Architect John Portman dies at 93

He believed being an architect also meant being a real estate developer

December 30, 2017 05:54PM

Architect John Portman among the buildings of his signature project, Peachtree Center
in Atlanta. (Photo © Michael Portman, courtesy 2011 press kit)

Known for his towering atrium designs with transparent glass elevators, notably in hotels, John Portman viewed development as an integral part of being an architect. He died, at the age of 93, on Friday, according to the New York Times.

Portman founded his firm, John Portman & Associates, in 1953 after getting architecture degree from the Georgia Institute of Technology. Originally from Atlanta, he was born in 1924 and believed in managing the financing of his projects through acquisition and securing loans.

His breakout project was the Peachtree Center in his hometown – a massive project that covered 14 blocks and consisted of retail, hotel and office towers. His approach to “urban renewal,” a much touted-goal of many projects at the time, raised his personal star power and created a style that, though both revered and criticized, changed hotel design.

“You want to hopefully spark their enthusiasm. Like riding in a glass elevator: Everyone talks on a glass elevator,” he said in 2011. “Architecture should be a symphony.”

His other notable projects include The Marriott Marquis in Times Square, the Westin Bonaventure in Los Angeles and Hyatt Regency hotels in Atlanta and San Francisco to name a few. His designs live on across the U.S. and throughout Asia from Shanghai to Mumbai.

Portman never retired and most recently spoke at The Real Deal’s Shanghai event last month.

[NYT] — Erin Hudson

Trump Soho no’ mo’: The Trump name is off the building, company says

The exit deal still allows the company to get a revenue cut, however

November 22, 2017 03:45PM

Trump SoHo (Credit: Getty Images)

It was one of the Trump Organization’s most tortured projects and also one of its most notable, but now the family firm is checking out of Trump Soho for good.

According to the New York Times, the president’s namesake real estate company has signed a deal with Trump Soho’s owner, CIM Group, to drop its licensing agreement and remove its name from the troubled 46-story lower Manhattan hotel-condominium tower.

The Trump Organization, which manages the building, can leave by the end of next month. Although framed as the Trump Organization walking away, CIM is actually paying the company to leave with years left on its contract. Under the exit terms, Trump still gets a cut of the hotel’s revenue. (However, according to the Times, the contract also requires the Trump Organization to pay CIM if the property fails to hit certain performance measures.)

A buyout allows CIM to rebrand the building, buy additional condo units and expand the hotel before selling the property, the Times reported.

The building has struggled to thrive since the time it was in pre-development more than a decade ago, wracked by community opposition and lawsuits, including a squashed criminal probe into what some investigators thought constituted sales fraud by members of the Trump family.

CIM took control of the 391-unit Trump Soho in 2014. It was originally developed by a partnership of Bayrock Group and the Sapir Organization, with the Trump Organization providing branding and management. The Times reported earlier this year that Trump Soho’s financials were faring poorer than they had prior to the 2016 presidential election, citing sources familiar with the business.

According to the Times, Donald Jr. and Eric Trump made the decision to exit the property, along with several senior executives at the firm.

CIM, a secretive firm that is one of the biggest condo developers in the city, has partnered with Kushner Companies on a number of real estate deals in the city, including the repositioning of the Watchtower building in Brooklyn.

CIM did not immediately return a request for comment. The Trump Organization put out a press release announcing the buyout, but did not answer The Real Deal’s questions about how the deal was struck.

Brooklyn home inventory hasn’t been this low in a decade

Absorption in BK and Queens remains at “blistering” speed, according to Q3 report
By Miriam Hall | October 12, 2017 09:00AM


Clockwise from left: 17 Prospect Park West and 13-33 Jackson Avenue #7D

Demand for homes in Queens and Brooklyn continued to outpace supply throughout the third quarter of 2017, pushing residential prices to new highs.

In Brooklyn, the median sale price hit $790,000, which is $5,000 below the record price hit in the borough last quarter, according to the quarterly report from Douglas Elliman.

Brooklyn inventory reached 1,826, a 30 percent decrease on this time last year and the lowest level since the second quarter of 2008, the report found. The luxury median sale price, which represents the top 10 percent of the market, remained the same at $2.5 million, the report said.

The absorption rate in the borough hit 1.9 months, a rate Jonathan Miller, the CEO of appraisal firm Miller Samuel and author of the report, describes as “blistering.” By comparison, in the third quarter of 2016 absorption in Brooklyn was at 2.9 months. The number of sales hit 2,914, a year-over-year increase of 6 percent.

“The market is trying to find its peak, it doesn’t appear to be close to it yet,” said Miller. “We’ve seen the same old story for the last several years — it’s very tight and fast moving.” He added the borough is “on the cusp” of seeing the average sale price break the $1 million threshold. The average hit $981,623 in the quarter.

A report from the Corcoran Group that examined the same time period found that market-wide closed sales in Brooklyn were the strongest they’ve been in 9 years, up 31 percent. Contracts signed increased by 15 percent year over year, according to the brokerage.

Townhouses in the borough hit an average price of $1.2 million, according to a separate report from Brown Harris Stevens, a 16 percent increase on last year.

In Queens, the median price hit $550,000, a 10 percent increase on the same time period last year and a record high. The borough is seeing similar trends to Brooklyn, with rising demand, tepid supply and increasing prices. The borough is benefiting from buyers who have been priced out of Brooklyn, according to Miller.

Listing inventory increased by 4.5 percent from last year to hit 4,486. The absorption rate was 3.5 months, compared to 3.4 months last year. The days on market was 81, down from 92 last year and the listing discount was 2.8 percent, up from less than a percent last year. The luxury median sale price was $1.3 million, up 6 percent on last year.

“A bit part of the drive is the Brooklyn spillover…there are New Yorkers who are seeing out greater affordability,” said Miller.


EXCLUSIVE: A Conversation With The Man Who Rebuilt The World Trade Center After 9/11


September 11, 2017          bisnow staff


Sixteen years ago, Lower Manhattan changed forever. But the twisted ruins of the world’s financial hub have been reborn as a mecca for technological visionaries, creative media and young entrepreneurs. Larry Silverstein, the man who has rebuilt the World Trade Center after 9/11, sat down with Bisnow to talk about his vision for the new campus.

Click the image above to view the video.

Here’s what the $10M-$20M NYC investment sales market looked like last week

Here’s what the $10M-$20M NYC investment sales market looked like last week

Madison Realty Capital sells East Harlem rental, Veracity buys Soho walkup for $12M
By| Chava Gourarie  September 06, 2017 08:00AM

230 East 124th Street in East Harlem and 137 Thompson Street (Credit: Leslie J. Garfield)

1) In East Harlem, Madison Realty Capital sold off a rental they bought at auction, for $11.7 million. Madison bought the 20-unit property at 230 East 124th Street for $3.39 million along with an adjacent lot, in 2014. The buyer is Topaz Realty Management, a Union Square-based investment firm headed by Poonam Sachdev and Suresh Sachdev. In 2016, Topaz bought a Williamsburg rental from Madison for $22.4 million, more than double the price Madison paid.

2) Veracity Equities bought a multifamily property in Soho for $12 million. The five-story walk-up at 137 Thompson Street includes 15 residential units, three of which are rent-stabilized, and two storefronts. The seller is Russ Chinnici, whose family has owned the property since 1986.

3) In Washington Heights, a multifamily property traded hands for $11.6 million. Gideon Platt’s GP Properties sold the 42-unit building at 560-562 West 174th Street, which he bought for $6.4 million in 2014. The buyer is an entity associated with Edward Setton, who runs both Shamco Management and Shamah Properties.

4) Centers Health Care, led by Daryl Hagler and Kenny Rosenberg, expanded their nursing home empire with the purchase of the 90-bed Highbridge Woodycrest Center, a long-term healthcare facility in the Bronx, for $14 million. The 63,000-square-foot facility at 936 Woodycrest Street was run by the nonprofit Bronx-Lebanon Hospital Center. Centers owns and operates multiple centers in New York City and beyond, including a nine-story senior care facility is located at 4915 10th Avenue in Borough Park, which they recently refinanced for $78 million.

5) Greenroad Capital bought a five-story office building in Lower Manhattan for $12.5 million. The seller of the 21,520-square-foot building at 27 Cliff Street, Alpina Company, ran a print shop out of that location, and still owns Alpina Copy World on East 28th Street. David Natanov is the managing partner of Greenroad.

6) Metrovest Equities bought a two-story commercial building in Greenwich Village for $10.2 million from developer William Rainero. The 5,400-square-foot building at 309 Sixth Avenue is located between Bleecker and West 4th streets opposite the West 4th Street station.

Solving NYC’s condo riddle With bank deadlines looming and carrying costs mounting, developers scramble to pencil out condos planned in a far different (and stronger) market

By E.B. Solomont and Miriam Hall | August 01, 2017 11:00AM

UPDATED, Aug. 3, 2:35 p.m.:  T
he breakup of Linda and Harry Mackloweafter 58 years of marriage became quick tabloid fodder. With a vast real estate empire and a billion-dollar art collectionto divide, one of the more salacious details to emerge from their split was that Harry’s then-girlfriend (and now fiancée) was living at 737 Park Avenue — his condo conversion several years in the making that’s only now nearing the finish line.
Whether the love nest could have been tucked away in the building had units sold faster, however, is still up for debate.

But the project isn’t the only one that’s taking a long, maze-like path to completion.

Three years after the condo boom swept through New York, developers citywide are sitting on unsold units. And their timing seems to be far more precarious than Macklowe’s was.

Since 737 Park opened in 2013, developers have poured thousands of new Manhattan condo units onto the market. In 2017’s second quarter, condo inventory in the borough stood at around 5,900 — up 35 percent year over year, according to Halstead Property Development Marketing (HPDM). And prices for new condos are significantly down amid a slowdown in luxury sales.

For developers who already have skin in the game, the numbers are alarming, particularly since many penciled out their projects several years ago, when the market was on a (seemingly) unstoppable upswing.

To be sure, the sector is not in the dire state it was during the last recession, when buyers attempted to back out of contracts en masse and developers citywide resorted to converting full condo buildings to rentals. But lawyers, brokers and developers who talked to The Real Deal all acknowledged that there is cause for real concern.

While there are no public numbers quantifying the outstanding (and soon-to-be-due) debt on New York condo projects, it’s undoubtedly in the billions.

Nikki Field of Sotheby’s International Realty said the pressure from lenders has ramped up in the past 18 months as the market has struggled to absorb a glut of new units.

“The banks are calling in, and developers have got to deliver. They have deadlines to hit for signed contracts, they have pressure,” she said. “The longer [a project] goes, the more it costs developers. There’s a real sense of urgency to move product.”

Manhattan-based real estate attorney Terry Oved agreed. “The clock is ticking,” he said. “You have bank obligations.”

And it’s not just banks turning up the heat. The private equity funds that ramped up lending when traditional banks pulled back are also under the gun, because their funds have strict timelines that cannot be extended.

“Remember that a lot of this equity is high-octane equity — they have to give them back the money with a return,” added one developer.

That unease has prompted some developers to turn to a variety of strategies to curtail financial damage and salvage profits, including cutting prices, dangling concessions, selling blocks of unsold units and seeking inventory loans, which use sponsor apartments as collateral.

HFZ Group’s 505 West 19th Street, and Rose Associates and World Wide Group’s 252 East 57th Street

The financial conundrum, sources say, is most acute at condos that hit the market several years ago and are now 50 percent sold or more — with closings already underway and owners moving in. That’s the point at which developers start shouldering carrying costs for the unsold units in addition to paying back their lenders.

“The real impact of the slowdown in sales … is that it may require capital infusions,” said marketing consultant Nancy Packes.

While it’s difficult to know how many projects are caught in that quagmire, sources say the numbers are rising.

And the monetary burden is heavier on the high end — both because the cost of running those buildings is higher (think rooftop pools and high-end fitness centers that need staffing) and because they often take longer to sell.

“If you’re an ultrahigh-net-worth individual and own five homes, you don’t need another,” Packes said.

Behind closed doors, this new reality has led to something of a standoff between developers and their lenders — who may have competing interests.

On the one side are lenders, whose top priority is getting paid back (with interest) on time. On the other side are developers who often want to hold out for higher prices to maximize profits.

David Blatt, CEO of investment banking firm CapStack Partners, said both sides are more anxious than they were a year ago.

“What is unsettling is that we’ve been in such a long bull run relative to history,” he said. “Inevitably, the music has to stop.”

Getting to the closing table

Most of the new condos that developers are trying to unload today were conceived in a starkly different market when buyers were first jumping back into the real estate game. To meet that renewed interest, developers were scrambling to get condos out of the ground.

But some are now questioning whether that development blitz went too far.

Related: Who’s winning condo marketing’s game of musical chairs

In 2015, roughly 6,500 new condos were unleashed in Manhattan — nearly triple the 2,500 units launched the year before. As of last count this year, there were nearly 6,000 units on the market.

Developers are already seeing a slowdown in deal volume —  new-development contracts dropped 23 percent during the second quarter, according to HPDM.

“Every developer is worried,” said one sponsor who asked to remain anonymous to avoid inciting further concern in the market.

“A developer has to sell — the entire project hinges upon one thing: selling and hitting the numbers,” added the sponsor.

That, however, is easier said than done.

Broker Dolly Lenz said some buyers who signed contracts before the market turned are now trying to renegotiate.

“We’re seeing some buyers … bringing in big guns like law firms and asking [brokers] to do all types of market data analysis, and they are getting a discount,” she told a room full of residential brokers at TRD’s annual Showcase & Forum in May.

According to appraiser Jonathan Miller, some buyers who signed contracts in 2014 or 2015 are now sitting on units that are worth 20 to 25 percent less on average than the prices they agreed to pay.

“Buyers willing to pay 2014 prices are in short supply,” he said. “If the developer doesn’t come down to meet the buyer, there is no sale.”

For those developers trying to avoid prices cuts so that they can maintain comps at their buildings, a host of other concessions are in play to ensure that buyers make it to the closing table.

“They’re giving closing costs, storage, maybe some parking,” said Compass’s Toni Haber. “They’re trying to [maintain] the prices. It gives the sponsor more leverage on people paying more in the future.”

The tug-of-war over prices and concessions can be traced directly back to how much developers and their backers have spent on these projects to begin with.

Many developers bought land at the top of the market around 2015 — when prices for developable dirt in Manhattan hit a record $1,200 per square foot. Although they made those purchases — and obtained loans — under the assumption that they’d be able to sell condos for premium prices, that reality has been turned on its head.

“Many find that even after they sell out completed buildings, they’re not going to make money — or could lose money — because the construction costs were higher, debt costs have gone up, and sales prices have corrected 22 percent,” said Andrew Heiberger, the CEO of Town Residential.

Between 2013 and 2015, construction costs did indeed jump by 5 percent, and last year those expenses increased by another 4 percent, according to the New York Building Congress.

A first line of defense for many developers is to shake up their marketing teams.

That’s what Forest City New York and Greenland USA did just last month at their 278-unit Brooklyn condo 550 Vanderbilt, where sales started strong but slowed to a trickle last year. Two years after launching, the project is about 65 percent sold.

Still, the developers have refused to cut prices at the tower because they’ve counting on the building to establish a high price bar for other buildings at their Pacific Park megaproject.

“We’ve made a deliberate decision to hold at a certain point, because it’s going to set the market — not just for the building — but the neighborhood we’re invested in,” said MaryAnne Gilmartin, president and CEO of Forest City’s New York office.

That could come as welcome news to 550 Vanderbilt’s early buyers. Generally speaking, those who’ve snapped up units early can get jittery if the rest of the apartments in a building don’t move fast, fearing that the sponsor will cut prices or start renting out units, making it tougher to refinance and sell.

Buyers at 100 Barclay Street — Magnum Real Estate and CIM Group’s 157-unit condo that launched in 2015 — have been anxious to see the building sold out, brokers said. The developers were not available for comment, but so far 89 units have closed, according to public records.

“I had many of them calling saying, ‘Now what?’” said Corcoran Group’s Vickey Barron, who marketed the building when she was at Douglas Elliman and has also represented buyers there.

Barron said she told them not to worry. She also explained that the toughest time to sell a building is midconstruction.

“It’s like catching a woman with curlers in her hair,” she said. “Then the curlers come off, and it’s like, ‘She’s beautiful!’”

Mitigating risk or eating profits?

For lenders, a building that gets stuck at the half-sold mark raises major red flags.

While banks typically don’t want to get paid back too quickly — interest payments drive earnings, after all — they also don’t want developers to exercise their option to extend loans (which generally run between two and seven years) to, say, 10 years.

“Lenders are about risk mitigation,” said David Eyzenberg, who launched an eponymous Manhattan-based real estate investment bank last year. “They want a certain chunk of them sold. You don’t want to be sitting on a broken property as collateral.”

While developers can typically repay their loans once the project is half sold, most lenders collect a portion of the proceeds from each individual sale. “Certainly lenders are running the analysis of how many units need to be sold and closed to be repaid in full,” said CapStack’s Blatt.

Some lenders have become more aggressive in the last few months about pushing developers to make compromises.

“The lender can cross their arms and say, ‘Go sell it for a lower price,’” said Robert Dankner, co-founder of Prime Manhattan Residential, who has worked on a number of new development deals.

But because dropping prices ultimately cuts into sponsors’ profits there’s often pushback on that.

Generally, sources say, sponsors aim to be 40 percent sold by the time closings start.

Put another way: A developer who discounts prices by 20 percent will be able to pay back the debt, but there isn’t enough money for the developer to hit their promote — their share of profits.

Cheshire Group and Sterling American Property’s Devonshire House condo conversion and Extell Development’s One Riverside Park

As a result, some developers have reason to wait for the market to improve.

“While the developer is banking on absorption picking up, the expense of the deal is reducing the overall profitability, which is typically in the last 30 percent of sales,” said Robin Schneiderman, HPDM’s director of new business development.

Specific terms of the deal and the developer’s cost basis, of course, dictate the course of action.

To contend with slow sales at 252 East 57th Street, which launched sales in 2014, World Wide Group and Rose Associates opted to cut asking prices and began offering higher-than-average commissions to buyers’ brokers.

In addition, this year, Gary Barnett’s Extell Development shaved 10 percent off asking prices at five of the remaining eight apartments at the 68-unit Carlton House, a condop on East 61 Street. The developer did the same for unsold units last year at the 219-unit One Riverside Park, which launched in 2013.

Meanwhile, in January, developer Ziel Feldman’s HFZ Capital Group and his private equity partner, the Carlyle Group, came to an unusual agreement at 505 West 19th Street, where four sponsor units were lingering on the market.

When Feldman resisted cutting prices, Carlyle paid HFZ $44.1 million for the condos and then relisted them for sale. It’s since sold one of the units for $14.7 million, a $700,000 discount from its most recent price and about 23 percent less than its original 2014 asking price of $19 million.

Other investors are assessing their options as anxiety spreads.

At a May meeting of about 40 Israeli bondholders who have bankrolled projects like One57 and One Manhattan Square, some expressed concern about Extell’s ability to repay its debt, sources told TRD.

The bondholders were pushing to force Extell to immediately pay them back — even though the first $180 million payment isn’t due until December 2018.

The building, which has only unloaded four of its remaining 47 sponsor units so far this year, has already seen two owners fall into foreclosure. That kind of distress is never good for values in the building or the surrounding market.

Just down the block on Billionaires’ Row at 111 West 57th Street, developers Michael Stern and Kevin Maloney are battling one of their own investors, Ambase Corporation, which alleges that project is facing a $100 million shortfall.

JDS Development Group and Property Markets Group announced in March 2016 that they were delaying sales to better time the market.

The developers have denied a shortfall, blamed Ambase for holding their refinancing hostage and said they’re relaunching sales this fall.

The heavy cost of carrying a building

Developers with half-sold buildings know they must move fast.   

In addition to paying interest on the construction loan, common charges for unsold units can set a developer back $2 to $4 per square foot.

And those fees can add up.

At One Riverside Park, the monthly carrying cost for a six-bedroom penthouse currently listed for $16.5 million is $6,910 — or $82,920 a year.

At 252 East 57th Street, World Wide Group and Rose budgeted $11.8 million to cover the building’s first year of operation, according to an offering plan filed with the state attorney general’s office. That sum included an estimated $360,000 to maintain the fitness center and pool, $116,000 for security and $1.5 million to pay the building’s 26 staffers, including lobby and elevator attendants, porters, handymen and a resident manager.

Over the past 18 months, an increasing number of developers have gotten more aggressive.

In an effort to reduce his debt at Madison Square Park Tower, his 82-unit condo at 45 East 22nd Street, developer Bruce Eichner considered a $125 million inventory loan to help repay $340 million in construction financing from Goldman Sachs, according to news reports.

But he managed to jump-start sales at the building — which hit the market in 2014 and has recently been stalled at around 75 percent sold — and avoid that lifeline.

Last month, Eichner also took concession-making to the next level, announcing that he’d throw in two studio apartments and two parking spots for any buyer willing to shell out $48 million for the building’s 7,000-square-foot penthouse. (According to StreetEasy, the monthly carrying cost for the unit is an estimated $25,500 — or about $306,00 a year.)

Although Eichner avoided an inventory loan, Macklowe and others have gone down that road.

Macklowe landed a $52.8 million inventory loan in April 2016 from First Republic Bank for the commercial unit and 11 unsold condos at 737 Park. The project had closed about 88 percent of its units as of last month, and a representative for the developers said only two units are left to sell.

Aaron Appel, a managing director at JLL and co-head of the real estate investment banking practice, said inventory loans are on the rise in New York as sponsors look to lower financing costs and then “take out additional leverage at a cheaper rate, and be able to pull out some of the equity from the deal.”

Unlike during the last recession, when developers triggered their Plan B — converting condo buildings to rentals — this time around most developers have a cost basis that’s too high to do that.

Compounding matters is that even the priciest rentals and condos are vastly different, said Town’s Heiberger.

“The problem with underwriting as a rental is that the unit mix has to be different,” he said.

In addition, there’s softness in the rental market — as Extell discovered at One57. The developer attempted to rent 38 lower-floor units but shifted gears when that didn’t work. It then shopped them as a bulk condo offering for $250 million before reimagining them as “midmarket” units in April 2016, starting at $3.5 million.

Bulk offerings are, however, making their way into the market, too.

Last year, under orders from their lender, Cheshire Group and Sterling American Property sold a block of 33 rent-regulated units at their Devonshire House condo conversion in Greenwich Village to Aby Rosen’s RFR Realty for $32 million.

The developers had already converted 70 of the building’s 131 units, and they planned to wait out the market and then convert the rest. But the lender pressed the shot-clock buzzer.

“The [developers] said, ‘Look, we’re crying, but equity says to sell,’” recalled Mark Zborovsky, whose eponymous firm brokered the sale. “With equity funds, the life of the fund expires and it doesn’t matter whether the market is great or terrible, they have to complete the fund.”

It’s nice to have deep pockets

Not every developer is racing the clock.

Those with a low basis may be able to ride out the current market, especially if it means capturing higher prices during the next upswing.

Zeckendorf Development — whose 50 United Nations Plaza is not sold out after four years — is said to underwrite projects in such a way that they’re not penalized if a building takes longer to sell. A spokesperson for 50 United Nations Plaza told TRD that over 70 percent of the apartments are sold and that the building is debt-free.

In addition, while developers aren’t converting projects to rentals wholesale, some are leasing unsold units while they wait out the current market.

Unable to sell three penthouses at the Flynn, a 30-unit condo in Chelsea, developer IGI-USA listed the units as rentals this spring with asking prices ranging from $28,000 to $33,000 a month.

Meanwhile, Kushner Companies found a renter this year who was willing to pay $70,000 a month for one of the six penthouses at the top of the Puck Building.

“If you have deep pockets, you can do that,” said Compass President Leonard Steinberg.

In some cases, lenders also see the virtue of waiting.

“I don’t want to leave somebody at the end of the cliff,” said Shawn Safdie, managing director of S3 Capital, a private lending platform associated with Spruce Capital Partners that has backed small and midsized condos in Brooklyn. “We know construction can take longer than expected.”

The investors backing 160 Leroy and 111 Murray are also holding out. Both buildings have a handful of units remaining, including some penthouses.

There’s very little benefit for them to rush sales, said Elliman’s Michael Graves.

“They’re basically saying, ‘We can’t deliver for two and a half to three years. Why are we rushing sales now when we can get bigger and higher prices down the line?’” he said.

And the softness in today’s market isn’t scaring all lenders off. Some are already betting on New York’s next economic cycle.

Sources speculated that JPMorgan Chase is doing that with the $900 million construction loan it has agreed to give to Extell for the developer’s Central Park Tower project, which will have 20 units priced at $60 million or more.

Until then, nobody is “giving away the store,” said Prime Manhattan’s Dankner.

“But time on market erodes everyone’s profits, so the objective is speed,” he said. “That’s the puzzle everyone is trying to piece together.

Waldorf owner pressured to sell as China clampdown escalates

by Bloomberg news\\Waldorf Astoria

Photo: Buck Ennis


When Anbang Insurance Group Co. agreed to buy New York’s iconic Waldorf Astoria hotel for $1.95 billion in 2014, the world took notice. It was a defining moment in the global rise of China Inc., a deal that would help kick off one of the greatest acquisition sprees in history.

But now the Waldorf, along with more than $10 billion of Anbang’s other deals, could become symbols of corporate China’s rapidly shrinking global ambitions. Chinese authorities have asked the embattled insurer to sell its offshore assets and bring the proceeds back home, according to people familiar with the matter, who asked not to be identified because the details are private.

The unprecedented request marks an escalation of China’s clampdown on its biggest overseas dealmakers, which until now has focused on slowing the pace of new takeovers and prodding domestic lenders to pay more attention to their exposure. While there’s no indication that the four other active acquirers singled out by China’s banking regulator in June face similar pressure, the Anbang request underscores President Xi Jinping’s determination to rein in debt-fueled investments and restrict capital outflows before a key leadership reshuffle later this year.

For Anbang, it’s another setback in what has been a remarkable fall from grace. The company rose from obscurity to global prominence in just over a decade until its chairman, Wu Xiaohui, was detained by investigators in June, becoming the most high-profile target of an industrywide crackdown on risky investment practices.

It’s not clear yet how Anbang will respond to the government’s request on overseas asset sales, said the people, who didn’t mention the Waldorf Astoria or any other specific foreign holdings. Anbang “at present has no plans to sell its overseas assets,” the company said in a WeChat message.

Anbang’s October 2014 agreement to buy the Waldorf, which set a price record in the American hotel industry, catapulted the once-obscure insurer onto the global stage. Over the next two years, Anbang bought real estate and financial services companies in Asia, Europe and North America, including Strategic Hotels & Resorts and an office building in midtown Manhattan to house Anbang’s U.S. headquarters.

The insurer’s rise was fueled by sales of lucrative investment products that offered among the highest yields in the industry. But Anbang’s buying binge fizzled as Chinese authorities cracked down on such products this year, part of a wider campaign to rein in financial risks before the Communist Party’s twice-a-decade leadership reorganization.

“Authorities clearly do not want other insurance companies to copy Anbang’s growth model, which relies on short-term products,” said Steven Lam, a Hong Kong-based analyst with Bloomberg Intelligence. “The signal from the government is very strong on proper asset-liability management and being responsible to policyholders.”

HNA, Fosun

In June, Chinese regulators stepped up scrutiny of other serial dealmakers such as HNA Group Co., Fosun International Ltd. and Dalian Wanda Group Co., asking banks to report their exposures to the companies. At a conference on financial regulation convened by President Xi in July, policy makers pledged to rein in corporate borrowing and said that preventing systemic risk was an “eternal theme.”

Chinese acquisitions, even by firms under regulatory scrutiny, haven’t completely come to a standstill. On Friday, Shanghai-based Fosun, whose businesses range from insurance to pharmaceuticals, said it agreed to team up with a state-backed dairy producer to buy French margarine maker St Hubert for 625 million euros ($733 million). HNA, which has taken on least $73 billion of debt as it transformed from a small regional carrier into a global conglomerate, recently announced it will buy the operator of one of Brazil’s busiest airports.

Read more: Fosun’s Guo says he backs China’s clampdown on deals

Still, the pace of deals has fallen dramatically. After a record $246 billion of announced outbound takeovers in 2016, cross-border purchases plunged during the first half of this year. Announced Chinese acquisitions of overseas assets fell 37% to $99.9 billion, from $157.9 billion in the same period last year, according to data compiled by Bloomberg.

As the government’s tolerance for debt-funded deals wanes, some firms have already begun selling assets. Wanda, led by billionaire Wang Jianlin, agreed in July to sell most of its Chinese theme parks and hotels for $9.4 billion.

Potential buyers

Anbang’s U.S. assets, which in addition to the Waldorf Astoria include trophy properties such as New York’s JW Marriott Essex House and the Westin St. Francis in San Francisco, may be attractive to sovereign wealth funds because of their prestigious profile, said Lukas Hartwich, a lodging analyst at Green Street Advisors LLC. Blackstone Group LP, which sold Anbang the bulk of the insurer’s U.S. real estate and has previously bought back assets it sold near market tops, would also be an “obvious candidate” as an acquirer, Hartwich said. A Blackstone representative declined to comment.

“These are mostly really nice hotels,” Hartwich said. “The Waldorf is more of a turnaround play to return the hotel to its former glory.”

If China exerts strong pressure to sell, whoever buys is likely to negotiate a discount. “All the potential acquirers know there’s blood in the water and that’s not usually a strong bargaining position to be in as a seller,” Hartwich said.

The Waldorf Astoria may potentially be appealing to a residential developer. Anbang shut the hotel down in March to convert most of the property into luxury condominiums. Christopher Nassetta, chief executive of the hotel’s manager, Hilton Worldwide Holdings Inc., said on the company’s earnings call last week that the project is on track. He said Anbang has told Hilton it has the financial capability to complete the conversion, which is scheduled to take about three years. The market for New York luxury condos has softened as the supply of such properties mushroomed.

Hilton is unlikely to buy back the Waldorf, having spun off its real estate into Park Hotels & Resorts Inc. in January. The spinoff is focused on internal growth and New York isn’t one of its key expansion markets.

SoHo retail space hits market for over $80 million

Sellers believe strong anchor tenant could drive premium price in a ‘real test’ for retail by Daniel Geiger

The owners of a corner building and two adjacent retail condos that house the French luxury brand Louis Vuitton in SoHo have put the property on the market in a deal that could fetch more than $80 million.

The ownership group has hired a team from CBRE, led by sales executives Ned Midgley and Ed Goldman, to market the property, which includes 106 Prince St., a 5-story building on the corner of Prince and Greene streets, and the neighboring ground-floor retail condos at 102 Prince St. and 114-122 Greene St.

Together, the spaces total about 21,600 square feet, with about 11,550 square feet of retail on Prince and Greene streets, two of SoHo’s busiest shopping corridors

But the attractiveness of even prime retail space has faded among real estate investors as e-commerce has eaten into brick-and-mortar sales, boosting vacancies and sapping rents. Midgley, however, predicted that 106 Prince St. and the adjacent condo spaces would draw interest because it has a long-term anchor tenant in Louis Vuitton, which has a lease for the entirety of the retail space stretching until 2033.

“There’s a negative sentiment in the market, so this is a real test for retail,” Midgley said. “But with Louis Vuitton, a buyer is getting a great credit tenant and annual increases on the lease that we believe makes this a very attractive deal.”

The luggage brand Tumi currently occupies the retail condo at 102 Prince St., but when that lease expires in a little over two years, Louis Vuitton has an agreement in place to take that space as well.

Vuitton also rents the second floor at 106 Prince St. for a small office. The building’s third, fourth and fifth floors are market-rate rental apartments that command $6,000 a month each, Midgley said.

The current owners are a collection of three Italian families. The group previously tapped Midgley and his team, which also includes CBRE brokers Tim Sheehan and Daniel Kaplan, to sell the property about two years ago, but Midgley said the sellers realized they would face heavy taxes due to their ownership structure. The group delayed a deal in order to reorganize, creating a special purpose holding company based in Luxembourg to control the asset. The sale will be arranged by selling shares in the Luxembourg company. Because a deal will involve the trade of European securities, CBRE’s London office will assist in the sale.

New York Underwater

Editors note: We felt the following issue, although considered by some as a non event, significant enough to discuss on these pages.
While the city’s real estate industry has avoided taking a stance on climate change, some say it may have everything to lose
By Kathryn Brenzel | July 01, 2017 01:00PM


When President Donald Trump announced in June that the United States would pull out of the Paris climate accord, New York developer Jonathan Rose sensed that something more than an environmental safety net was at stake. He saw retreating dollar signs.

“Bottom line is, these are major economic opportunities,” he said, referring to technologies that promote energy efficiency, such as electric cars and solar energy. “We just ceded them to China.”

Nearly 200 nations, including the U.S., signed the Paris agreement in December 2015, pledging to dramatically reduce greenhouse gas emissions and limit global temperature increases to 2 degrees Celsius or less by 2100. In some ways, supporting the accord is a symbolic gesture — even if every participating country meets its reduction goals, the world is still on track to exceed that amount of warming by 2030. But inaction or silence on the issue accomplishes even less, and in the case of New York City’s real estate industry, rising temperatures could have grave consequences — from regular flooding to major storms like Superstorm Sandy that occur every few years.

Maya Camou, director of sustainability at the Manhattan-based development firm Time Equities, said “it was a no-brainer” for her company to formally sign a letter supporting the Paris climate accord. “Climate change is real, and you see it everywhere,” she said. “Our own properties all over the U.S., as well as internationally, will start being affected by these changes [over the next few years].”

New York real estate developers would seem inclined to support measures that would curb rising temperatures and extreme weather events — threats that could directly impact their assets. While a handful of companies are incorporating climate-conscious designs in new development projects, the industry at large hasn’t stepped up to make climate change a public priority.

“It’s very hard for people to grasp what things are going to look like in 100 years,” said Sweta Chakraborty, a risk management expert and assistant director of the Institute for Global Policy. “Whose job is it to look beyond their lifetime? Builders definitely don’t.”

Of 165 real estate firms The Real Deal surveyed on Trump’s decision to remove the U.S. from the Paris agreement, 146 declined to participate. Some later said that they didn’t have an opinion on the matter, but most declined to participate without explanation.

When asked separately, the Real Estate Board of New York’s spokesperson Jamie McShane said that the lobbying group doesn’t have an official position on the agreement.

“To the extent that many in the real estate industry are political conservatives, it isn’t all that surprising that climate change hasn’t been high on their agenda,” said Michael Mann, a professor of atmospheric science at Pennsylvania State University. “It is unfortunate and rather ironic since the real estate industry may be among the hardest hit by climate change.”

New York real estate owners are not only among the most exposed when it comes to rising sea levels and storm damage, but they are also responsible for a majority of the city’s greenhouse gas emissions.

Buildings produce 75 percent of NYC’s annual emissions, which weighed in at an annual 52 million metric tons in 2015, according to the most recent data released by the city. Without dramatic reductions in fossil fuel use, sea levels could rise as much as six feet by 2100, and major storms that were previously expected every 100 years or so could instead occur every two to three years.

Jeff Moelis, director at L+M Development Partners, who was disappointed by the president’s choice to abandon the climate accord, said it’s not as easy for real estate as it is for other industries to collectively make its position known.

“The real estate industry is so fragmented. It’s not like oil or gas, where you have one company that’s the mouthpiece for the industry,” he said. “It’s a lot of small family businesses, so there isn’t one general thought leader.”

Playing the long game

After Superstorm Sandy pummeled New York City in October 2012 — resulting in $8.6 billion of private property damage — some developers and real estate owners took steps to guard their buildings. They moved mechanical equipment from basements onto higher floors, invested in detachable flood shields and added landscaping designed to intercept rainfall. Rudin Management, for example, elevated the second floor of Dock72, a waterfront office development in Brooklyn, 40 feet above the ground. And Brookfield Properties decided to add floodgates to One New York Plaza after more than 20 million gallons of water rushed into the building’s subterranean shopping mall.

But while these measures acknowledge the need to be proactive in the face of climate change, they only address immediate threats.

Sea levels in New York City are expected to rise 30 inches by 2050 — and by that point, roughly 90 percent of the city’s 1 million buildings will still exist, according to a study released by the city last year. Most of those buildings — 98 percent — span less than 50,000 square feet, according to the report. Because those small and mid-sized properties are rarely vacant and tend to change hands often, their owners are less likely to incorporate technology like solar and wind power or passive-house standards. In addition, some owners are not financially equipped or willing to wait a decade for the benefits of energy efficiency to pay off. Their investment horizons are limited to however long they plan to own the asset, and the added upfront cost and potential loss is enough to dissuade them from trying out new technologies that could cut down on energy use and carbon emissions.

“It’s a challenge to [retrofit] existing buildings when they are fully occupied,” said Justin Palmer, CEO of the sustainable property developer Synapse Development Group.

Synapse has had luck building from the ground up, and the company constructed Manhattan’s first passive-house rental apartment building, at 542 West 153rd Street. On average, passive houses use anywhere from 70 to 90 percent less energy than standard buildings, according to the independent research organization the Passive House Institute. The structures require airtight construction and an energy-recovering ventilation system in place of traditional heating and cooling equipment.

While similar projects have sprung up in the city over the past few years — including Cornell Tech’s 26-story residential tower on Roosevelt Island, which will be the world’s tallest passive house — the standard is hardly the go-to due to high costs and limited labor. Building to passive-house standards can cost 3 to 5 percent more than a building with a traditional heating and cooling system, and there are only a handful of contractors equipped to install passive-house facades and ventilation systems, Palmer and others explained.

L+M and Jonathan Rose Companies are teaming up on a 751,000-square-foot passive- house project in Harlem dubbed Sendero Verde, which means “green path” in Spanish. The affordable housing project is expected to use 60 to 70 percent less energy than a standard building of its size.

But building sustainably requires patience. For instance, incorporating solar and wind power — which requires upfront costs of hundreds of thousands of dollars — can take seven to 10 years to pay off, said David Brause of real estate investment firm Brause Realty. His firm, which owns and manages more than 3 million square feet of property, is developing a 38-story, 266,000-square-foot rental building in Long Island City that uses both.

Brause said that not all property owners are thinking long-term, and many plan to sell before the energy savings pencil out. But family-owned companies tend to take the long view, he noted, since they typically build with future generations in mind.

“It’s my duty as a father and the owner of a business to do what I can to make the world a better place,” Brause explained. “It’s not just about making a dollar in the real estate business.”

Another family firm, the Durst Organization, which owns 13 million square feet of office and retail space and another 3 million square feet of residential rental properties in New York, has made efforts to build responsibly. The developer had planned to take its massive Hallets Point residential project off-grid, which means the buildings would operate using their own power plants.

But that plan was foiled when the 421a tax break lapsed for 15 months starting in 2016, Phil Skalaski, vice president of engineering and energy services at Durst, told TRD. Without the exemption, it wasn’t clear if all five buildings would be constructed, and the off-grid concept hinged on the entire project moving forward. Instead, Durst incorporated an alternative air-conditioning system, where cold water is circulated through a building’s pipes and tenants are able to control exactly how much energy they are using.

While the chilled water apparatus increases the initial cost of each building’s mechanical system by about 8 percent, the projection is that the energy-savings costs will more than make up for that, Skalaski said.

He said that the complexity of alternative air-conditioning and other forward-thinking technologies can be a deterrent for property owners, noting that many aren’t willing to front the extra money and are often wary that the new systems won’t work properly.

“I don’t know if that’s going to change,” Skalaski said. “A lot of developers have one way of doing things.”

Pat Sapinsley, managing director of cleantech initiatives at Urban Future Lab, NYU Tandon School of Engineering’s incubator for smart-grid energy solutions, echoed that sentiment, calling the real estate industry acutely “liability conscious.” But she noted that there are some climate-conscious players in the industry and named Rudin Management’s John Gilbert, who last year helped pioneer a cloud-based building operations system. The new technology allows the company to monitor and adjust energy use in its buildings based on occupancy and other factors.

But many developers and property owners remain wary of that and other energy-saving technology. “They don’t trust the energy-savings calculations,” Sapinsley said.

David Schwartz, principal of the multifamily developer Slate Property Group, said that while he supports the Paris climate accord, there isn’t enough “compelling data available” to convince landlords that energy-saving technology, like passive house or cogeneration, is a glitch-free way to cut costs.

“You never want to be the first guy to do it if it doesn’t work,” he said.

Inefficient efforts

Other initiatives such as Energy Star and Green Globes exist, but over the last 20 years, many developers have built to the requirements of the Leadership in Energy and Environmental Design (LEED) certification program, which the United States Green Building Council launched in the late 1990s to evaluate the environmental performance of a building.

However, architects and engineers alike have spoken out against the international certification program, claiming that it detracts from more effective initiatives. Critics argue that LEED is prohibitively expensive and hinges on a point system that doesn’t always add up to an energy-efficient building.

Geoffrey Lynch, director of architecture at the New York office of engineering giant AECOM, said that he still views LEED as a powerful tool but has seen some developers move away from the system. They either feel that they can make their buildings energy efficient without it or seek a more advanced certification program.

“When it first came out, it was new and different and it was something to show off,” he said. “It’s not exotic anymore.”

In April 2010, architect Frank Gehry caused a stir when he told Bloomberg News that developers were given LEED awards for “bogus stuff” and that the program served as more of a marketing tool than a meaningful way to promote energy efficiency.

“[LEED has] become fetishized in my profession. It’s like if you wear the American flag on your lapel, you’re an American,” he told Bloomberg at the time.

A few months later, the Brooklyn-based development firm Forest City Ratner announced it would not pursue LEED certification at its Gehry-designed rental tower at 8 Spruce Street in Manhattan.

“As much as we can, we designed the building to be sustainable. And as we look at the ongoing operations, we look to make it as sustainable as possible,” Susi Yu, an executive vice president at Forest City Ratner, told TRD last month.

Most recently, some of the building’s residents began participating in a composting program as part of a pilot run by the city. Eventually, Forest City plans to make the program available to all residents in the roughly 900-unit building to significantly cut down on trash input.

But on the whole, Yu said she feels that developers are increasingly making climate-conscious decisions as a selling point for younger tenants.

Regulatory pressure

Demand is not only coming from everyday New Yorkers. Local officials are also putting increased pressure on property owners to start retrofitting their buildings, especially in the wake of the country’s withdrawal from the Paris agreement and President Trump’s move to dismantle the Environmental Protection Agency. State and city leaders have pledged to adhere to the climate accord despite the president’s decision.

In late June, seven City Council members introduced a bill that would essentially require certain buildings to meet passive-house standards beginning in 2025. And just a few weeks earlier, Council members Jumaane Williams and Brad Lander called on Mayor Bill de Blasio to require retrofits across the city, which was met with fierce opposition from the real estate industry. Williams, who serves as chair of the Council’s committee on housing and buildings, said the city needs to target buildings under 25,000 square feet and require energy-saving upgrades to electrical systems.

Last month, John Banks, president of the Real Estate Board of New York (REBNY), told Politico that although the group shares the city’s goal to reduce emissions, a call of mandatory retrofits does not reflect “economic reality or credible methods of implementation.”

Carl Hum, REBNY senior vice president for management services and government affairs, later told TRD that “tenants will ultimately feel the impact in their monthly rent bills.”

It’s not the city’s first attempt to seek mandatory retrofits, however. In December 2009, then-mayor Michael Bloomberg tried and failed. He backed off amid objections from building owners that the plan would prove too costly. Instead, the city left it up to property owners to make changes on their own.

Sapinsley of Urban Future Lab said mandatory retrofits would be an important next step to actually get owners to take energy-saving action. “I have no patience for [the real estate industry’s] whining,” she said.

However, some developers have run into regulations that make going green a lot harder — and far more costly. The Durst Organization is jumping through various regulatory hoops at One Bryant Park, where it has its own 4.6-megawatt cogeneration plant that provides both heat and electricity to the 2.3 million-square-foot office tower. Though the developer boasts that the system is twice as efficient as a conventional plant, Durst is still required to pay Consolidated Edison some $1 million each year in standby rates, fees paid for the utility’s backup energy systems — energy that the building isn’t actually using.

Skalaski said Durst has been working with REBNY and public officials to get Con Ed to reform its rates and incentivize the use of combined heat and power units.

“There’s got to be some level of payback for that. It can’t be a loss every time, or no one will do it,” he said.

Financial shortfalls

Rose of Jonathan Rose Companies said the country’s withdrawal from the climate accord is in some ways a positive development in that it’s shifted the onus of combating climate change on local government and private businesses.

And indeed, at a meeting in late June, the United States Conference of Mayors, a nonpartisan organization comprised of more than 1,400 mayors, stated that it would not only urge the federal government to rejoin the accord, but also find ways to combat climate change in individual cities, the New York Times reported.

Republican and Democratic mayors alike committed to a slew of green initiatives, including enforcing more building codes and creating more incentives for property owners to reduce energy use.

Although environmentalists, city officials and a handful of developers push for more green-building requirements, the bottom line is something any real estate owner can understand: cost. Even when it comes to the city’s efforts to safeguard itself from another Sandy, funding for some New York City-run projects has dried up.

In June, city officials announced that a plan to protect Red Hook from the next “100-year flood” would need to be significantly scaled back. A feasibility study showed that the $100 million project to raise streets in the neighborhood would actually only protect it against a 10-year event. A larger project, the Wall Street Journal reported, would cost $300 to $500 million.

The city’s “Build It Back” program, which is overseeing the rebuilding of thousands of homes in the hardest hit areas such as Staten Island and Red Hook, is $500 million over budget.

And it doesn’t look as though the city will be able to bank on additional federal funding. The president’s proposed budget cuts $667 million from the Federal Emergency Management Agency (FEMA) and local grant programs. He also gutted all $3 billion in funding provided by the Department of Housing and Urban Development after a disaster.

Alan Blumberg, a professor at Stevens Institute of Technology who studies coastal waters and how they interact with urban areas, noted that cities are increasingly planning according to more specific scientific data, not just the broad-brush predictions provided by FEMA. Last year, at the request of the city, the agency agreed to redraw its flood maps to better reflect both current and future flood risks.

For New York, it’s a delicate balance between allowing people to enjoy the waterfront, while they still can, and preparing for a future when they can’t, sources inside and outside of the real estate industry say.

“Pay attention to 2050. Sea level will be at maybe a foot or two more in New York City,” Blumberg said, noting beyond that it’s unclear what things will look like. “People ask me, when is the next 100-year storm coming?” he added. “I say maybe never. Or maybe next year.”

Is East New York for real?

Despite a few affordable housing projects and lots of hype from the city, private developers are still ignoring the neighborhood
 By Eddie Small | July 20, 2017 03:30PM

Photo illustration of a map of East New York and renderings of 3301 Atlantic Ave and 315 Linwood Street

Development in Brooklyn has seemed like an unstoppable force over the past few years, washing over neighborhoods and leaving behind a trail of luxury apartments and vegan-friendly restaurants in its wake.

As the boom has crept farther away from the waterfront and deeper into Kings County, some real estate professionals have become convinced that East New York will be the next neighborhood to experience a transformation. Others say its helium is largely manufactured by the city, and there are few signs that private development is marching east of Broadway Junction.

“The wave is in East New York now,” said Bill Wilkins, manager of the East Brooklyn Business Improvement District. “It was in Dumbo and Carroll Gardens and Vinegar Hill and Fort Greene and Clinton Hill and Crown Heights, so now it’s in East New York.”

Several major developments are on their way, but they are all affordable projects. Phipps Houses is building an affordable housing complex with 403 apartments at 3301 Atlantic Avenue  and Alan Bell’s B&B Urban recently filed plans for a 100-unit affordable housing complex at 315 Linwood Street.

The Linwood Street development will be B&B Urban’s first Brooklyn project. Bell views the neighborhood as an ideal location for affordable housing, given the potential for gentrification moving forward.

“It’s got a lot of homeownership,” he said. “People don’t realize how may single family, two-family, three-family homes there are in East New York, and it’s the strength of the area.”

B&B Urban’s Alan Bell

Despite these developments — and $267 million from the city to improve schools, parks and infrastructure — East New York isn’t receiving the headline-grabbing, market-rate megaprojects that are in store for other developing parts of the city. In fact, you won’t find a single market-rate project of scale, let alone one that compares to the Durst Organization’s Hallets Point project in Astoria or Somerset Partners’ and the Chetrit Group’s complex along the South Bronx waterfront.

David Manheimer, co-founder of Brooklyn Standard Properties, said he thought the neighborhood had not seen a major market-rate project yet because developers do not see much of a difference between what they can charge for market-rate apartments and what they can charge for affordable ones.

“You can do affordable and still get market rents,” he said, “because the asking prices are not high enough on rents over there.”

HPD’s Simon Kawitzsky

Median asking rents in the neighborhood have climbed steadily over the past few years, rising from $1,400 in 2012 to $1,900 in 2016, according to StreetEasy. But they still lag far behind median asking rents throughout Brooklyn, which were $2,475 in 2012 and $2,550 in 2016, StreetEasy data shows.

“The rents that someone will pay to live in an apartment are driven by the demand for living in an apartment in that neighborhood,” said Simon Kawitzky, an assistant commissioner at the Department of Housing Preservation and Development, “and you’re not seeing people willing to spend that kind of money right now to support development without subsidies from HPD or HDC.”

Maybe some day

Bestreich Realty Group president Derek Bestreich is skeptical about how much of a boom there really is in East New York. He said that his multifamily properties in East New York have attracted little interest, and he noted that there are still parts of Brooklyn closer to Manhattan that have not been fully developed and remain more appealing to investors.

“Maybe there’s just a big spread between sellers’ expectations and where buyers are willing to buy, but there are not a lot of buyers that want to buy out there,” he said. “I think demand really starts to wane east of the Broadway Junction. West of Broadway Junction, it’s all in play.”

Bestreich added that he saw the buzz around East New York as being somewhat manufactured by the city.

“The city has to push its agenda, and New York City government has to bring the city to where they want to take it,” he said. “So they really focus on areas where they think they can make an impact and probably where property values are not as high.”

Bestreich Realty Group’s Derek Bestreich

The City Council approved a controversial rezoning of East New York last April as part of Mayor Bill de Blasio’s larger affordable housing plan. It stipulates that under Mandatory Inclusionary Housing, developers seeking a residential rezoning must set aside at least 25 percent of their apartments as affordable. The rezoning plan affects 190 blocks in East New York, Ocean Hill and Cypress Hills and the city believes it will eventually create more than 6,000 apartments. Half would be market rate, and half would be affordable for families of three earning between $23,350 and $69,930 annually.

Critics have lambasted the rezoning plan’s affordability component for not going far enough, and say they observed a huge spike in flipping as soon as the neighborhood’s rezoning was announced.

Sales on the rise

Though it’s not clear how much of the sales market movement stems from flipping, home sales appear to be on the rise. From the beginning of the year through May 31, 14 residential properties were sold in the neighborhood at an average price of $514,000, according to the Brooklyn MLS, which doesn’t include all transactions. This is significantly higher than 2012, when the database cataloged just 12 sales throughout the year at an average price of $350,000. Sales in 2017 are on pace to be higher than last year, when the MLS documented 17 sales at an average price of $425,000.

Rowhouses on a street in East New York, Brooklyn

The neighborhood tends to be popular with blue-collar workers and young families, according to Anthony Franzese, broker/owner of the Brooklyn real estate firm Weichert Realtors—the Franzese Group. He acknowledged that East New York has not yet seen any noteworthy private projects but said that the hype around the neighborhood was real, noting that a recent open house his company did on Hemlock Street saw 93 visitors in two hours.

“People got really aware of it and started to realize it’s kind of like a last frontier here in Brooklyn,” he said. “There are really no places here where you can take $700,000 or $750,000 and still get a deal.”

Keller Williams Realty Empire broker Charles Olson agreed that East New York is heating up. He said he’s been able to sell houses in the neighborhood for above asking price, and described the area as popular with families looking for more affordable neighborhoods.

“As for the multifamily homes, the single-family homes, it’s your average middle-class families getting priced out of the downtown neighborhoods that are looking on the fringes,” he said.

If you ask City Council member Rafael Espinal, who represents East New York and supported the rezoning effort, the amount of affordable housing coming to the neighborhood is a positive development, since it keeps locals rooted in the community.

“My vision was to see more affordable than market rate be built, so I am currently satisfied that that happens to be the case,” he said, “and I hope that the affordable units continue to outpace market rate units in the future.”