Heads turned when the late florist-turned developer Robert Isabell paid nearly $900 per buildable foot, for a two-story commercial building in the Meatpacking District, last year.
The sought-after event planner and designer of eye-catching floral arrangements wanted to create a five-story office and retail structure in the trendy neighborhood, to be constructed upon the existing 1938 Meatpacking building at 837 Washington Street at 13th Street, across from the hip Standard Hotel.
But Isabell died in July 2009 at the age of 57, before securing approval for his design from the city’s Landmarks Preservation Commission. Now an affiliate of investment firm Square Mile Capital Management, which lent Isabell and a minority partner that a source identified as James Ortenzio a total of $48 million, is suing to foreclose on a portion of its loan.
Isabell bought the 13,125-square-foot building in July 2008 for $45 million from Ortenzio, city property records show.
Square Mile Capital, through two debt funds, lent $48 million to the partners, in a complex deal that involved a second property, 410 West 13th Street, owned and developed by Isabell.
The investment funds lent $24 million on The 837 Washington Street property, secured by a mortgage on the same property, according to the lawsuit filed Sept. 10 in New York State Supreme Court. The suit seeks to foreclose on the $24 million mortgage.
The remaining $24 million was lent as mezzanine loans, the suit says.
A source familiar with the litigation said the $24 million in mezzanine loans was lent on both 837 Washington Street, owned by Isabell and Ortenzio; as well as Isabell’s 410 West 13th Street, an office and retail building which is near completion. A specific allocation to each property was not available.
Brokers were skeptical from early on that Isabell would be able to repay the short-term loan.
A central challenge was that city zoning regulations permit a building with a total of only about 51,000 square feet to be constructed on the Washington Street site, giving the purchase a cost of about $871 per square foot, a very steep price just for the land.
To develop the site, Isabell applied in 2008 to the landmarks commission to build additional floors on the existing building to create a five-story “green” structure that would collect its own rain water, have a rooftop putting green and a reconstructed facade, an agency spokesperson said in an e-mail.
But it was unlikely that he would win approval for a five-story building, due to tight regulation of the district by the landmarks commission, brokers said.
“I never understood the price,” for the land, one sales broker familiar Isabell’s properties.
Highlighting the fall in values in the neighborhood, asking rents at for the ground-floor retail portion of Isabell’s entirely unleased 410 West 13th Street fell from about $350 per square foot in early 2008 to $250 per square foot this year but could fall further, according to a retail broker speaking on condition of anonymity. Retail asking rents fell by 20 percent at 414 West 14th Street, to $400 today from $500 in the spring, the broker said.
In fact in March 2009, commissioners told Isabell the Washington Street building was far too big, and several members said they would only approve a maximum three-story building, Landmarks said.
The building ownership entity, comprised of Isabell’s estate and Ortenzio, was not able to repay the short-term $48 million loan which carried an eye-popping 20 percent interest rate by its due date of Aug. 1, 2009, Square Mile Capital says in the lawsuit.
Square Mile and the ownership entities of both Isabell buildings are currently in negotiations, and both buildings could be put on the market for sale, a source familiar with the litigation said.
Investment sales broker Adelaide Polsinelli, associate vice president with Marcus & Millichap Real Estate Services, estimated the Washington Street property to be worth only about $300 per square foot today.
As retail asking rents fall in the neighborhood despite the opening of the High Line park, retailers have pulled back spending and capital budgets, retail broker Michael O’Neill, director at Cushman & Wakefield, said.
“Their expectations have become more conservative,” he said.