Vornado Realty Trust and Oxford Properties Group, along with SL Green Realty, are mezzanine investors in HFZ Capital Group’s Bjarke Ingels-designed condo development 76 11th Avenue, according to SL Green’s quarterly report.
The three companies add to the growing list of developers issuing mezzanine loans to their peers, filling a void left as some traditional lenders retreat from condo construction financing.
Oxford , Vornado and SL Green each hold a one-third stake in a $138.2 million loan package secured by the property’s owning entity. According to SL Green’s report, the loan closed in March. A source familiar with the deal told The Real Deal that the loan is part of an acquisition financing package led by JPMorgan that HFZ secured last May. Howard Michaels’ Carlton Group arranged the financing. TRD and other outlets reported SL Green’s involvement in the project’s financing at the time.
HFZ bought the 36,000-square-foot development site, which straddles the High Line between 18th and 19th Streets, for $870 million last May. It plans to build two retail and condo towers totaling 764,000 square feet. HFZ’s Ziel Feldman told TRD last year that the roughly 300 apartments will average between 1,500 and 2,000 square feet and ask between $4 million and $8 million.
Over the past year, a growing number of development have issued mezzanine loans to their peers – offering much needed funding as condo-wary banks retreat from the market. RXR Realty’s Scott Rechler, for example, told TRD in February that the company plans to issue $500 million in mezzanine construction loans. “When there’s volatility you want to decouple yourself from broader market trends to try and find investments where you can capitalize on the impact of that volatility,” he said.
For developers, issuing mezzanine loans offer the chance to make a decent profit while taking on less risk than as pure equity investors. It also has the perk of potentially being able to foreclose after a default and win a property on the cheap.
In February, the Durst Organization moved to foreclose on Ian Bruce Eichner’s East Harlem development site 1800 Park Avenue after the developer defaulted on its debt. And in the same month, developer Joseph Beninati filed for bankruptcy protection to prevent his mezzanine lender, Richard Kalikow’s Gamma Real Estate, from foreclosing on the condo project 3 Sutton Place.