The Real Deal New York

Better late than earlier

Construction delays at 123 Third just what the market ordered

December 14, 2010
By Steve Cutler

A series of delays postponed the launch of 123 Third Avenue a few years down the road.

But Andrew Bradfield, founder of New York-based Orange Management, co-developer of the 19-story condo, isn’t complaining.

The 47-unit building in “Union Square East,” as the developers like to call it, is getting ready to start selling in what appears to be the first viable sales market in two years.

And with pricing in the $1,100-to-$1,150-per-square-foot range for a location that has very few high-rise luxury condos with 24-hour concierges, sales delayed may not be sales denied.

The building, designed by Perkins Eastman Architects, will have 28 one-bedroom apartments, ranging in price from $585,000 to $950,000. Most of the rest of the units are two-bedrooms, priced between $1.25 and $1.5 million. There will also be four 2,250-square-foot penthouses, which will have asking prices between $3.5 and $4 million.

Occupancy is slated for early fall. And the building is on target for FHA and Fannie Mae approval, said Bradfield.

Despite the still-rocky market, Bradfield said he’s not worried about buyers getting financing because the building’s lender, HSBC, “will also have a program” for them.

“Financing is not going to be an issue,” he told The Real Deal. He said many of the units in the building will have conforming loans “with the standard 20 percent down.”

Still, it’s been a long road.

Bradfield went into contract for the purchase of the southeast corner of Third Avenue and East 14th Street in 2007. “It was a deal put together in a bull market,” he said.

Well, almost a bull market. The tremors in the residential market had just begun to surface at the time, he noted, but “the retail leasing market was improving, so that was really the angle we took.”

The idea was to put together a mixed-use package — anchored by a large, credit-worthy retailer on a prominent corner of Third Avenue — that would have more appeal to a lender than a residential-only project.

Bradfield secured a contract with a longer-than-usual closing date from the owner of the existing building on the parcel. With a year before he had anything to lose beyond deposit money, Bradfield bought three more adjacent parcels, greatly expanding the future retail space, and lined up North Fork Bank (now part of Capital One Bank) as a future tenant. He also bought air rights that would allow him to build 123 Third Avenue to 19 stories.

In order to meet the June 2008 421-a tax abatement deadline, Bradfield and his equity partner in the project, F & T Group, an international real estate firm, began foundation work with their own money. However, F & T had a relationship with HBSC, which signed on to provide construction financing shortly before Lehman Brothers collapsed and the lending spigot for new development shut down.

The next major obstacle was the L subway line, which stops at the condo’s front door. With the subway tunnel and platform smack up against 123 Third’s lot line, the building required an elaborate cantilevered foundation.

Working under MTA constraints slowed the construction clock considerably. The extra-heavily reinforced foundation took about a year.

“They had vibration monitors throughout the site,” recalled Bradfield. “Any time there was even a faulty reading, they needed to shut us down.”

Once the foundation was complete, the building topped off in six months, in January 2010. The panoramic, mullionless glass panels that dominate the façade were put in place late last month. Meanwhile, the attorney general also approved the building’s offering plan late last month and Bradfield plans to open the sales office, currently under construction at 90 East 10th Street, in the next few weeks. He’ll rev up the marketing campaign once construction is complete in the fall.

Bradfield said he would have liked to have launched in the early spring instead, typically the strongest sales season, but said in this market “we want to respond to the buyer who is concerned about completion.”

The downturn (and subsequent uptick) has caused the developers to change price projections of the units at least twice. The project’s initial offering plan listed units starting at $1,200 per square foot. A revised plan dropped prices by about 17 percent, to $1,000 per square foot, the New York Times reported in September 2009.

“But our pricing is definitely higher now than we were projecting at that time,” said Bradfield, “because the new development market is so thin at the moment — the inventory is continuing to shrink — and both sides of the residential market, the resale and new development, are showing signs of improvement, according to our brokers.”

While first-quarter market reports do show an impressive rise in sales activity over the same quarter last year, according to appraiser Jonathan Miller, there’s a “shadow inventory” of new construction units that developers have held back that could be distorting reality.

He said while market reports showed “declining inventory” and “doubling of sales activity,” there was “very little movement of new development.”

In the first quarter of 2008, Miller said, new construction accounted for 38 percent of sales. In the first quarter of 2010, it represented only 16.5 percent. With some 8,700 new units in the pipeline, including the shadow inventory, he estimated, “at that rate of absorption, you’re talking seven to nine years.”

Still, he said, 123 Third was “smart” to position units for FHA loans, which have an upper limit of $729,750.

Corcoran Sunshine’s Elaine Diratz, director of sales for 123 Third, said today’s pricing “is right on for that neighborhood.”

She also likes the timing for the opening. Looking at all the new construction condos in Corcoran Sunshine’s portfolio, said Diratz, “a year ago we might have done 12 deals a month. Now, we’re doing over 40.”

Corcoran Sunshine launched the Dillon, an 83-unit condo on West 53rd Street that has comparable amenities and pricing, early last month. In the first 10 days, she noted, “we had 11 or 12 contracts out.”

Diratz said while banks were requiring 51 or 71 percent of a new construction building to be sold before providing financing not long ago, now, “at 30 percent, we are able to find mortgages.”

And she’s encouraged by the 1,600 inquiries the building’s website has received.

The neighborhood certainly gets a boost from Union Square, although it’s still questionable whether coining the area “Union Square East” will work.

“It describes a geographic location,” said Bradfield, while admitting, “naming a neighborhood is a cliché in itself.”

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