The Real Deal New York

Ziel Feldman’s HFZ in contract to buy Extell’s Belnord: sources

Gary Barnett bought the 226-unit UWS rental in 1994

December 05, 2014 03:48PM
By E.B. Solomont and Hiten Samtani

From left: Gary Barnett (top left), Ziel Feldman and the Belnord

From left: Gary Barnett (top left), Ziel Feldman and the Belnord at 225 West 86th Street

Gary Barnett’s Extell Development is in contract to sell the Belnord, a storied, block-long rental building on the Upper West Side, The Real Deal has learned. Sources said the buyer is Ziel Feldman’s HFZ Capital Group, which has made several big bets on rental product in the neighborhood. Feldman also was one of Barnett’s investors when Barnett bought the Belnord in 1994 for the bargain price of $15 million.

Built in 1909, the Belnord at 225 West 86th Street has 226 rental units – many of them rent-controlled – and stretches from 86th to 87th Streets between Broadway and Amsterdam Avenue. At the building’s entrance on 86th Street, wrought iron gates open up to a 22,000-square-foot courtyard.

Though the purchase price remains unknown, a TRD analysis, based on data from Genesis Computer Consultants for the year 2012, points to a sale price between $240 million and $300 million. That calculation is based on the building’s $12 million net income in 2012, the most recent year available, and a cap rate of 4 percent to 5 percent.

Despite the seeming profitability of such a sale for Extell, owning the Belnord has come with its fair share of complications.

In 1994, Extell inherited tenants who’d previously engaged in a decades-long rent strike after the former owner wouldn’t allow repairs. Extell poured millions into renovating the building with the goal of turning rent-controlled units over to market rents by 2012.

But the developer ran into legal and financial trouble in the late 2000s. A 2009 court ruling prevented buildings – including the Belnord – from removing rent regulation if they were receiving a J-51 tax abatement. In 2011, Extell defaulted on the Belnord’s $375 million mortgage and the loan remained distressed until 2012.

More recently, the building has returned to profitability. According to Genesis, the building’s net operating income was nearly $12 million in 2012, and total gross income that year was $25.6 million – including $16.1 million from regulated tenants and $2.2 million from unregulated.

“There were rumors going around a few months ago that it was going to be sold. Are they true? I don’t know,” said Robert Grimble, an attorney who represented former resident Jonathan Vincent, the grandson of a rent-controlled tenant whom Extell sued in 2011 in an eviction attempt. Vincent reached a settlement with Extell a few months ago, and no longer lives in the building.

“That building at this point is a cash cow,” Grimble said.

According to Extell’s website, the Belnord currently has a five-bedroom unit for rent, asking $26,000 a month, along with another five-bedroom asking $28,000 a month. The building’s occupancy was 94 percent as of last year, according to Fitch Ratings, which rated Extell’s debt in October 2014. Net operating income for the building rose 4.6 percent in 2013, according to the ratings agency. The building’s ground-floor retail is currently vacant, after Banana Republic moved across the street to The Boulevard in 2013. RKF’s Ike Bibi is marketing the corner space, which measures 10,834 square feet. He declined to comment on the sale of the building.

In recent months, rumors have swirled about Extell’s plans for the property.

“We’ve all been hearing rumors for months that Extell is selling, not selling, bringing in a major new investor, not bringing in a new investor, thinking of converting, not thinking, etc.,” one longtime resident told TRD. Extell declined to comment.

HFZ also declined to comment. The developer has been on a buying streak of late, including a West Chelsea development site, at 518 West 18th Street, for which he reportedly paid north of $700 million. Last year, HFZ paid $150 million for the Chatsworth, a pre-war rental building Riverside and 72nd Street, where many of the units were rent-controlled. Feldman’s intent was to restore the building to its “original glory,” he told The Wall Street Journal at the time. Also in 2013, HFZ paid $600 million for four rental buildings previously owned by Westbrook Partners, including the Astor, a 212-unit building at 235 West 75th Street, and the Metro, a 264-unit building at 301 West 53rd Street.

Beyond ground-up development, HFZ has been an active player in the rental-to-condo conversion boom, which is fueled by rising land costs and a lack of available development sites in Manhattan.

HFZ has at least 10 conversions in the works, including the Astor and Metro, Feldman told TRD earlier this year. “It’s a function of where the opportunity is,” he said.

Adam Pincus contributed reporting

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