The Real Deal New York

With Rockrose split, two younger Elghanayan brothers get into distressed asset game

October 03, 2009 11:43PM
By Candace Taylor

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From left: K. Thomas Elghanayan and brother Frederick started TF Cornerstone

Now that the division of Rockrose has been finalized, the two younger Elghanayan brothers are looking to snap up distressed assets.

“Our plan is to look for properties that are in some form of incomplete state,” K. Thomas Elghanayan, who with his brother Frederick is now doing business under the name TF Cornerstone, told The Real Deal. “We can take something that’s half-built and we can finish it, manage it, rent it out, sell it, and do whatever we need to do. We’re looking at a couple of opportunities like that, where we’d be buying these [properties] from financial institutions.”

In fact, he said, TF (for Thomas and Frederick) Cornerstone is close to making a deal on two properties in the New York metro area: one is a “broken condo,” and another is a development deal where construction started and stopped.

“It’s an opportunity to pick up stuff that is very moderately priced,” he said, noting that TF Cornerstone is looking for deals in New York City and the Washington, D.C. areas.

Like many of New York’s well-established real estate families, the Elghanayans are well-capitalized, despite the weak market, thanks to a long history of cash-flowing rental buildings.

“We’re sitting on a large pile of cash,” Elghanayan said. “We were always very conservative financially, we were never highly leveraged, so we always had a lot of equity in our buildings and they have a lot of cash flow.”

Still, because of the current difficult lending situation, he said he is considering taking on joint-venture partners on a one-off basis, though he has no plans to raise a distressed assets fund as so many others have done.

Thomas and Frederick already own four developments sites on the waterfront in Long Island City, beneath the Pepsi Co. sign. and they eventually plan to build some 2,000 residential units there. But they prefer to focus on one building there at a time, Thomas said.

“We wouldn’t want to bring 2,000 apartments onto the market at the same time,” he said.

The oldest Elghanayan brother, Henry, who was not immediately available for comment, also appears keen to stay in the development game. He has retained control of three development sites in Long Island City’s Court Square as well as a 60,000-square-foot development site across from the Javits Center.

It was the eldest Elghanayan who initiated the split and moved to new digs at 666 Fifth Avenue, Thomas said.

“Once it was clear that Henry wanted to leave, there was no reason to try to talk him out of it,” Thomas said, noting that Henry wanted to go into business with his son, Justin, who had been a Rockrose employee for several years.

Thomas maintained that the rupture was friendly, though there was some disagreement about how to divide the company — named after the Queens street where the brothers grew up — where they’ve worked together since the 1970s.

“We’re on good terms,” Thomas said. “It was a difficult thing and we got through it. It was an upset, but we weren’t at each other’s throats.”

They decided that Henry would leave with one-third of the company’s assets, and then spent roughly a year determining exactly what that meant. Under the terms of the deal, Henry is keeping the Rockrose name, though Thomas and Frederick are maintaining the company’s headquarters at 290 Park Avenue and many of its employees, including Sofia Estevez, formerly the vice president for marketing and leasing at Rockrose, residential management head Kevin Singleton, and Frank Vasta and Bruce Weill from the organization’s construction department.

When it comes to attracting tenants, the newness of the TF Cornerstone name will likely have little impact, since tenants seem to focus less on branding and more on bricks and mortar, according to Gary Malin, president of rental and sales brokerage Citi Habitats.

“The tenants are attracted by the buildings themselves, the pricing, layout and incentives,” he said. “Yes, you want to live in a building you’re familiar with, but you’re not going to look in a different location just because you like the developer.”

The switch-up could have more of an impact where sales are concerned, brokers said. These days, buyers are suspicious that new construction projects won’t come to fruition, and look for developers with a long track record, said Edward Longley, a senior vice president at City Connections Realty who has represented the buyers of several apartments at 99 John Deco Lofts, a Rockrose condo conversion.

As a result, the newness of the TF Cornerstone name could give buyers pause.

“People have heard of Rockrose, but they’ll be wondering, is [TF Cornerstone] going to be good on their own?” he said.

Thomas said his company will have to work quickly to build name recognition, but he’s not daunted by the challenge.

“We’re going to have to get the name out there, but companies do that all the time,” he said.

Now that the deal is finalized, Henry has around 40 employees and a portfolio of some 2,600 apartments, according to a statement released from Rockrose.

TF Cornerstone said it has around 85 employees and now a portfolio of some 6 million square feet of residential, commercial and retail properties in Manhattan, Queens and Washington, D.C.

That includes office towers like Carnegie Hall Tower at 152 West 57th Street, and 4,922 New York City apartments in 13 buildings, Thomas said. TF Cornerstone controls 4,281 rental units in buildings like 2 Gold Street and Chelsea Centro at 200-220 West 26th Street, and another 641 apartments in the form of unsold shares in co-ops and condos, like Nolita co-op 77 Bleecker Street.

Another apartment building, 340 East 34th Street, currently is shared with Rockrose, but eventually will become part of TF Cornerstone. Finally, TF Cornerstone also has control over new condo 99 John, though Rockrose still has a minority stake. The two companies also share ownership of several office buildings.

TF Cornerstone’s portfolio includes two of the three Queens West buildings on the waterfront in Long Island City, including the View residential condo. Of the remaining development sites, work has begun on one, which will eventually become a 42-story rental complex known as East Coast 4.

The company is finishing remediation on the site of the former Pepsi bottling facility, Thomas said, and plans to start construction next year.

TF Cornerstone is currently working on securing construction financing for the project, Thomas said. In a tough lending climate, the company is looking to finance around 65 percent of the building and build the rest with the firm’s own equity.

“At low leverage, there are plenty of banks that are interested,” he said. If necessary, he added, TF Cornerstone will build the building with cash, but “I don’t think we’ll have a problem doing this financing. If you are a long term reputable developer like us, [lenders] are not worried.”

TF Cornerstone is also in the process of completing a new Manhattan rental tower at 505 West 37th Street in the Hudson Yards area. Construction is expected to be completed in mid-January and leasing will likely begin Dec. 15, he said. “That’s probably the worst time we could start leasing,” he said, “but when you finish the building, you finish the building. Hopefully the market will firm up.”

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