Lender Apollo defends economics of 111 West 57th St.

Analyst asked if JDS and PMG's supertall project should be “mothballed” amid market volatility

TRD New York /
Feb.February 10, 2016 05:05 PM

Faced with both an uncertain global economy and signs of softening in the city’s ultra-luxury condominium market, should JDS Development Group and Property Markets Group really be soldiering on with plans to build 111 West 57th Street?

That’s the question an analyst asked of top executives at Apollo Commercial Real Estate Finance, which provided the mezzanine debt for the supertall project on Billionaires’ Row.

“Is it your understanding that, despite all the volatility in CMBS and market disruptions, that the developers there are – is it their plan to continue to march forward and at this point?,” Steven Delaney, an analyst at JMP Securities, asked during the real estate investment trust’s earnings call Wednesday. “Nobody’s pulling back and saying, ‘Okay, I am putting my project on mothballs till the market settles down?’”

Certainly not, said Scott Weiner, the head of Apollo’s commercial real estate debt business.

I think they and we still feel very comfortable with the basis,” Weiner continued. “There’s obviously plenty of sales that are in the press and other that are well in excess of certainly our basis and also the sponsors’ basis,” he responded. “I can’t speak to their strategy in terms of how they want to approach presales, but there’s certainly no — they don’t have to sell anything right now. If they choose to sell, they can.”

Apollo Commercial Real Estate Finance (ARI) is a real estate investment trust backed by Leon Black and Marc Rowan’s Apollo Global Management. Stuart Rothstein, COO of Apollo Global’s real estate business, also looked to dispel worries about the viability of the project during the call.

“Is what’s going on a risk-off mentality and a lack of liquidity, or it is a fundamental shift in the underlying economy and are we heading towards a recession?” I’d say I’m not smart enough to know the answer to that,” he said. “At least as we sit here today, if you looked across most markets, real estate fundamentals are still okay. Yes, there has been the announcement recently that some projects will probably go at a slower pace but to the specific project you referenced in your question, it is actively under construction everyday and at this point, the project is capitalized and it will continue to move forward.”

The question, a signal of the market’s broader worries about a correction at the top of the Manhattan residential market, comes as lenders begin to retreat from financing uber-luxe projects.

Apollo provided a $325 million mezzanine loan for the West 57th Street project last year, as part of a $725 million financing which also comprised a $400 million first mortgage loan from AIG.

The developers are projecting a sellout of $1.45 billion for 65 apartments, according to the offering plan, which was approved by the New York Attorney General in October. The priciest condo is asking $58 million, or $8,179 per foot. A spokesperson for JDS did not immediately respond to a request for comment.

Meanwhile, ARI reported profits of $27.2 million and revenues of $43.2 million in the fourth quarter, beating Wall Street’s expectations. Its commercial real estate portfolio totaled $2.5 billion by the end of the year, representing a year-over-year growth of 52 percent.

And the firm’s appetite for condo financing appears to still be strong. It provided a $77 million mezzanine loan to a condominium conversion by the Elad Group and the Peebles Corporation at 108 Leonard Street in January.

Asked about the price point of the 108 Leonard Street condos, Weiner responded: “Our last dollar is around $1,400 a foot for stuff that the sponsor and brokers and we think it’s going to sell well in excess of that.”

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