The Real Deal New York

How Brookfield went from a potential lender to the owner of a massive Bronx project

Developer is taking over Somerset and Chetrit’s site in Mott Haven
By Eddie Small and Mark Maurer | April 04, 2018 01:45PM

Ric Clark, 2401 Third Avenue and 101 Lincoln Avenue (Credit: Brookfield and Hill West Architects)

Ric Clark, 2401 Third Avenue and 101 Lincoln Avenue (Credit: Brookfield and Hill West Architects)

UPDATED, 3:44 p.m., April 4: When Somerset Partners and the Chetrit Group were getting started on their massive South Bronx project, Brookfield Property Partners was in talks to be a possible lender. Instead, it’s becoming the owner.

Chetrit and Keith Rubenstein’s Somerset Partners are selling the site of their megaproject to Brookfield for about $165 million, according to sources familiar with the deal. The developers initially spent $58 million acquiring 2401 Third Avenue and 101 Lincoln Avenue along the Mott Haven waterfront, and broke ground on the first phase of the seven-building development last year. Now, they’re bowing out.

“It posed a really good opportunity for both sides,” Rubenstein said. “For them to develop a large-scale property, for us to realize a profit on the land that we bought and studied and worked on for the last couple years.”

Chetrit, the dominant equity partner, and Somerset began the search for as much as $500 million in construction financing last March. If they had been successful, it would have likely been a record for a private development in the borough.

Although a consortium of several lenders was in talks to finance the construction, no term sheets had been signed, sources said.

“Joe and Keith had a wonderful plan for the site, and we had a ton of interest,” said Robert Verrone of Iron Hound Management, which was handling the financing search with Adi Chugh’s Maverick Commercial Properties.

The New York Post first reported on the deal.

Rubenstein told The Real Deal that he and Chetrit had talked to several lenders about making a construction financing deal for the project, including, at one point, Brookfield.

“We did speak to them early on,” Rubenstein said, “but nothing concrete.”

The deal, which is being brokered by a Cushman & Wakefield team led by Doug Harmon, Adam Doneger and Adam Spies, is expected to close in June.

Rubenstein has become a prominent investor in the South Bronx over the past few years, helping to open local businesses including the café Filtered Coffee, the Italian restaurant La Grata Pizzeria, and the boxing gym SouthBox. He even relocated Somerset’s offices to the neighborhood’s Bruckner Building at 2417 Third Avenue, where the company signed a five-year lease for 3,000 square feet.

Rubenstein’s interest in gentrifying the borough has generated controversy, particularly in 2015 when he threw a star-studded “Bronx is burning”-themed party and put up a billboard welcoming people to the “Piano District,” which residents took as an attempt to rebrand the working-class neighborhood.

Although his flagship project is now in the hands of another developer, Rubenstein said he remains a believer in the South Bronx.

“I’m committed to being in the Bronx. I have other properties,” he said. “I have businesses here. I have my offices here. I have friends here.”

To some, Chetrit’s move to sell was not a surprise. The firm famously sold the Sony Building for $1.4 billion in 2016, abruptly abandoning plans for a residential condominium conversion.

Joseph Chetrit is “not the kind of guy who buys a building or site and falls in love with it for the rest of his life,” a source said. “There’s always a chance that he will sell.”

The source said that Chetrit, who is developing a 73-story tower in Brooklyn and redeveloping the Cabrini Medical Center in Gramercy, also decided to sell because he “has a lot going on right now.”

The deal also increases the likelihood that Toronto-based Brookfield — one of the world’s biggest real estate managers and a developer that rarely prematurely exits its projects — will see the project to completion. The new owners’ track record is expected to remove remaining uncertainty surrounding the project, which was in need of one of the Bronx’s largest-ever construction loans under the previous ownership.

Brookfield came in at No. 2 on TRD’s recent list of most active developers in Manhattan with 3.8 million square feet of projects, largely because of its office towers at One and Two Manhattan West. But more tellingly, the development giant is also working on another waterfront megaproject in the outer boroughs — Greenpoint Landing, which will span 22 acres and feature 5,500 residential units across 11 buildings.