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More lenders likely to force developers to go rental or sell off debt

Between the thousands of condominium developments in various stages of development and the reduction in sales volume, it is not surprising to learn that lenders are taking back the keys for high-rise condo projects or forcing developers to turn their condos to rentals.

During the first week of the month, Fortress Investment Group took over the defaulted mortgages and acquired possession of the Sheffield 57, the condo conversion of the 50-story building at 322 West 57th Street. The property was purchased in 2005 for $418 million by a partnership of Kent Swig, Yair Levy and Serge Hoyda.

New Jersey-based Metro Homes is the developer of the 55-story, 444-unit residential condo tower, Trump Plaza Jersey City. According to Dean Geibel, the chief executive of Metro Homes, which is co-developing the project with the Trump Organization, approximately half of the units were sold when first mortgage lender iStar Financial took over control of the luxury development.

According to the Brooklyn Eagle, 5,285 market-rate condo units were planned for Downtown Brooklyn. Due to lack of financing and the slowdown in sales, less than 1,600 units are expected to be completed. Condo projects include the 40-story Oro at 306 Gold Street, the first ground-up residential high-rise built after approval in 2004 of the Downtown Brooklyn rezoning; One Hanson Place, the conversion of the tallest building in Brooklyn -- the former Williamsburgh Savings Bank; the Berkshire Capital conversion of the 27-story former Verizon Building at 7 Metro Tech Center; and BFC Partners' 38-story condo the Toren at 150 Myrtle Avenue in Fort Greene.

Earlier this month, German-based Eurohypo Bank announced plans to take back ownership on the 30-story, 108 unit Forte condo at 230 Ashland Place in Fort Greene. According to Real Estate Finance & Investment, only 36 of the units had been sold since by developer the Clarrett Group along with its majority equity partner Goldman Sachs Group, who had defaulted on a loan with an outstanding principal of approximately $40 million.

Industry leaders expect the lenders to sell the debt at a discount or take over ownership of another Downtown Brooklyn condo. According to sources, sales are stagnant at SDS Procida and equity partner Jamestown Properties' be@Schermerhorn. The 246-unit condominium is at 189 Schermerhorn Street between Hoyt and Smith streets, in Downtown Brooklyn.

A number of condos planned for Downtown Brooklyn have been scrapped or changed to residential rental developments. During the next six months, industry leaders expect a number of lenders who have provided financing for condos in Downtown Brooklyn and Williamsburg to force developers to convert the properties into rental buildings or sell the debt to developers and investor groups.

Michael Stoler is a columnist for The Real Deal and host of real estate programs "The Stoler Report" and "Building New York" on CUNY TV and on WEGTV in East Hampton. His radio show, "The Michael Stoler Real Estate Report," airs on 1010 WINS on Saturdays and Sundays. Stoler is a director at Madison Realty Capital as well as an adjunct professor at NYU Real Estate Institute, and a former contributing editor and columnist for the New York Sun.