Brookfield eyes stake in $1B Manhattan portfolio: sources

Deadline looms for Urban American and City Investment Fund to recapitalize or break up package

March 05, 2014 04:58PM
By Adam Pincus

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An affiliate of the property giant Brookfield Properties is the leading bidder to buy a large stake as part of a refinancing of a $1 billion apartment portfolio in Upper Manhattan and Roosevelt Island, industry sources told The Real Deal.

The portfolio’s owners, Urban American and the City Investment Fund, are up against a tight deadline and need to recapitalize the 3,962-unit package before $800 million in Fannie Mae loans mature on May 6.

The 26-building portfolio was one of the most expensive multifamily packages ever sold in New York City when New Jersey-based Urban American, which is headed by Philip Eisenberg, and City Investment Fund, which is co-headed by Fisher Brothers and Morgan Stanley, bought it for $948 million in April 2007. The 2007 deal was not only remarkable for its purchase price, but also because it has turned out to be one of the few boom-time mega acquisitions that didn’t slide into default — such as Stuyvesant Town or the Riverton Houses  — or where one of the partners was squeezed out.

Yet the potential refinancing, which valued the portfolio at $1.1 billion, is creating concern among housing advocates, who are worried about the thinning number of subsidized tenants at former Mitchell-Lama buildings.

Those advocates have recently been emboldened by Mayor Bill de Blasio, who just picked a leading housing academic, Vicki Been, as his commissioner for the city’s Department of Housing Preservation & Development.

Urban American and City Investment Fund have launched a two-pronged strategy to pay down the debt on the large portfolio. As previously reported, the partners have hired Savills’ Jeffrey Baker to seek equity partners as part of a recapitalization of the entire portfolio. In addition, they’ve tapped sales broker Aaron Jungreis, president of Rosewood Realty Group, to market two of the complexes — River Crossing and the Heritage — for a combined $450 million to $500 million. Sources said Jungreis was tapped in part to set a market price for the buildings, but also as a back up, in case the refinancing falls through. If the refinancing fails, the partners can sell the two buildings and use proceeds to pay down their current $800 million Fannie Mae loan.

In a refinance scenario, Urban American and its partners would pay off their Fannie Mae loan and take a new approximately $600 million loan out with a different lender. That would require about $475 million in equity because the property is valued at $1.1 billion.

Insiders said that in addition to Brookfield, a number of competing institutional investors are interested in buying a stake of the portfolio, including Starwood Capital Group and Westbrook Partners. They did not respond to a request for comment.

Savills and Brookfield declined to comment and Rosewood, Urban American and City Investment Fund did not respond to a call for comment.

Some insiders questioned the logic of pursuing the two strategies simultaneously, arguing that if the refinancing fails buyers will have greater leverage knowing that institutional players have already turned it down.

Regardless, it is still something of an achievement that the partners were able to hold on to the portfolio, even as lenders took back Stuyvesant Town, Riverton and others. They were likely helped, advocates said, by very cheap debt.

Fannie Mae is currently charging Urban American about 5.4 percent for the first $500 million and a much lower 1.3 percent for the next $300 million, which comes to about $32 million per year, according to industry sources.

Another advantage these owners have is that they have market-rate units, although with some caveats. In 2005, as part of the deal to remove the package from the Mitchell-Lama program, all the tenants were given either “enhanced” Section 8 vouchers or enrolled in a landlord assistance program, an arrangement to regulate rents.

By 2012, the number of tenants with Section 8 subsidies had fallen to about 57 percent from more than 90 percent in 2005, advocates said.

Faheem Abdur-Razzaaq, president of the tenants association at the Heritage, speculated that tenants left because of unmet maintenance issues, but sources close to ownership said the buildings were in good shape.

“Enhanced vouchers are supposed to protect tenants and allow them to live in their communities. If hundreds of vouchers holders have moved out of these properties, they certainly were not able to remain in their communities,” said Ellen Davidson, a staff attorney for the Legal Aid Society, which has tracked several of these buildings.

Insiders said the owners spent about $16,000 on each of the roughly 1,600 units they renovated, as part of approximately $70 million poured into the complexes. They said the current net operating income on the portfolio is about $40 million. Savills marketing material says if the balance of the units — some 2,300 apartments — are renovated the NOI would jump by some 25 percent.

Advocates such as Katie Goldstein, executive director of Tenants & Neighbors, which has organized in the buildings, said they were considering asking government officials for some kind of preservation arrangement.

“I think government players should try and move this to a preservation deal,” Tom Waters, a housing policy analyst at Community Service Society.

The package includes five major complexes. They include the 1,193-Unit 3333 Broadway in Manhattanville; the 1,003-unit Roosevelt Landings on Roosevelt Island; River Crossing, which has 761 units at 1940-1966 First Avenue and at 420 East 102nd Street in East Harlem; the Heritage, a three-building 600-unit complex at 1295 Fifth Avenue, 1309 Fifth AvenueAnd 1660 Madison Avenue in East Harlem; and the Miles and the Parker, which have a combined 405 units at 1890 Lexington AvenueAnd 1990 Lexington Avenue, in East Harlem.

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