By CHARLES V. BAGLI    SEPT. 28, 2015

Andrew S. Penson, who bought Grand Central Terminal in 2006, contends that he is being deprived of his property rights.

When he bought Grand Central Terminal nine years ago, Andrew S. Penson figured that the unused development rights, or air rights, over the country’s busiest train station were worth a fortune.

The soft-spoken real estate investor, however, failed to come to terms with a developer next door who needed them, or to sell even one square foot of more than a million square feet of those rights.

On Monday, Mr. Penson filed a $1.1 billion lawsuit in United States District Court in Manhattan that argued that the administration of Mayor Bill de Blasio, a Democrat, the City Council and the developer, SL Green Realty Corporation, had deprived him of his property rights when the city gave SL Green permission to build a 1,501-foot tall office tower, without having to buy any air rights from him.

The lawsuit involves complex questions of zoning, constitutional law, politics and potential conflicts of interest, but it boils down to what always matters most in New York real estate: millions and millions of dollars.

It is the latest chapter in a dispute that has festered for years, with supporters of Mr. Penson describing SL Green as politically connected, while critics of Mr. Penson dismiss him as a speculator.

The city designated Grand Central as a landmark in 1967, partly to block a proposed office tower that would have risen overhead.

The designation, the city argued in United States Supreme Court, was not an unconstitutional taking of land because the unused development rights over the terminal could be sold to nearby developers.

But Mr. Penson’s lawyers argued in the suit that by granting SL Green the rights to build a tower “for free” that is twice as big as had been permitted by zoning, the de Blasio administration and City Council had rendered Grand Central’s air rights “worthless.”

“Taking the property of a private citizen for the benefit of another private citizen without any public purpose,” the lawsuit contended, is a violation of the Fifth Amendment.

Therefore, “plaintiffs are entitled to be paid ‘just compensation’ by the city for the value” of the air rights, the lawsuit stated.

But SL Green and city officials pointed out that the developer had to commit to approximately $220 million in improvements to the crowded subway platforms and stairwells below Grand Central in exchange for the right to build the oversized tower. Construction of the tower, known as 1 Vanderbilt, has yet to start.

Jonathan Rose, a spokesman for SL Green, said the project would not be “sidetracked by frivolous litigation.”

One Vanderbilt has received broad support within the city, Mr. Rose said, “because of the project’s unprecedented commitment to improving the commutes for millions of New Yorkers and bringing state of the art office space to East Midtown.”

City officials declined to comment on the suit because they had not seen it. But Wiley Norvell, a spokesman for the mayor, said the rezoning and project were “critical” to the city’s future. An investment group led by Mr. Penson bought Grand Central for about $80 million in 2006. The terminal itself had little value, the lawsuit on Monday contended, because the building was under a long-term lease to the Metropolitan Transportation Authority for a relatively modest rent that declines over time.

Mr. Penson was betting, however, that the 1.2 million square feet of air rights connected to the terminal, which he bought for less than $60 a square foot, could generate hundreds of millions of dollars in a real estate boom.

The lawsuit contended that the air rights were worth $880 per square foot, a not-unheard-of sum for luxury residential projects, but one that most commercial developers believed was prohibitive for an office building.

In 2012, the administration of Mayor Michael R. Bloomberg, a political independent, proposed rezoning the area around Grand Central for taller office towers.

Under the proposal, which was unsuccessful, developers could buy additional development rights from the city or from district property owners, like Mr. Penson.

Mr. Penson’s secret negotiations with SL Green to sell his air rights collapsed after the developer concluded his price was too high.

This year, Mr. de Blasio and the City Council approved a plan to rezone a smaller section of the district known as Vanderbilt corridor. SL Green was allowed to build a 65-story office tower on the block bound by Vanderbilt and Madison Avenues, between 42nd and 43rd Streets, in exchange for the transit work beneath Grand Central.

A full three-quarters of the top Manhattan cash buyers in the first half of the year had Asian surnames, according to the national market-watcher RealtyTrac.

The names Chen, Liu and Wong were the most common on the ranking of the top 20 cash buyers in Manhattan during the first six months of the year, RealtyTrac’s data show.

“Of the top 20 cash buyers in New York City, only five were non-Asian buyers, while the remaining 15 buyers were either overseas Asian buyers or Asian-heritage local buyers,” the company said in its September housing report.

The most common surname in China is “Li,” accounting for almost 7 percent of the population, according to Bloomberg.  “Chen” is No. 4 on the list.

Foreign direct investment in U.S. real estate rose to $104 billion in a 12-month period ending March 2015, a 10.4 percent rise over the prior year, according to an analysis published by the National Association of Realtors.

RealtyTrac’s ranking came from sales deed data, so it’s safe to assume that these are not the buyers purchasing properties through anonymous LLCs.

Earlier this year the New York Times published an investigative series scrutinizing LLC buyers at the Related Companies’ and AREA Property Partners’ Time Warner Center.

The newspaper found that over 80 percent of condo buys at the Time Warner Center were made by shell corporations. Shell companies own 77 percent of the condos at Gary Barnett’s One57 on Billionaires’ Row.

The practice of secret purchases has been criticized for enabling shady corporations and allegedly corrupt government to easily launder money through valuable real estate.

In response, the city instituted new rules in July requiring shell companies buying property to release the names of their members.

According to RealtyTrac’s data, the Chinese represent 16 percent of foreign buyers nationwide.

– See more at: http://therealdeal.com/blog/2015/09/24/majority-of-manhattan-cash-buyers-have-chinese-last-names-realtytrac/#sthash.4URBMO0T.dpuf

Sharif El-Gamal, who had planned to build a Islamic Center there, will build a 667-foot condominium, where units will sell for more than $3,000 per square foot.

It’s been four years since Manhattan developer Sharif El-Gamal shelved plans for a 15-story Islamic cultural center, near Ground Zero, that drew international debate. He’s looking to attract a different kind of attention for his current project on the site.

Mr. El-Gamal’s Soho Properties has proposed a 667-foot condominium tower at lower Manhattan’s 45 Park Place. The glass skyscraper, which has yet to break ground, will include at least 15 full-floor units of 3,200 to 3,700 square feet, and average prices higher than $3,000 a square foot, according to plans released to Bloomberg by the developer.

Prices at that level would be at least 13% more than the second-quarter average for new-development listings in the borough, according to Halstead Property Development Marketing. The ultra-luxury focus of the building highlights the newfound allure of lower Manhattan as an upscale destination, yet it comes amid growing concern about an oversupply of apartments for multimillionaire buyers.

“The tower is going to be a market-maker,” Mr. El-Gamal told us. “We’ve perfected a building that’s really going to share in a unique moment.”

Mr. El-Gamal’s original plans for an Islamic center and mosque at the lot—two blocks north of where the former World Trade Center towers stood—ignited a political controversy in 2010. Protesters called it the “Ground Zero mosque” and said its placement near the site of the deadliest terrorist attacks in U.S. history would be an insult to those who were killed there.

Then-New York Mayor Michael Bloomberg defended the project, citing religious freedom and the rights of private-property owners to develop their land as they see fit. (The former mayor is founder and majority owner of Bloomberg News parent Bloomberg LP.)Downtown Renaissance

The community center plan was shelved in 2011 amid a struggle for financing and Mr. El-Gamal’s choice to seek more community input, he said. Now he’s seeking to take advantage of Manhattan’s luxury-condo boom and a downtown renaissance that has sent home prices up 28 percent since 2012.

The median price of apartments that sold in the area south of Chambers Street this year was $1.15 million, a 6.4 percent increase from all of 2014, according to StreetEasy, a property- data website. In 2012, the lower Manhattan median was $895,530. The area has gained 3,000 residents since that year, according to the Alliance for Downtown New York, a business-improvement group.

For Mr. El-Gamal, it’s been a long road toward building the tower, which is scheduled for completion in 2017. He bought the lot in 2009 for $4.85 million, according to public records. The project has $350 million in preconstruction financing from Madison Realty Capital, and construction loans probably will be in place by the fourth quarter, he said.

The developer anticipates breaking ground before the end of the year, with sales starting in early 2016. The plans and pricing are under review by the state attorney general’s office and aren’t officially approved yet.

“Every day that we’ve been waiting, the market has been getting stronger and showing incredible signs of resilience,” Mr. El-Gamal said. “The appreciation and absorption this market is showing is unprecedented.”

Supply surge

About 5,500 units are being planned or are under construction in the area south of Chambers Street, according to the Downtown Alliance. Elsewhere in Manhattan, developers, including Toll Brothers and HFZ Capital Group’s Ziel Feldman, are shifting toward less-pricey condos because the surge in new units has been priced at levels that only the ultra-wealthy can afford.

“There’s growing concern about the volume of new units coming on line that are targeting a fairly narrow bandwidth,” said Jonathan Miller, president of New York appraiser Miller Samuel. “There are already a number of projects with big units online now, so it might be a little late to the party, especially with the recent trend of unit size reductions to lower the actual asking price.”

Mr. El-Gamal sees a rosier picture of a neighborhood in which a penthouse in the Woolworth tower is listed for $110 million, luxury retailers are opening stores, and such media and technology companies as Conde Nast and Time are relocating. His project will still have a lower price per square foot, on average, than the towers being constructed on midtown’s 57th Street, a corridor that’s been dubbed Billionaire’s Row, he said.

Unobstructed views

The planned 70-story skyscraper, with varying tiers of balconies slightly offset from its core, was designed by Michel Abboud, founder of New York architectural firm SOMA, who likened its silhouette to a “mini condensed New York skyline.” Ismael Leyva Architects is translating Mr. Abboud’s exterior design concepts into floor layouts and detailed construction plans.

Unobstructed views to the north begin at close to 300 feet, above which all the apartments will be full-floor units with private elevators, Mr. Abboud said. Those homes will have 12-foot floor-to-ceiling windows, offering panoramic views of Midtown, the Hudson River, and the Statue of Liberty. Two duplex penthouses will sit on the uppermost floors of the skyscraper.

“The surrounding buildings have these slope-y crowns and spires,” Mr. Abboud said. “We wanted the silhouette of our building to stand out against that background and reflect that it was a residential building.”Pool, Concierge

Amenities aim to evoke a five-star hotel, with a 50-foot swimming pool in the basement, concierge service, and a high- ceilinged private lounge, Mr. Abboud said.

Adjacent to the tower, Soho Properties will build a public plaza connected to a three-story Islamic museum and prayer space to be designed by architect Jean Nouvel, Mr. El-Gamal said.

He estimates that by the time the condo tower opens, the offices at the World Trade Center buildings will be filled with tenants, and retailers such as Saks Fifth Avenue will have opened lower Manhattan locations.

“The center of gravity is shifting toward downtown, and we are literally in the heart of this new downtown,” Mr. El-Gamal said. “Once all the scaffolding is down, and once all the office space is leased, this will be the most significant residential neighborhood in New York City.”

September 22, 2015 04:00PM
By Konrad Putzier

Middle-income rental buildings are all the rage these days among some of the country’s biggest real estate investors. Take the Blackstone Group, which recently dished out $700 million for the Caiola family’s Manhattan portfolio, or the Related Cos. stealth acquisitions of multifamily properties in Brooklyn and the Bronx. On Monday, Barry Sternlicht’s Starwood Waypoint Residential Trust merged with Colony Homes in another giant bet on the rental market. Why are these investors so gaga over rentals?

Observers point to two trends making rental housing a good investment – one national, and one New York-specific.

Since at least 2004, low- and middle-income households across the United States have been shifting away from homeownership, according to Trulia’s chief economist Selma Hepp. The 2008 housing crisis may have accelerated the trend, but its roots are structural: Stagnating real incomes that, coupled with the ballooning cost of healthcare and education and stricter mortgage lending standards, keep homeownership out of reach for a growing share of the population.

“Being able to save for a down payment seems to be a big issue for [the millennial] generation.” Hepp said. “That, combined with lack of access to credit, is impacting homeownership.”

These factors push demand for rentals up, but supply of new rental product remains low following the recession. As a result, median rents have been climbing, at a quicker pace than both family incomes and inflation. For millions of “everyday Americans,” this means a painful dent in living standards. For firms like Blackstone and Starwood, it’s a chance to make a lot of money (see chart below).

New York City, which has always been a renters’ town, is facing the same forces. “Rents rising is tied to tight credit,” said Jonathan Miller, CEO of Miller Samuel. ‘There’s a dearth of first-time buyers, and many are bumped into the rental market.”  Brooklyn’s median rent topped $3,000 in August – a new record, according to the latest Douglas Elliman report.

But the Big Apple is experiencing another trend that thrills owners of rentals: the ballooning cost of land. “I think developers are having a tough time penciling out the numbers on rentals,” said Jason Silverstein, co-founder of investment firm Silvershore Properties. It’s a common complaint that Manhattan’s high land prices make rental projects unfeasible here, pushing developers to go the luxury-condo route and making existing rental stock even more valuable.  This, at least, appears to be why firms like Blackstone are, in Miller’s words, “playing out the logical follow to the luxury condo boom.”

Daniel Parker, a broker at Hodges Ward Elliott, said the “smart institutional money” is wagering on housing for middle-income earners “because it offers attractive yields no longer available in the high-end condo or rental markets.”

Blackstone, a company that has been able to consistent generate double-digit returns since the crisis, exemplifies this strategy. In July, it bought 25 apartment buildings from the Caiola family in partnership with Fairstead Capital. The buildings are clustered in Chelsea and the Upper East Side – two areas that have seen a lot of luxury condo construction. Nationwide, Blackstone owns about 50,000 single-family homes, which it bought following the financial crisis and turned into rentals.

“In terms of our business, we are 97 percent occupied. We are seeing 4-plus percent rental growth, “ Blackstone’s head of real estate Jonathan Gray told CNBC in July. “We think it’s a real business.”

–

LLNYC asks workers building Midtown’s new luxury towers what they think of them

They may be rivals as two of the city’s largest office landlords, but SL Green Realty and Vornado Realty Trust worked together to make the $150 million renovation of 280 Park Avenue pay off.

The real estate investment trusts, which jointly own the 43-story office tower, have signed Medley Capital to a new eight-year lease while substantially expanding existing leases for PJT Partners and Harvest Partners at the 1.2 million-square-foot property.

Medley Capital is leaving the nearby Seagram Building, at 375 Park Avenue, for 22,000 square feet on 280 Park Avenue’s seventh floor. Asking rent for the space was $105 per square foot, according to Crain’s, with a JLL team representing the tenant and a CBRE team working with Vornado executive Andrew Ackerman on behalf of the landlords.

SL Green and Vornado also secured investment banker Paul Taubman’s PJT Partners to an extension at 280 Park – adding 50,000 square feet on 17th floor to the firm’s existing 100,000 square feet on the 15th and 16th floors. The REITs also doubled private equity firm Harvest Partners’ space in the building to 38,000 square feet in the western spire of the building’s two towers.

Asking rent for both expansions was $120 per square foot. Savills Studley represented PJT Partners while Newmark Grubb Knight Frank represented Harvest Partners.

The deals indicate how SL Green and Vornado’s $150 million renovation of the office tower has paid off, with the building now almost fully leased. The landlords, who entered a joint venture at the property in 2011, gut-renovated the building’s lobby while making a host of other improvements, installing new elevators and upgrading systems.

Mutual fund giant Franklin Templeton signed a 15-year lease for 126,000 square feet at 280 Park Avenue earlier this year, while Singaporean government-owned fund manager GIC agreed to take 50,000 square feet at the building in June.

The Four Seasons Restaurant, meanwhile, could follow Medley Capital out of the Seagram Building with a move of its own to 280 Park Avenue. [Crain’s] — Rey Mashayekhi

For more than 50 years, New York City's tallest residential building was a mere 632 feet. But supertall spires will set a new standard five times this decade.

By Erik Engquist and Crains

Four years after the Sherry-Netherland impressed New Yorkers in 1927 with a spire reaching 560 feet above the ground, the Waldorf Astoria topped it. For more than a half-century, the 632-foot luxury hotel-apartment combination on Park Avenue endured as the city’s tallest residential structure.

These days, the once-towering Waldorf could be considered quaint, not to mention squat. At least five buildings this decade will set a new standard for height among New York City residential structures, according to researchreleased this week by the Skyscraper Museum.

The tallest of them all will be the Central Park Tower, which is to reach its 1,775-foot peak in 2019, ending the projected one-year reign of 111 W. 57th St. Both buildings will have retail space on the lower floors and hotel rooms above, but most of their height will be devoted to apartments.

The current record holder, One57, last year became the city’s first residential tower to break the 1,000-foot barrier. The supertall 432 Park Ave., however, will smash that mark when it opens this year with a 1,396-foot peak. From 2011 through 2014, 8 Spruce St. claimed the top spot, but the Frank Gehry-designed rental building will increasingly find itself looking up at condominiums across Manhattan.

The Waldorf’s 51-year record stood until 1982, when Harry Macklowe’s Metropolitan Tower crossed the 700-foot plateau. CitySpire blew by the 800-foot mark in 1987. Both had offices on their lower levels, but most of their floors were apartments. Donald Trump erased any doubts about what qualified as the city’s tallest residential building in 2001 with his monolithic Trump World Tower.

The spate of supertall spires is being powered by improvements in building techniques and by the stratospheric prices being paid for large dwellings with commanding views. Many of the buyers are foreigners who perceive Manhattan real estate to be a safe long-term investment.

The rapidly changing skyline has raised the hackles of neighbors of Central Park because of the lengthy (if thin) shadows the towers will cast over the city’s premier green space at certain times of the year. Community Board 5, the Municipal Art Society and a cadre of Manhattan elected officials have been particularly vocal. But the Department of City Planning said this month it has no plans to change the zoning to prevent more tall, slender buildings from going up—and up, and up.

By Konrad Putzier

“Ziel is a pain in the ass, I want you to print that,” said Kevin Maloney, sitting in his windowless office in the Flatiron District.

Then he laughed. For those who don’t know: the developer has a good relationship with his former business partner, Ziel Feldman, who now heads the rival firm, HFZ Development.

Maloney’s relationship with his current partner on a number of projects, Michael Stern of JDS Development, is more troubled.

The two developers reportedly fell out earlier this year — Maloney cryptically speaks of “different philosophies” — and will no longer work together on any projects in the future, following completion of the luxury tower 111 West 57th Street.

The high-profile divorce leaves Maloney’s Property Markets Group in a state of uncertainty. Few real estate investors have been more successful over the past few years. But the firm’s success has been built on two factors it can no longer count on: its partnership with JDS and the strength of the luxury condo market.

The former will soon be a thing of the past, and the latter might well be, too — at least according to a growing number of researchers and developers.

This means Maloney may have to reinvent his business once more if he wants to stay relevant. For better or worse, Property Markets Group’s future may lie in the outer boroughs.

Maloney has been a prominent real estate developer in New York for decades, but his latest string of successes really began in 2009, when a young and still largely unknown Michael Stern approached him.

Stern had gone under contract for a building on West 19th Street, used by Verizon as storage space, with plans of turning it into condos and needed money to close the deal. Maloney, who had sold three hotels just before the market crashed in 2007, happened to be one of the very few real estate investors with money to spend.

The two men partnered up and bought the building for $25 million. It turned out to be a “slam dunk”, in the words of broker Bob Knakal. In a market starved of new development, the Walker Tower (as the former Verizon building became known) was one of the few new luxury condos at a time when foreign and domestic demand for them picked up dramatically. “We underwrote it for 60 percent of what it sold out for,” Maloney recalled.

Stern and Maloney then repeated their success at another former Verizon building at 435 West 50th Street, which they bought for $45 million in January 2013 and christened Stella Tower. The condo conversion is now sold out, according to Maloney. He said the last available unit sold two weeks ago for $41 million. The building’s most expensive condo went for a staggering $51 million.

Flush with money from the Walker Tower and with luxury sales booming across the city, it made perfect sense for Stern and Maloney to take their strategy to the next level.

In March 2013, the developers bought the Steinway Building at 109 West 57th Street for $46 million. They already owned the adjacent parcel at 105 West 57th Street, and the combined lot offered enough width and air rights to build one of the city’s tallest residential towers.

This February, the developers broke ground on a 1,350-foot hotel and condo tower designed by SHoP architects. They are currently looking for a $500 million construction loan, with Maloney saying they have “a couple of offers” from banks.

But whether the project will be even remotely as successful as the Walker and Stella Towers is far from certain. In the months since 111 West 57th Street broke ground, the luxury condo market has slowed significantly.

Extell’s tower One57 has only sold one unit in the third quarter — a pace at which it would take the building six years to sell out. Sales at Harry Macklowe’s 432 Park Avenue have reportedly also slowed.

With several more condo towers set to hit the market in the coming years, some observers already predict a crisis.
“If real estate was a publicly traded company and I could short its stock, I would very happily short 57th Street,” Stonehenge Partners’ CEO Ofer Yardeni said recently. “The market there has stopped. It hasn’t just declined five percent or 10 percent. It’s just stopped.”

Maloney himself is surprisingly pessimistic about the luxury condo market — at least for someone who is investing millions in it.

“Citywide, when you get into apartments above $25 million, the air gets very thin very quickly,” he said. “At any one time there are maybe a half dozen people in the city looking for a $50 million plus apartment, and there’s now probably 60-70 of those apartments on the market.”

He added that if he could redesign his luxury condo project 10 Sullivan, he would probably break its $44 million penthouse up into two or three units.

“There’s going to be some downward pressure at the very high end,” he said.

Maloney reckons it is a “mistake” that developers on 57th Street are primarily putting apartments above $25 million on the market.

Ironically, he is about to do just that. 111 West 57th Street’s full-floor apartments will span roughly 4,000 s/f, and Maloney hopes to sell them for more than $7,000 per s/f. In other words: he is about to unload roughly 60 apartments with an asking price of more than $25 million onto a market that he already considers to be oversaturated.

Maloney is not one to miss the contradiction between the likely asking prices at 111 West 57th Street and his own pessimistic prognosis.

“It’s contrary to what I just said,” he admitted. But he sees reason for optimism in what he calls the low basis cost of the project. He explained that, if need be, he could still make money if he sold each unit for $3,000 per s/f.

Such a buffer between cost and target asking price is a luxury not all developers enjoy. More importantly, Maloney has been hedging his bets across the city and asset classes, buying up land in Brooklyn and Queens. While he is taking a wait-and-see approach to Manhattan’s luxury condo market and hasn’t ruled out developing more such projects in the future, his investments in the outer boroughs allow him to plan for a future beyond Michael Stern and $25 million condos.

In Long Island City, Property Markets Group is developing the 44-story rental tower Queens Plaza South with 400 rental units, which Maloney expects to top out in six months. In November, the firm also bought Long Island City’s clock tower building and an adjacent site in two separate deals for a combined $77 million. Maloney declined to say what his plans for the site are.

Property Markets Group has invested even more heavily in Brooklyn’s Gowanus neighborhood, where it has bought up around about a million square feet (under current zoning) of commercial space over the past four years. “We’re probably trying to do half a dozen buildings there” once the neighborhood gets rezoned, Maloney explained. He added that the planned residential buildings will likely have affordable units and an “arts component.”

Dan Marks, a broker with TerraCRG who specializes in Gowanus, said Property Markets Group got many of its properties for a bargain because it entered the market early.

“These guys were investing in the Gowanus area even before a lot of other companies were,” he said, adding that growing demand for commercial space means the investments will be profitable even if the neighborhood doesn’t get rezoned. A rezoning of Gowanus for residential development is currently under review.

Rental development in Gowanus and Long Island City may not be as flashy as building a Midtown luxury skyscraper, but in a way it seems more in line with Property Markets Group’s culture. The firm occupies a modest space on West 17th Street, whose tiny lobby and windowless offices surrounded by makeshift walls are a world away from the glassy Midtown headquarters of some of its competitors. This is not exactly where you would expect a firm that once counted Gary Barnett and Ziel Feldman as its partners to be based.

The three developers founded Property Markets Group in the early 1990s, when Barnett was still a diamonds trader based in Belgium. “Gary was really the money guy”, Maloney recalled. Barnett was the first to leave the firm, becoming the founder of Extell, and Feldman left in 2005. A framed newspaper clipping on Maloney’s wall shows a Crain’s article from 1994 on their purchase of the Belnord, an apartment building on the Upper West Side.

Although Maloney hasn’t spoken to Barnett in about a year, he said the two are on good terms. He has more regular contact with Ziel Feldman.

“We spent 80 hours a week together for 15 years, so we know each other very, very well,” he said. “When he buys a site, he still writes me and says ‘I just got this great deal’, and I say ‘Yeah, sure you did’”.