UPDATED, 5:54 p.m., June 10: The first thing you see when you walk into the swanky lobby of HFZ Capital Group’s Midtown office is a sad-looking rhinoceros suspended from a crane. Standing shoulder high on a coffee table in the middle of a swanky lobby, the crane is a sculpture by Italian artist Stefano Bombardieri. According to HFZ’s President Ziel Feldman, the art is a metaphor for harnessing power. And considering recent events, it seems it also has another message: This is a company that’s going after the big game.
Feldman’s other metaphorical rhino is 518 West 18th Street. Early last month, HFZ paid a staggering $870 million for the 36,000-square-foot development site straddling the High Line in one of the most expensive land deals ever recorded in the city.
Without laying a single brick, HFZ has already spent around $1,100 per hypothetical square foot on its planned condo project. In order to make a profit, it will have to sell out two very large buildings at very high per-square-foot prices.
And the amount that Feldman shelled out for the site seemed to confirm growing fears that land prices have gotten out of hand.
Even developers who are generally bullish on the High Line appeared slightly taken aback by the price HFZ paid.
“Can you think of any other site that sold for $1,000 a foot? I can’t either,” said Cary Tamarkin, an architect and developer who is building two condo projects near the High Line.
“I am very cautious. People call me every day [with offers of land]. They say it’s a little expensive at $1,000 per foot and they say that’s the rate these days,” he added. “And I say, name me some people that have paid that much.”
Still, Tamarkin said 518 West 18th Street could be worth its steep price. “I can tell you the site is one of the few sites that could conceivably do very well even with that kind of money.”
For his part, Feldman argued that he got the site for a bargain, especially compared to sites that have traded for similar amounts.
“Although the total volume is a record because it’s a 36,000-foot site, the cost per foot was far less than more inferior sites,” he said. “What we believe we got is something that’s extraordinarily well priced for the total package.”
The whole package
Currently a trapezoid-shaped field of sand and gravel, 518 West 18th Street is squeezed between 17th and 18th streets, the High Line and the West Side Highway.
If all goes according to plan, the site will soon be home to two buildings of 300 and 400 feet tall designed by Danish starchitect Bjarke Ingels. Feldman said they have not yet settled on a design, but the zoning allows for a total of 850,000 gross square feet.
HFZ has secured $1 billion from lenders — including Black Rock, JP Morgan and SL Green Realty — which is covering the acquisition as well as pre-development costs. The construction loan will come later.
Planning is still in its early stages, but most of the site will be condos, Feldman told The Real Deal, noting that it will also include at least 25,000 square feet of retail. He is also toying with the idea of bringing in a high-end, 50- to 125-key hotel.
The hotel adds another interesting wrinkle into the financial mix because hospitality space generally sells for less than condos around the High Line. For example, the Standard High Line recently sold for around $2,000 per square foot, while nearby condos sell for $2,400 per square foot and up (note: correction appended). But Feldman argued that a well-known hotel could create a brand that pushes up sales prices for the buildings’ condos.
The condos will average between 1,500 and 2,000 square feet with asking prices between $4 million and $8 million — steep prices per square foot even for the High Line.
But Feldman argues that unobstructed water views — something nearby competitors can’t offer — will justify the price, both for the condos and for the land.
“The challenge is finding things that have a reasonable amount of certainty to be successful,” Feldman said last month at TRD’s New Development Showcase & Forum. Evidently, he thinks 518 West 18th Street fits the bill.
A ‘3’ in front
In addition to the $1,100 per buildable square foot that HFZ paid for the site, Feldman told TRD that construction will cost another $600 to $700 per square foot.
Offsetting the costs, he said, is a tax abatement for up to $60 million through a brownfields program. The previous owner completed all required environmental cleaning, meaning HFZ can avoid costly delays.
After factoring in interest payments and other expenses, the total project cost could be around or slightly above $2,000 per square foot. That’s significantly less than the roughly $3,000 per square foot some of the ultra-high towers around 57th Street need to break even. But while luxury condos at 57th Street regularly sell for $7,000 per square foot, recorded prices at the High Line have been far lower.
For example, sales at 505 West 19th Street — a smaller HFZ condo development nearing completion a block north — have averaged $2,800 per square foot, according to Feldman. Listings website StreetEasy puts the average asking price of deals under contract somewhat lower, at $2,340. And the nearby 100 11th Avenue, the high-profile condo tower designed by Jean Nouvel, has averaged $2,050 per square foot since 2014.
If HFZ’s new megaproject, which could have 300 units, were to sell out at those prices, its profit margin would be razor thin.
Feldman, however, expects sales prices to average between $3,800 and $4,000 per square foot, arguing that his new buildings are not comparable to anything in the vicinity. The two towers, which will be 28 and 38 stories, will be taller than nearby buildings. Moreover, he expects that the water views will drive up prices.
“Show me comps anywhere in the area that are over 140 feet [high] and don’t achieve anything with a big three in front of it,” he challenged.
Feldman is betting that demand will grow as more supply comes on the market. His calculation might not be far-fetched.
According to Jonathan Miller, president of appraisal firm Miller Samuel, the building’s expected average ask of $4,000 is also the average for ultra-high-end apartments citywide.
Feldman’s second bet is that buyers will care more about an apartment’s total price than the price per square foot — hence the decision to keep units small.
“The challenge is whether the per-foot issue is going to be something investors will be willing to pay for,” said Miller. He explained that units at that size and price are hard to find in Manhattan.
By building small, expensive apartments by the High Line, Feldman is heading into uncharted waters. If he’s right, he will make a lot of money. If not, he will likely still make money — just not as much.
“I would move down there, as an empty nester,” said Feldman, an Upper East Side resident. “But to give up Central Park, it has to be very special.”
Correction: a previous version of this story misidentified the Standard High Line as the Soori High Line. The former is a hotel that sold for $2,000 per square foot, the latter a condo project. Apologies for the mix-up.