The Real Deal New York

Landlord losses

Snapshots of some of the building owners hit hardest by the storm

December 01, 2012
By Adam Pincus

Building owners slammed by Sandy (from top left clockwise): TF Cornerstone’s Thomas Elghanayan, Joseph Moinian, Savanna’s Christopher Schlank, and Bill Rudin.

There are lots of Sandy-related stats out there — from the number of people who lost their homes to the number of meals served to storm victims to the amount of property damage the state incurred (Gov. Andrew Cuomo puts it at $42 billion).

But there are two figures that haven’t gotten very much attention amid the flurry of numbers: the $8.6 billion that Mayor Michael Bloomberg estimated private owners sustained in property damage, and the $4.5 billion worth that the city government suffered, including the hundreds of public housing complexes and commercial buildings it owns.

While hundreds of property owners suffered power outages and mechanical damage from corrosive salt-water flooding, some landlords were luckier than others.

Indeed, as of late last month, the city said 95 percent of all residential buildings in the five boroughs with more than six stories had restored services and were back in business.

Steady progress was made on the commercial front last month as well. For example, on Nov. 5, about 34 million square feet of office space (out of about 101 million square feet) in Lower Manhattan was closed. But three weeks later on Nov. 26, that figure had fallen to 19.9 million square feet in 23 buildings, according to brokerage Jones Lang LaSalle, which has been tracking the situation.

Still, those landlords whose buildings are not yet reopened are dealing with mounting bills for both repairing the damage and for compensating their tenants in the form of rent abatements.

Insiders expect “business interruption” insurance, which many owners carry, to cover such losses. But the possible loss of cash flow mixed with the financial squeeze from paying for repairs before insurance reimbursements come in can mean serious problems for owners.

This month, The Real Deal looked at some of the landlords and managers who were most impacted by the storm — in many cases at more than one building.

City of New York

The City of New York is one of the biggest landlords in the five boroughs, and as such, it suffered more property damage to its real estate portfolio than any commercial owner, according to a survey of news reports and sources by TRD.

For days, more than 79,000 residents in 402 buildings were unable to return to their New York City Housing Authority apartments because they did not have electricity. While most had power restored within a week, more than 10,000 residents in developments such as Red Hook East and Red Hook West in Brooklyn and Redfern Houses in Far Rockaway were unable to return to their homes until the middle of last month.

In addition, the storm impacted other city-owned properties. For example, the Brooklyn Navy Yard Development Corporation, which operates the city-owned Navy Yard on the East River in Brooklyn, said in a statement that it suffered “significant damage” to its electrical infrastructure and had to bring in steam generators from Illinois to restore service to its 275 commercial tenants.

Meanwhile, the city also suffered damage in buildings where it rents space. Indeed, Melohn Properties’ 509,000-square-foot 180 Water Street, leased entirely by the city’s Human Resources Administration, remains closed. The agency is planning to relocate a large number of employees to 470 Vanderbilt Avenue in Brooklyn, where HRA already leases a large chunk of space, one insider said. An HRA spokesperson would not confirm the Brooklyn move, but said the agency expects 180 Water to reopen by the end of January.

While the city has not issued a breakdown of the storm’s impact by agency, losses to NYCHA will be enormous — both for repairs and millions of dollars in rent abatements residents will receive for days they were without essential services.

Click to enlarge

TF Cornerstone

TF Cornerstone’s 2 Gold will not reopen until at least March 2013; 4 New York Plaza is expected to be closed for a year.

The residential development firm — which is run by brothers Thomas Elghanayan and Frederick Elghanayan — is one of the few unlucky landlords that ended up with severely damaged apartment buildings in Lower Manhattan.

In an unusually frank estimate, the company said it expects the 650-unit

2 Gold Street and the 189-unit 201 Pearl, both rentals, to be out of service until at least March 1. That means residents will be out of the buildings for four months.

Based on an average rental rate of roughly $3,500 per month for the last 50 units listed at 2 Gold on real estate website StreetEasy, TF Cornerstone will end up losing an estimated $11.7 million in rent. The company also released residents in both buildings from their leases, though it’s unclear how many residents took the firm up on its offer.

Those rental expenses, of course, do not include the millions more that the firm (or its insurance company) will likely have to pay for repairs to its buildings’ water-damaged electrical and mechanical systems.

On top of that, two tenants — one from each building — joined forces to file a lawsuit against TF Cornerstone last month. The suit seeks class-action status for an unspecified amount of damages they claim to have suffered through the storm because of alleged negligence in preparing for flooding and even the building design on the part of the properties’ owners.

TF Cornerstone, through a spokesperson, said the lawsuit lacked merit and expected that it would be dismissed.

“Our management team took all appropriate precautions in preparing for the storm, including installing the flood gates and advising tenants to evacuate as per [Mayor Bloomberg’s] order,” the statement said.

UDR

The Denver-based residential real estate investment trust UDR, which owns 55,000 apartments nationally, has been the most transparent company about its financial losses. That’s in part because it’s a public company bound to report material impacts on its finances.

It is the only firm that’s issued a statement estimating its financial damages from the storm so far. On Nov. 12, the company said its damages might be as much as $32 million for its three New York residential rental properties: 95 Wall Street, 10 Hanover Square and Rivergate at 401 East 34th Street.

Tenants who had been evacuated after the late October storm were not able to return to Rivergate and 10 Hanover Square until Nov. 12, and 95 Wall a few days later.

The firm said it has insurance that covers flood damage and business interruption, and it expects the carrier to cover all of its expenses, even though it has a $1.5 million deductible.

Edge Funds Advisors and HSBC Alternative Investments

One of Lower Manhattan’s biggest storm causalities has been 4 New York Plaza. Images of giant hoses pumping water out of the building have accompanied news stories and blogs posts for the last month.

The building is also home to some high-profile tenants, including the New York Daily News and U.S. News & World Report — both owned by Mort Zuckerman — and JPMorgan Chase.

The owners of the 1.1 million-square-foot tower — Washington, D.C.-based Edge Fund Advisors and HSBC Alternative Investments, a division of the London-based HSBC — had the unlucky fortune of buying the property in May, just five months before the storm. They purchased it from Harbor Group International for $270 million (see related story, “2012′s biggest moneymakers”).

Now they are dealing with heavy damage from flooding. While they have not publicly commented on the situation, Zuckerman said it would be a year before his company could return to the building, the Observer reported.

His two publications lease just under 100,000 square feet combined (on floors six and seven), figures from CoStar Group show. JPMorgan, the building’s largest tenant, leases nearly 800,000 square feet.

Cooper Square Realty

Midtown-based Cooper Square Realty, one of the largest residential management firms in the city, said the storm caused “extensive damage” to approximately 40 of the New York City buildings it manages. As a manager, and not an owner, Cooper Square is not on the hook for the damage. Still, the firm is potentially exposed in another way: litigation.

And it’s responsible for getting its buildings operational again — a time-consuming process that eats into the company’s productivity.

Cooper Square is a subsidiary of the Florida-based FirstService Residential Management (the firm’s Toronto-based parent company, FirstService, owns Colliers International). Some of the buildings it manages include Forest City Ratner’s rental 8 Spruce Street; the Downtown Club, a condominium at 20 West Street developed by the Moinian Group; and the condominium Greenwich Street Residences at 88 Greenwich Street, developed by Thor Equities and Buttonwood Real Estate. Since the condos that Cooper Square manages are sold out, the developers are not as exposed.

But the same can’t be said for Cooper Square. One condo owner at 88 Greenwich, which is expected to reopen early this month, claimed in a $35 million lawsuit that the company and the condo board were unprepared for the storm.

Adam Leitman Bailey, founder of the law firm with the same name, said it was unusual for a plaintiff to file a lawsuit so quickly, when damages are likely not well understood.

“Whether building owners [and managers] should have taken more actions to prevent the consequences to their buildings from Sandy will take years to be answered in many courts of law,” Bailey said.

Cooper Square did not respond to a request for comment. But FirstService said it would provide $10 million in loans to owners of the properties it manages in New York through Cooper Square as well as in New Jersey to speed up repairs in buildings where insurance payouts can take weeks or months.

Savanna

Left, Savanna’s 80 Broad Street is still closed, but is expected to reopen before the end of the
month; right, the city rented space at 180 Water Street, which will be closed until the end of January.

The real estate investment fund has snapped up distressed properties all over Manhattan during the past several years, including four in Lower Manhattan.

Two of those — the 410,000-square-foot 80 Broad Street and the 480,000-square-foot 100 Wall Street — remained closed as of late last month.

Brokers in Lower Manhattan, who did not want to be identified discussing individual buildings, said they expected 80 Broad to reopen before the end of December. It’s unclear when the second building will reopen, and a spokesperson for the firm declined to comment.

The smaller 80 Broad takes in about $1 million per month in rental revenue, while 100 Wall brings in about $1.5 million, city Department of Finance records show.

An administrator at FGI Finance, a tenant at 80 Broad that provides business loans and other services, said Savanna kept the company posted on developments with several e-mails over the past few weeks, but noted that more communication about when the building would reopen would have been better.

“It would have been nice, so we could have prepared a little better,” said Christine Casale, who worked remotely all of last month.

Rudin Management

The family-owned development firm owns five large office buildings in Lower Manhattan.

While several were closed temporarily, such as the 405,211-square-foot 1 Whitehall Street, two of them remain out of operation. Those two are the 993,000-square-foot 80 Pine Street (with tenants including law firm Cahill Gordon & Reindel) and the 292,627-square-foot 110 Wall Street, which is home to trading firm Toussaint Capital Partners.

One Downtown broker speculated that 80 Pine would reopen before the end of the year. It was unclear, however, when 110 Wall would reopen.

Each month that a building is closed, the monthly gross income is put at risk, of course. At 80 Pine, for example, that income is estimated by the city’s Department of Finance at about $3 million.

Rockaway Park retail strip

A devastating fire sparked by utility wires the night Sandy hit destroyed 17 low-rise commercial and residential buildings stretching for more than two blocks on the north side of Rockaway Beach Boulevard, between Beach 113th and Beach 116th streets, in Rockaway Park, Queens. The buildings were valued at more than $20 million, an analysis of city Department of Finance records show.

The owners on the scrappy blocks — whom CoStar identifies as individuals including Yaron Kayan, Owen Baxter and Emerald Rock — generally own a building or two, a review of property records show. Tenants in those one- and two-story properties included a barber shop, a medical center and a shoe repair store.

Kayan — whose two-story building 114-20 Rockaway Beach Boulevard was destroyed — said he has not yet thought about replacing it or selling the parcel. City records estimated the building’s market value at nearly $1 million, but such figures are often far lower than true market pricing.

“I am not thinking about that yet,” he said. “I am busy taking care of buildings that survived the storm.”

CWCapital

Despite being in evacuation Zone B, where the city did not require residents to clear out, many buildings in Stuyvesant Town and Peter Cooper Village suffered flood damage. That was especially true on the eastern edge of the complex, which is closer to the water.

While most of the residents in the 11,200-unit complex were able to return to their homes within a week, some lacked elevators or hot water for longer.

And since the property owner, CWCapital, offered rent abatements for residents without essential services, and repairs for flooded mechanical equipment, the total lost revenue will likely add up to millions of dollars. CWCapital did not respond to a request seeking an estimate of damage.

In addition, the landlord was requiring tenants to sign a waiver if they wanted to retrieve their belongings from storage in the flooded basements of the complex. The waiver released CW from any damage liability and injury connected to going into the storage area.

But CW is not alone in its waiver requirement. Many landlords of storm-damaged properties have also required visitors to sign waivers if they enter a yet-to-be-opened building.

Moinian Group

The Moinian Group, headed by CEO Joseph Moinian, has one of the largest commercial and residential holdings in Lower Manhattan. Eight of Moinian’s properties — totaling more than 2 million square feet — were damaged in some way by the hurricane.

The company, after coming under fire from tenants for sending out rent bills days after the storm (which many other property owners did as well), announced on Nov. 6 that it would provide rent credits for the days that all its commercial and residential tenants were unable to use their space. A company spokesperson declined to provide an estimate for how much that would be.

Following repairs, just three of the firm’s buildings remained closed as of the last week in November. The office towers 17 Battery Place North and South — which city records show have an estimated combined annual pretax net operating income of $13 million — are not expected to reopen to commercial tenants until Dec. 15, a company spokesperson said. The buildings are home to tenants such as the nonprofit jobs placement firm Wildcat Service and will soon be home to the New York Film Academy.

The other closed property, 1 West Street, a residential building, was expected to reopen the last week in November.

Alma Realty

Single-family homeowners suffered extraordinary hurricane-related losses in the Rockaways, but apartment landlords were also hit with mechanical damage and potential lost income through rent abatements.

The Long Island City–based Alma Realty, which CoStar shows to be one of the largest owners of residential apartment buildings in the Rockaways, was one of those property owners.

The company owns Surfside Park Apartments (also known as Surfside Houses) — a complex of three large buildings with a total of 770 units in the neighborhood. The complex had no power for 12 days, resident Carol Albert told TRD.

Albert said the firm left tenants in the dark, providing no communications about when the building would reopen again. It finally did on Nov. 10, but the next day she received her monthly rent bill, which made no mention of the storm or of a rent abatement for the time she could not stay in her apartment. As of late last month, she still had not been notified of any abatement.

Alma did not respond to a request for comment nor provided an estimate of the damages.

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