The CEO of DDG Partners, Joe McMillan, at 41 Bond Street, which is under construction.A development team on Bond Street is placing a $34 million bet on the market.
The savvy new investment partnership is making the risky gamble that by the time they are ready to sell, the condo units they are building at 41 Bond Street will fetch at least around what comparable apartments did at the top of the market in 2007.
In one of the few high-profile land acquisitions of the downturn, in September, DDG Partners bought the vacant land on which the firm is now erecting a nine-story condo, for just over $9 million. The firm is planning to spend approximately $25 million more on construction, according to Joe McMillan, the CEO of DDG.
The project will add to the string of boutique buildings already lining the street, including its most high-profile condo, 40 Bond Street by Ian Schrager, along with the Deborah Berke-designed 48 Bond and the stone-and-glass 25 Bond.
While plans for the units at 41 Bond are not finalized, so far the developers are looking at building eight floor-through units of between 2,500 to 3,000 square feet each, McMillan said.
Based on the $34 million in total expenses and up to 24,000 square feet of buildable apartment space, it appears DDG will spend just over $1,400 a square foot on the project.
By comparison, luxury condos on Bond Street were selling in the mid-$1,600s a square foot two years ago, according to StreetEasy, with the exception of super-premium 40 Bond, which exceeded $2,300 a square foot.
“Would I want to be selling condominium units today?” McMillan said. No, he said, he would not. He’d rather be buying.
When McMillan and partners formed DDG in spring 2009, he recalled, “it was clear there was distress in the market” both in Manhattan and nationally.
Still, they are bullish on New York real estate — circa 2012, that is.
They’ve been very public about that since the Bond Street acquisition, announcing that they are aggressively scouting deals in which they can invest $10 million to $25 million.
“I think that 24 months from now, a good portion of the supply will have been worked through,” McMillan noted. “So coming to market then, I think we will be in a good competitive position.”
He added: “Bond Street is one of a series of projects we expect to announce in the next six to 12 months.” He expects most of the projects will be much larger than 41 Bond.
Whatever deals they make in the future, in this market the Bond Street acquisition alone is causing a stir.
Appraiser John Cicero, co-founder of Miller Cicero Real Estate Advisory Services, said, “This is something we haven’t seen in awhile — a real live sale.”
“To me it was an inkling that maybe we’re getting back to normal again — slowly,” Cicero said.
The projected costs the developers have quoted seem high, said Cicero. The $25 million in construction costs above the $323 per buildable square foot they paid for the land, he noted, “is a very big number. You don’t see many $900-a-square-foot construction costs.”
DDG plans to begin sales between June and December 2011 — when the developers will have at least a model apartment to show — at prices to be announced.
But the broker for the project, Prudential Douglas Elliman’s Tamir Shemesh, said sales could begin sooner.
“If a year from now, financing is much easier and the demand is higher and we see that the market will allow us to sell apartments before they are finished, [we’ll start selling],” Shemesh said.
For its part, DDG consists of McMillan, a former investment banker, attorney JC Keeler, developer Chris Prokop and architect Peter Guthrie. In various combinations, the partners have developed 7 Essex, Landmark 17, 18 Orchard and 24-26 Warren Street in Manhattan, as well as a four-building condo project in Carroll Gardens.
According to McMillan, the firm is funded “by a select group of family-owned investors from the Northeast who believe, as do we, that this is one of the best times in recent history to acquire real estate.”
McMillan conceded that the market will not start going up for awhile, but that’s fine with his firm. It beats buying in a rising market, he said.
Adam Gordon, the former owner of 41-43 Bond Street, did just that (DDG shortened the name to 41 Bond).
Gordon bought the site for $7.7 million in June 2007. While he sold it to DDG for over $9 million, he spent a significant amount of money on “soft costs,” such as emptying the existing two buildings of tenants, commissioning architect Steven Harris to design the new building, and hiring Thomas O’Hara as the architect of record.
Perhaps the most arduous aspect of the process was getting the project, which lies within the Noho Historic District, approved by the Landmarks Commission.
That process took a full year, and Gordon lost $100,000 a month for much of that time because of the delay, he told the New York Sun in 2008.
Once he won approval, he had to get permission from the city to start demolition of the existing buildings and construction of the new one. That approval was finally granted in June 2009.
“Mr. Gordon did a tremendous amount of work,” said McMillan, who noted that DDG began talking with Gordon about buying the property early last year. “I really credit him with taking something from 2007 to 2009 in a very challenging time, and making huge progress.”
While Gordon unloaded 41 Bond, he has retained another property on the street — the cast-iron landmark Bouwerie Lane Theater building — at 54 Bond. He acquired that property in 2007 for $15 million, and he has converted it into a condo with just three apartments, including a triplex penthouse listed at $15.45 million.
Meanwhile, once DDG acquired the 41 Bond site, the developers wasted no time in starting construction. The firm began excavation in early October, and started pouring concrete shortly after that.
To a great extent, DDG will follow plans drawn by architects Harris and O’Hara.
The façade facing Bond will be traditional-looking limestone. The back portion of the building will be “slightly more modern,” McMillan said.
The layouts will also be modern, with large windows and ceilings between 12 and 15 feet high, he said. And while DDG intends to create eight units, that could change too.
“We’ve been approached by individuals who became aware of the project, who said, ‘Can you do a duplex for me?'” McMillan said.