A resolution could be reached today between developer Kent Swig, lenders and state Attorney General Andrew Cuomo to revive a major Swig Equities condo conversion, The Exchange at 25 Broad Street in Lower Manhattan, a representative for the developer said.
Swig (the subject of a cover story in this month’s issue of The Real Deal) is in talks to revive a conversion plan that has been in serious trouble for several weeks, after a number of buyers withdrew offers to buy apartments at the oft-delayed 346-unit building. If the talks break down, Swig may be forced to find additional investors, sell the building or face seizure of the property by his lenders, sources said.
Cuomo’s office could not be immediately reached for comment.
A Swig Equities spokesman confirmed the company was in talks regarding the offering plan. He acknowledged a resolution could be reached by today, but he denied that the building is up for sale.
“The building is not for sale, the only thing for sale are the individual units,” the spokesman said.
The delays are related to Swig’s plan to demolish the south wing at 25 Broad and transfer the building’s air rights to his proposed Nobu Hotel and Residences at 45 Broad Street.
The conversion’s delays led several buyers to demand refunds on their deposits, according to sources, and about two months ago, the number of buyers fell below the 15 percent threshold required by the Martin Act, the New York State law that regulates condominium conversions, for the plan to be made effective. Developers have 15 months from when the attorney general accepts the offering plan to sell 15 percent of the units for the plan to be declared effective.
“All contracts have been rescinded,” said Luigi Rosabianca, an attorney representing several buyers at 25 Broad. “They will then be issued new contracts of sale at the original purchase price, and it’s up to them whether they want to re-execute.”
The Real Deal obtained copies of a January 28 letter by attorney Jeremy Panzella, a member of Rosabianca’s firm, demanding that Swig refund $120,000, plus accrued interest, to Nicholas and Asha Parmar, a couple that agreed to buy apartment 7D3 for $1.2 million.
Panzella cited language in the offering plan that said buyers could demand a refund if more than a year passed since the expected closing date. The offering plan had originally projected a January 2007 closing date. Rosabianca’s firm was not the source of the letter, and Rosabianca would not comment on which clients his firm represented. Records show that Rosabianca is listed as a buyer of apartment 11L2 for $795,000.
Swig, one of the city’s leading commercial developers with more than $2 billion in office properties, has struggled to fill The Exchange, which is one of several high-profile condominium conversions in the rapidly expanding residential community in the Financial District, sources said.
Swig acquired The Exchange at 25 Broad in 2005 from developer Bruce Menin’s Crescent Heights for $260 million. Soon after, Swig announced plans to convert the building into condominiums and notified existing tenants by January 2006 that their leases would not be renewed.
A March 2006 pre-sale report from Standard & Poor’s shows that 25 Broad was the lead property on a $943 million commercial mortgage-backed security from Lehman Brothers. The two-year interest only loan had a pooled-trust balance of $166.3 million, representing 18.7 percent of the CMBS, and a whole loan balance of $278 million.
S&P analyst James Digney noted in the report that the analysis was based on 25 Broad Street selling 10 units per month for 34 months, and final regulatory approval of the conversion by September 2006, which would have been one-year after the September 2005 filing with the attorney general.
However, while brokers, buyers and other officials praised the aesthetics of 25 Broad, they say that Swig fell victim to the calendar, the credit crunch and his own faulty assumptions about his ability to sell 25 Broad in a neighborhood that some observers say is being overbuilt.
“They started too high,” said Mickey Roth, a partner in the Bracha Group, who noted that one rival building across from 25 Broad is selling at $300 per square foot less. “I think 25 Broad Street is a very nice building and has a lot of potential, but people are not looking at the Financial District as their first priority location.”
Pierre Moran, a broker at DJK Residential, said one of his clients walked away from 25 Broad because of all the constant delays and uncertainty surrounding the property.
“He’s thanking his lucky stars he was able to bail,” said Moran. “There were a bunch of hurdles, it was just one thing or another.”
According to documents obtained by The Real Deal, Swig reached agreements to sell 52 apartments between February and October 2007, at prices ranging from $681,000 to $2.1 million. However, many of these buyers were relocating and grew concerned after months went by with no word on when they could close their apartment contracts, sources said.
“Initially we thought we were going to move in during the fall [of 2007]” said one buyer, who asked not to be identified. “It just kept getting pushed and pushed back.”
One major reason for the delay was that Swig applied in March 2007 with the Landmarks Preservation Commission to decertify 25 Broad as a landmark building, so he could demolish its 20-story south wing and then transfer 12 stories to a 35-story condo he planned to build at 45 Broad Street. The LPC approved the plan in October, but critics charge that Swig was already looking for an exit plan for 25 Broad, which was facing too much competition and giving his lenders too much heartburn.
About 15 buyers who were staying at 25 Broad under interim leases have been moved to the Millenium Hilton until the negotiations are completed, according to two buyers.
Daniel Kinne, a buyer that is staying at the hotel, said he remains confident that Swig will be able to finish the project. “We’re not worried at all,” he said.
However, several other buyers say they are quietly looking for new apartments, due to concerns that the value of their apartments will be damaged.
“From what I understand there are a lot of people looking,” said the buyer who asked not to be identified. “People initially thought they could renegotiate the price. They’ve pretty much told us they’re not going to renegotiate the price.”
Last week, tenants at Swig’s Sheffield57 luxury condo conversion urged a New York Housing Court judge to appoint an administrator to take control of the building, amid charges that Swig is trying to harass them into leaving by failing to repair collapsed ceilings, extensive water leaks and asbestos contamination.