Riverton owners face $4M transfer tax

By Adam Pincus | March 12, 2010 06:40PM

The new owners of the rent-stabilized Riverton Houses in Harlem that sold at auction yesterday will have to pay a hefty transfer tax of just under $4 million after they take title to the property in the next couple of days, real estate experts said.

Financial firm CWCapital Asset Management, the special servicer for the loan on the 1,228-unit Complex Between 135th And 138th Streets And Fifth Avenue and Harlem River Drive, won the property at an auction yesterday with a bid of $125 million. Since it was representing the commercial mortgage trust that held the Riverton loan, it effectively put the foreclosed property back into the hands of the lender.

Tom Fink, senior vice president of Trepp, which tracks mortgage-based securities, estimated the tax liability to be $3.8 million.

There was one other bidder, Morgan Capital, in the Rotunda of The State Supreme Court building at 60 Centre Street, among approximately 75 attendees. An attorney representing Morgan Capital made their final bid of $120.1 million, but was bested by $125 million figure from CWCapital. David Bistricer told The Real Deal yesterday that he was the bidder through Morgan Capital.

The auction was held to satisfy the $240.6 million in loans and debt on the property, purchased by developer Laurence Gluck in 2005, and refinanced in 2006 with hopes that rents would increase enough to pay the debt service, but that never happened. 

Alex Guggenheim, the senior vice president at CWCapital, talking to reporters at the courthouse yesterday at the conclusion of the approximately 10 minute auction that started just after 11 a.m., said either the trust or CWCapital would pay the tax but did not say how much it would be. 

The transfer of ownership raises additional questions about the future of the complex. 

An official from Rose Associates was at the auction, fueling speculation that the real estate owner and management firm would be taking over management, but a spokesperson for the company would not comment, and CWCapital’s Guggenheim declined to comment. 

Also, brokers wondered about who would be offering the property for sale. Roberto Ortiz, a senior director at sales firm Eastern Consolidated, who was at the auction, said he would likely give CWCapital a call to see about representing the property. 

Housing advocates questioned how CWCapital or the competing bidder David Bistricer, could value the complex, and in turn submit bids, at what they considered a very high price. 

Dina Levy, director of organizing and policy at housing advocacy group Urban Homesteading and Assistance Board and who attended the auction, said the price was far above the $80 million that her group believes is the current value of the property.

The property was appraised last year at $108 million, Trepp reported in September 2009.  

“What is troubling is that there are people out there getting financing for $120 million and willing to spend it although arguably it is $12 million above the appraised value and $40 million over the real value,” she said. 

Fink speculated that CWCapital believed the property was worth more than Bistricer was bidding, despite the low appraisal.

“Because [CWCapital] think[s] that it’s worth more than $120.1 million, even with a $108 million appraisal. The special servicer has the obligation to get the best net present value,” he said in an e-mail. 

Also, the capitalization rate — a widely used figure to value a property, derived by dividing the net operating income by the sales price — was 3.2 percent, low in the current environment. The 3.2 percent figure is derived by the net operating income of $4.1 million in 2007, from data supplied by Trepp. 

The average capitalization rate in Northern Manhattan in the second half of 2009 was 6.5 percent, according to a January report from Massey Knakal Realty Services. 

Shimon Shkury, a broker and partner at Massey Knakal who also attended the auction, suggested one way to stabilize the property was to attract the backing of the city or federal government to keep it affordable.   

“This asset will be very viable not only to return oriented investors but also to affordable housing for-profit and non-profit operators,” Shkury said via e-mail.