotels like Hyatt’s Andaz have rushed in.
The city’s tax incentives have expired but developers have continued to be lured by the high income of workers in the area as well as its stately architecture and cobblestone streets. The neighborhood added 6,000 residential units since 2007, the Downtown Alliance said. The new supply became a glut, leaving a number of ambitious projects in limbo or dead.
In one of the most ambitious, developer Kent Swig teamed up with Robert De Niro with plans for a 62-story condo and hotel, plus a Nobu restaurant and 13,000 square feet of retail space. The developer defaulted, and the site, at 45 Broad St., is currently an empty lot. The estate of Lehman Brothers Holdings is in the process of foreclosing on the property, say people familiar with the matter.
Other troubled developments, however, are faring better. Lehman is foreclosing on another Swig building at 25 Broad St., a 1902 office building that was converted to rentals and then, by Mr. Swig to condos.
Lehman is expected to complete the foreclosure process as early as the spring and hopes to rent out units this year. New construction on the building facade, heating and air-condition system have restarted, say people familiar with the project.
Mr. Swig declined to comment on his buildings, saying, “FiDi is a prime destination for both New Yorkers and world visitors alike.”
CIM Group, a Los Angeles-based real-estate investor, last month bought the debt and then took control of 209 unsold condo units at William Beaver House. Public documents show that the new owners have cut asking prices—some by more than 20%—while aiming to rent most of the unsold apartments.
At the Setai Wall Street, Anglo Irish Bank Corp. is looking for a buyer for a $147 million construction loan that’s in default. While sales of about 40% of the building’s units have closed, the New York attorney general halted additional closings until it gets more information about the project’s financing. Brokers hope that the imminent loan’s sale will enable closings to resume.
Two buildings developed by Africa Israel USA are also in better shape after a tough stretch. At 20 Pine St., the former J.P. Morgan building, more than 90% of the 406 condos are either closed or in contract, says Lori Ordover, a consultant to the developer.
A majority of those sales came after the developer took control of the project from its partner Shaya Boymelgreen and cut prices substantially: units sold for an average of $1,100 to $1,200 a square foot during the boom, while some have gone for $700 to $800 a square foot more recently. Fourteen of the buyers haven’t been able to close. “We’re trying to resolve legal issues so they are available for resale,” she says.
Africa Israel turned away numerous hedge-fund offers for bulk sales at $500 a square foot during the worst of the market, Ms. Ordover said.
Africa Israel’s other project, the District on Fulton Street, recently sold the last of its 163 condo units, says Ms. Ordover.
In another sign of the times, Africa Israel has brought in Warburg as the agent of 20 Pine to replace Michael Shvo, a residential broker closely associated with the condo boom and celebrity-collaborations.
Mr. Shvo said the relationship with the 20 Pine developers ended on a previously agreed-upon date, and that he sold condos there at record prices.