Yoel Goldman now has the money to finish his much-hyped Bushwick rental megaproject. But the debt’s likely going to cost him a lot more than he had hoped, after an accounting scandal in Israel involving the prolific Brooklyn developer spooked U.S. banks and stymied a senior-loan deal.
In November, The Real Deal reported that Goldman’s All Year Management had a term sheet in place with a lender for a $230 million refinancing of the second phase of the Rheingold Brewery redevelopment. The deal would have given Goldman the money to pay off Madison Realty Capital, its existing lender on the project, and complete construction of the second phase, a 385-unit rental at 123 Melrose Street.
The lender on the prospective deal, sources said, was Mack Real Estate Group, an active real estate investment and lending firm run by William, Richard and Stephen Mack. Private lenders will sometimes commit to providing a loan, and then sell off the A-note, or the most senior piece, to a conventional large lender such as Citibank or Deutsche Bank. Profits are made off the spreads.
Mack, however, couldn’t find a bank willing to take on the debt, sources familiar with the deal said, given All Year’s recent troubles. In early December, the company reported what it described as an accidental transfer of $3.7 million from the company’s funds to Goldman’s personal accounts. After the disclosure, All Year’s bonds were downgraded on the Tel Aviv Stock Exchange, and yields on two of the bond series skyrocketed. In January, bondholders filed a class-action suit against All Year in Israel, alleging that it breached securities laws.
With no willing bank suitor, Mack was forced to change tack. It opted to issue Goldman a $65 million mezzanine loan, which sources said closed Tuesday. Madison will continue to hold a $165 million loan on the property.
That means Goldman has the refinancing he was looking for, but at far pricier terms than if Mack had been able to woo the banks and issue a $230 million senior loan. Mezzanine loans typically carry interest rates between 10 and 12 percent, which is roughly double what a conventional senior loan would have carried. And Madison’s money has a minimum interest rate of 10.5 percent, filings with the Tel Aviv Stock Exchange in November 2016 show.
All Year couldn’t be reached for comment. Mack declined to comment, but a source familiar with the company confirmed that the mezzanine loan had closed and said the firm and All Year are in the process of replacing the senior loan. Madison declined to comment. Henry Bodek of Galaxy Capital Group, who brokered the new financing, declined to comment.
The million-square-foot ODA New York-designed project is set to be one of Brooklyn’s largest new rental developments, with over 800 units, more than 100,000 square feet of retail space and an 18,000-square-foot park. Goldman bought the parcels for the project in deals totaling $140.7 million.
The first building, dubbed “Denizen Bshwck” with an address of 54 Noll Street, is complete and has 433 rental units. (Madison was also a lender on that property, but was bought out by Goldman’s Israeli bond investors in a direct first-mortgage deal.)
Goldman is one of the most prominent developers from Brooklyn’s insular Satmar Hasidic community and controls over 140 rental properties in New York, according to a 2016 analysis by TRD. He was one of the pioneers of raising debt on the Israeli bond market for New York-based projects, but may have since become one of the trend’s cautionary tales. Another notable fundraiser on the Israeli bond market, Brooklyn-based Brookland Capital, is facing intense pressure from bondholders and is now selling off many of its holdings.