July 8th 2011
The Wall Street Journal
Not long after the Chelsea Carriage House went on the market in autumn 2008, the flowers in the window flower boxes began to wilt, sales shriveled and bills to contractors went unpaid. The lender eventually moved to foreclose, and the keys were handed over to a receiver.
Now, two years after the court-appointed receiver took over, the 24 condos at Chelsea Carriage House are back on the market, with an unusual twist: The same three young developer are in charge, and they are working with the same bank, most of the same contractors and even the same model apartments.
“We spent our 40 days in the desert,” said Eamon Roche, one of the three principals of the developer, the Broad Mill Development Group, at a recent party for brokers. “Now we are back on the market.”
The return of the Chelsea Carriage House, a converted former horse stable and automobile garage on West 24th Street near Seventh Avenue, shows how sometimes a bit of luck, a turn in the market, passionate enthusiasm and perhaps even a sense of fair play can save a project.
During the last year or so, many troubled projects have come back to market, but usually after defaults, debt sales, restructuring and changes in management. Some, like the glass tower at One Madison Park a few blocks away, are still entangled in complex court battles and bankruptcy filings.
The Chelsea Carriage House was built at the turn of the last century with brick and limestone details, and had been used continually as parking garage since at least 1917. In 2006, the three developers, then in their 30s, paid $8.75 million for the six-story garage.
Mr. Roche had a background in contracting and construction; his partner Joshua Sachs came out of finance and lending, and partner Eric Gray had been in development and asset management.
By Labor Day 2008, with the help of $14.6 million in loans from MidFirst Bank, they had completed about 85% of the project.
They added another two stories on the roof for two penthouses with views. They turned most of the ground floor and basement into a garage for eight cars with a hydraulic lift, in keeping with the carriage-house theme. The design scheme they chose was classic rather than modern, Mr. Gray said. They turned cast-iron pillars into a design feature and left some exposed brick walls from the garage era.
When the sales office opened, the initial response was good, and they thought they had a winner—until the Manhattan market unraveled following the Lehman Brothers bankruptcy.
By the following February, the developer had stopped paying interest on its loans, and in June 2009 MidFirst filed a foreclosure action against both the building and the three co-developers, who had signed personal guarantees.
In court papers, the developers complained that the bank was showing the property to other developers in a scheme to steal the building. Last year, a state judge issued a judgment in favor of the bank, but she noted that the developers had argued that they had “put their hearts and souls into the completion of the project” as well as significant financial resources.
A foreclosure referee was hired, but then the bank and the developers change direction and agreed to work together again, each offering the other the best deal they could get.
The bank agreed to forgo penalties, as long as the developers paid interest and met certain benchmarks. The developers raised some additional capital and worked out agreements with the 20 subcontractors and vendors who were owed money, nearly all of whom are back on the job.
“It was important to get everyone out alive, as much as possible, ” Mr. Roche said.
Doug Rutley, a New York-based senior vice president of MidFirst, a privately owned bank based in Oklahoma City, said that even during the court fight the bank and the developer continued to talk. He said “common sense” helped bring them together.
He said the bank was “excited about the quality of the project that is being delivered” as well as the limited supply of apartments in the Chelsea area. “At the end of the day, if it works out as we hope everybody will be very happy,” Mr. Rutley said.
Sales were launched in mid-June by Warburg Marketing Group, and Mr. Gray said offers have been accepted on four apartments. Prices range from $695,000 for a studio to $3.6 million for the largest penthouse. A selling point, he said, is that the building is across the street from a Whole Foods.
The team stuck with its original showrooms and marketing plan, with one exception: This time, wilt-proof plastic flowers were put on the upper floors of the building.