Stalled MFs Revive Under New Owners

NEW YORK CITY-The letter sent to the tenants association at Peter Cooper Village/Stuyvesant Town this past weekend, proposing a co-op conversion deal that would give the tenants as much as 50% ownership of the 11,227-unit rental apartment complex, is both unique and a sign of the times. 

Certainly the proposal, by a partnership of Pershing Square Capital Management and Winthrop Realty Trust, is unprecedented, not least because of its scale—and is also contingent on the partnership’s success in wresting control of the massive complex from the senior mortgage holders as well as other interested parties, now reportedly including developer Gerald Guterman with a conversion plan of his own. Yet at the same time, the multifamily sector offers several current examples of properties in foreclosure that have gotten a leg up through new ownership or fresh capital.

Among them is the Sheffield, itself a $640-million condominium conversion project that Fortress Investment Group acquired for $20 million at a foreclosure auction in August 2009. The former Sheffield57 at 322 W. 57th St. had been caught in the ebbing tide of finance as well as a slowdown in apartment sales, and a group led by developer Kent Swig reportedly defaulted on the $400-million first mortgage in April ‘09.

At the beginning of this year, Fortress and property management firm Rose Associates restarted sales on the 597-unit project, where fewer than half the units had been sold before sales were suspended. “The offering plan was not current,” Jack Levy, senior managing director of asset management at Rose, tells GlobeSt.com. “So when we first came in, we had to update the plan. There were a number of issues in the building. We had to get the attorney general to approve the start of selling again.”

That approval was granted, and Rose—which had originally developed the Sheffield as a rental in the late 1970s before selling it to the Swig-led group in 2005—retained the Marketing Directors to put promotional muscle behind the renewed sales push. “We had to develop a sales campaign, a brochure, floor plans, a website—the normal things when you start up a job,” Levy says. “The good thing was that we had apartments that were ready for move-in and could be sold immediately.”

To date, an additional 30 units have been sold, at prices up to 25% less than buyers paid prior to the May ’09 suspension of sales. Levy says Rose has renegotiated the contracts signed under the Swig-led sponsorship, and most buyers haven’t walked away, “as long as you gave them a price that was fair in the current market.” A grand opening and brokers’ reception are planned for later this month.

Pricing was also restructured when the Klar Organization took over construction and sales on Riverview, a townhouse development on the Patchogue River in Patchogue, NY. “We’ve brought prices down considerably from when the project started—some as much as $150,000, or 30%, so we’re now starting at $399,000,” Steven Klar, president of the 63-year-old, Long Island-based residential development firm, says in a release.

Construction and sales had begun in late 2007 but had stalled under the project’s previous builder, which Newsday identified as Christopher Cos. Ltd. On its website, Klar says it has gained a reputation as a “white knight” in the current environment, riding in and picking up the ball on other developers’ troubled projects.

A Brooklyn condo project, the 63-unit Isabella at 545 Washington Ave., is being completed by its original developer, but with an infusion of outside capital. In this case, the rescuer on the stalled project is the Canyon-Johnson Urban Funds, which provided a $22.6-million loan to developer OL Washington LLC. 

As reported last month by GlobeSt.com, the CJUF loan will be used to acquire existing construction and mezzanine loans and to complete construction on the project. It will also help launch an active sales and marketing campaign later this year. The Corcoran Group has been engaged to market units for sale upon completion of the property, which reportedly faced foreclosure last year.