The Real Deal New York

Park Lane Hotel conversion hinged on modest rental next door: court papers

Developers planned to build a supertall tower on two parcels, including 21 West 58th Street

August 01, 2016 07:00AM
By E.B. Solomont

From left: 21 West 58th Street in Midtown and the Park Lane Hotel at 36 Central Park South (inset from top: Steve Witkoff and Jho Low)

The appetite for ultra-luxury condominiums knew no bounds in 2013, when a group of investors led by the Witkoff Group paid $660 million for the Park Lane Hotel — an iconic property on the southern edge of Central Park.

But in order to develop a supertall, high-end condo tower and boutique hotel, plans relied on controlling the Park Lane’s more modest neighbor, a 12-story rental building at 21 West 58th Street, according to court documents filed last week by the U.S. government.

Documents describing the partnership between Witkoff TRData LogoTINY and Malaysian businessman Jho Low — who is at the center of a global money-laundering scandal — lay out plans to build a “world class residential condominium tower” and “six-star” hotel on two parcels located at 36 Central Park South, the site of the Park Lane, and 21 West 58th, a residential building with 66 units that’s wedged between the Park Lane to the west and Plaza Hotel to the east, court papers said.

Three years on, 21 West 58th has remained elusive, however, and last week the developers’ plans took another turn when federal officials moved to seize Low’s stake in the Park Lane.

Officials allege Low played a central role in a scheme to misappropriate $3.5 billion in funds from the 1Malaysian Development Bhd., or 1MDB, including hundreds of millions of dollars invested in the Park Lane. Court papers said funds controlled by Low contributed 85 percent of the equity in the Park Lane, while the other 15 percent came from Witkoff, Macklowe Properties, Howard Lorber’s New Valley and Dallas-based Highgate Holdings.

While plans to buy 21 West 58th never materialized, the developers managed to gobble up additional nearby development rights for the planned tower, which would replace the Park Lane with an 88-unit, 1,200-foot condominium.

In December 2014, the developers purchased 52,000 square feet of air rights from 40 Central Park South. The purchase price was $57.9 million, or $1,113 per foot, according to public records.

Meanwhile, they did not give up on 21 West 58th Street.

“Witkoff, I think, is expanding his site, so I’m not sure if he’s slowing down or trying to buy out tenants,” developer Arthur Zeckendorf said at The Real Deal’s New Development Showcase in May.

Rising 12 stories, the brick building at 21 West 58th measures 59,700 square feet with a maximum FAR of nearly 69,000 square feet. “They purchased property rights from other buildings, but they need 21 West 58th to build the supertall,” said an attorney involved in tenant negotiations. “And it’s not enough just to get most of the tenants out. They have to get all of them out because they have to knock down the building.”

According to sources, residents — some of whom were offered seven-figure buyouts — were told they were negotiating with the building’s owners, the Hemmerdinger real estate family. But many of the tenants believed the Park Lane developers were calling the shots, sources said. Negotiations were put on ice this spring, shortly after Witkoff shelved plans to develop luxury condos amidst a slowdown in the high-end market.

The cash flow on the property is about $25 million a year, making it easy to stand pat until a viable strategy emerges, the Wall Street Journal reported last week.

If the government sells Low’s stake in the Park Lane, it could reignite the condo plans. Having traded for $660 million in 2013, the Park Lane today could fetch $1 billion, according to sources familiar with the property.

Although a higher valuation is a boon to investors, Low’s current stake is somewhat murky. After a 2013 capital call related to the hotel’s sale, Low contributed $202.2 million, court documents said. To date, contributions by Low or funds controlled by low amount to $380 million, the federal government believes.

But since 2013, Low has also sold slices of his ownership stake to Mubadala Development Co., Abu Dhabi’s sovereign wealth fund, and an entity known as Virtue Trustees (Switzerland) AG, which is a trustee for the Low family, according to court papers. And sources said Low also sold a stake to Al-Waseet International, a Kuwaiti investor that in turn sold the ownership stake to China’s Greenland Holding Group Co. in April.

At the time, Greenland said it purchased Al-Waseet’s 41 percent stake in the project for an undisclosed sum, and Greenland also appeared to put condos back on the table. It projected a redevelopment of the property could generate $3.6 billion to $4.3 billion in sales.

Either way, sources said the government is doing the developers a favor by pushing Low out of the Park Lane, since the money-laundering probe had cast a shadow on the project and the size of Low’s stake made it difficult to navigate some decisions.

“At the right time, this site will be developed and it will set all kinds of pricing records. This is the front row 50-yard line seat,” said Eastdil Secured’s Doug Harmon.

“It is and can be an incredible, existing hotel throwing off a strong NOI, while harnessing its development potential. The Park Lane is the most exciting residential/hotel development site in the world,” he added. “That flexibility – the ability to generate cash flow while waiting for the right cycle – is extremely rare and valuable.”

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