A number of New York City developers put massive new condo projects on the market in the summer of 2008, expecting the high prices and speedy sales that had become the norm. But they were in for a nasty surprise. With the collapse of Lehman Brothers, the real estate boom ended in the blink of an eye.
Fast-forward five years, and many of these developers are still struggling to sell out those projects. Others have just recently completed their sellouts, after successfully reviving their sales campaigns and avoiding the stigma of becoming “stale.”
“If a development has been on the market for a long time and hasn’t been selling units, [the developer has] to convince the public why they should buy in that development,” said Jack Levy, senior managing director of Rose Associates, the property management company now handling sales at the Sheffield condo, which recently sold out after six years on the market.
That’s particularly difficult for large projects, which take years to sell out even in the best of times.
“If you have a 200- to 300-unit building, even if you sell 10 units a month, it’s going to take you three years to sell out,” said Stephen Kliegerman, president of Halstead Property Development Marketing. For a large condo, he said, “the size of the building becomes a hurdle, as much as other market factors.”
Marketers can overcome these challenges in a number of ways, from adding services and amenities to adjusting prices and, when feasible, changing apartment layouts, Levy said.
Another popular strategy is changing the sales team. While dumping a brokerage sets tongues wagging, experts said, the shakeup often gets sales back on track.
Kliegerman knows from experience. His team has provided the fresh blood for buildings where sales had been less-than-spectacular, although he declined to name those properties.
“It’s a wise decision from a developer if they’re not getting the production out of their team that they expect,” Kliegerman said.
And, of course, the improving economy has also helped some projects — like 20 Pine the Collection, which hit the market in 2006 and is now more than 95 percent sold — bounce back.
The Sheffield’s sales manager, Sophia Cicilioni of the Marketing Directors, noted that her job has been made easier by the current shortage of available Manhattan listings.
The lack of inventory is “fueling the fast pace of sales,” Cicilioni said.
This month, The Real Deal looked at 10 of the biggest condo developments to hit the market just before the financial crisis, to see which ones are sold out or close to it, and which are still lingering on the market.
The Sheffield
322 West 57th Street
Owner: Fortress Investment Group
Sales launched in: October 2006
Total number of units: 582
(including 56 rental units that have
yet to be converted)
Sponsor units sold: 513
Sponsor units in contract: 8
The condo conversion formerly known as Sheffield57 was one of the most visible casualties of the downturn in New York. Now, however, the 58-story tower has turned things around.
The Sheffield had a banner year in 2012, selling 102 units, according to real estate data provider PropertyShark — more than any other building in Manhattan.
Only four years ago, though, the future didn’t seem nearly as bright.
The building was off the market for the majority of 2009 while transitioning between owners, Cicilioni said. When it came back, prices were cut by about 20 percent, she said. Indeed, StreetEasy shows that in 2010’s first quarter, listings there were averaging $1,656 per square foot, according to StreetEasy. Prices have since gradually increased to their pre-recession levels. This year, listings are averaging $1,842 per square foot, StreetEasy shows.
The backstory at the Sheffield has been well documented. Developer Kent Swig purchased the building, which at the time had 845 rental units, in 2005 from Rose Associates for $418 million.
Kent Swig
Then in 2009, he famously defaulted on a significant chunk of his $640 million in loans. At that time, hedge fund Fortress Investment Group stepped in and acquired a portion of Swig’s defaulted debt. Months later, Fortress ponied up another $20 million during a foreclosure auction for the building’s mezzanine debt, giving it sole control of the Sheffield.
After Fortress took control, Swig was replaced as managing agent by Rose, which took the Sheffield off the market for a year before relisting the units with the Marketing Directors. The move gave the building a breather from a steady run of bad press.
“When [Rose Associates] first came in there in 2009, there were substantial challenges to overcome,” said Levy. “It was a failed condominium with a negative reputation that was constantly in the news.”
Construction had to get going again and a host of legal actions — including tenant lawsuits against the building and a suit against Swig from former partners Yair Levy and Serge Hoyda — had to be sorted out.
At the same time, Rose began to focus on improving conditions at the Sheffield, Levy said. The company added residents to the condo board and upgraded the amenity spaces. It also changed the property’s name to simply “the Sheffield.”
And buyers responded. “Location is always going to be key, and amazing amenities will certainly [help],” Cicilioni said. The Sheffield “never lost that.”
In an interview last month, Swig attributed the Sheffield’s troubles to the financial collapse.
“I would say that sales were never the issue of the project,” said Swig, who added that he would not change his sales strategy if he had to do it over. “The project really got challenged when the financial markets disintegrated. Three members of our mezzanine debt stack had significant financial problems, which caused us to have problems in the project itself.”
While most news stories have portrayed Swig as getting booted from the project, he claims he struck a deal with Fortress that allowed him to retain a “very substantial economic interest” in the development. He declined to specify exactly how much of a stake he owns.
Rector Square
225 Rector Place
Owner: Related Companies
Sales launched in: March 2008
Total number of units: 289
Sponsor units sold: 240 (Related has sold 132 units of the 181 units it controls)
Once pegged as a failed project, Rector Square has been resurrected by the Related Companies.
Jeff Blau
Related has sold some 132 homes in the building since last May, when it took over marketing. More than half of the apartments in the 289-unit high-rise have now been sold, the company said. Available units in the building currently range from a $546,000 studio to a $2.7 million penthouse. In April 2008, Rector Square’s listings averaged $1,128 per square foot. So far in 2013 they’ve averaged just slightly less, at $1,107 per square foot, according to StreetEasy.
“Related does a good job with everything it does,” said Daniel Boufford, an agent at Platinum Properties who has done deals at 225 Rector. “I think people are finally noticing the building.”
Part of Related’s strategy is luring in buyers’ brokers, he said, noting that the company offers a 4 percent commission on sales rather than the usual 3 percent.
Rector Square’s story is somewhat similar to the Sheffield’s — down to some of the key players.
Related, which developed the building as a rental, sold it in 2005 to Yair Levy, who planned to convert it to condos. He hired powerbroker Michael Shvo, who sold 108 of the building’s 289 units.
But Levy defaulted on $165 million in loans in 2010. His lender, Anglo Irish Bank (now Irish Bank Resolution), foreclosed and brought on Related as managing agent. The bank then purchased the shares of the building that it didn’t own, and sold the building to Related in early 2011.
In June 2011, a Manhattan judge found Levy had raided $7.4 million from Rector Square’s reserve fund to pay personal expenses, and ordered him to stop selling condos and co-ops statewide. Levy was ordered to repay the $7.4 million to Rector Square and was fined an additional $360,000.
Related, which controls 181 of the building’s apartments, declined to comment on the project. But the company announced in January that it had sold its 100th unit there, and unveiled model units staged by famed designer Jonathan Adler, along with individual design consultations and special offers for buyers.
W Downtown Hotel & Residences
123 Washington Street
Developer: The Moinian Group
Sales launched in: March 2008
Total number of units: 223
Sponsor units sold: 60
Sponsor units in contract: 8
The W Downtown Hotel & Residences is a testament to a marketing overhaul.
The project’s developer, the Moinian Group, traded its own in-house sales team in January 2012 for the Corcoran Group, and sales have since skyrocketed.
In the past 14 months, the Corcoran team has sold 60 sponsor units and currently has another eight contracts signed, a W spokeswoman said.
The W’s marketing effort stumbled from its outset in 2008, when sales started with Shvo. According to Corcoran’s team leader, Richard Nassimi, Shvo only sold 10 apartments during the first two years the project was marketed.
In 2010, Shvo sued Moinian for $3.7 million in unpaid expenses and fees — and Moinian replaced him in-house with senior managing director Jacqueline Bayer.
Meanwhile, Moinian has faced other legal actions at the W. It lost an escrow dispute with a group of buyers. Moinian officials, Bayer and Shvo did not respond to requests for comment.
When Corcoran came onto the scene, Nassimi and his team redid the W’s sale process “from A to Z,” from changing how the sales office was run — “the phone lines had messages that hadn’t been heard” — to throwing open houses for brokers.
“Every week we had a different event [for brokers],” Nassimi told TRD. “After that we had an uptick in calls, requests, showing offers and sales.”
Nassimi said the W is on track to be sold out by the end of 2013.
99 John Deco Lofts
99 John Street
Developer: TF Cornerstone
Sales launched in: December 2007
Total number of units: 442
Sponsor units sold: 339
Sponsor units in contract: 17
Thomas Elghanayan
When Rockrose Development launched 99 John Deco Lofts in December 2007, sales were initially brisk. Only six months later, 70 units had sold.
By fall, though, the recession was in full force, and sales slowed. And in 2009, Rockrose split into two separate companies when its founders — brothers Henry, Thomas and Frederick Elghanayan — went their separate ways (see related story, “The Closing: Henry Elghanayan”).
Today, Tom and Fred’s company, TF Cornerstone, is the developer, though Henry still has a minority stake in the project.
Sales are now moving steadily again. The building just passed the 80 percent sold mark, said Tali Berzak of Nest Seekers International, which is handling sales at the project.
She said sales began picking up in the second half of 2010 when Nest Seekers took over marketing from the in-house sales team.
Berzak said when things slowed down during the recession, the sales team worked closely with TF Cornerstone on “revamping, rethinking and recalibrating” the project’s marketing. In fact, she said the building refreshes its marketing campaign every six months to a year by looking at who is coming to the building and what units are available.
Unlike other buildings that have slashed prices, StreetEasy shows that prices have held steady at 99 John. In 2008, listings were priced at an average of $1,089 per square foot. So far this year, they’ve clocked in at $1,001.
Berzak said only about 20 percent of 99 John’s 442 homes are still available. Sales were so brisk last year — 84 units sold — that the building ranked as the third-best-selling building in the city, behind Williamsburg’s the Edge and the Sheffield.
“It’s just a matter of rethinking your building over and over again,” Berzak said. “You try to recreate the building through different eyes” for each fresh crop of prospective buyers.
Azure
333 East 91st Street
Developers: DeMatteis Organization and the Mattone Group
Sales launched in: May 2008
Number of units: 128
Sponsor units sold: 82
Sponsor units in contract: 9
After launching sales in 2007, the Azure faced not only the economic downturn, but a fatal crane collapse on its construction site. After years of struggles, however, the project is now nearing the finish line, with more than 70 percent of its units sold or in contract.
In May 2008, a 200-foot crane collapsed at the Azure site, killing two construction workers and forcing a two-week sales shutdown.
Before the accident, sales looked promising — 17 of its 128 apartments were in contract. But by 2010, that number had shrunk to just nine because some buyers had backed out of their contracts.
The project, a cond-op, was also hamstrung by its ground lease. The developers, the DeMatteis Organization and the Mattone Group, constructed the building atop city-owned land using $8.4 million worth of air rights they purchased from the city in exchange for a 75-year ground lease.
That lease requires residents to help pay for the annual ground rent, meaning the building’s maintenance fees are considerably higher than those of other nearby properties — a reality that made selling more difficult in a struggling economy, brokers said.
In 2010, the developers replaced their Brown Harris Stevens team in 2010 with Douglas Elliman, which is still marketing the project.
“We felt that the Douglas Elliman team had more to offer, more resources in [the] market, which was kind of slow at the time,” said John Caiazzo, a vice president at DeMatteis.
In addition to switching marketing teams, the project’s customizable layouts have helped sales, Caiazzo said. Buyers can request to have walls knocked down to change a unit’s layout. Although the process takes about 12 weeks and creates a lag in closing time, Caiazzo said the strategy has paid off.
“I think what gave us the ability to get as far as 70 percent [sold] was that we decided to be aggressive in our marketing, and we would customize the apartments by creating combined units,” he said.
Prices at the Azure’s remaining units currently range from a $1.42 million two-bedroom apartment to a $13 million penthouse, or an average of $1,583 per square foot, according to StreetEasy. That’s up from $1,277 per square foot in 2008.
The Laurel
400 East 67th Street
Developer: Alexico Group
Sales launched in: August 2007
Total number of units: 128
Sponsor units sold: 124
In February, Alexico’s Laurel condominium closed its sales office because it had only four unsold sponsor units, said Corcoran broker Scott Hustis, who is part of the sales team. But at times over the last six years, a sellout was hard to imagine.
Like the Azure, the Laurel has been challenged by accidents.
In April 2008, a construction worker fell off one of the project’s two 31-story buildings and died. The accident prompted an outcry from elected officials concerned about a lack of safety oversight by the Department of Buildings. (Before the accident, the DOB had cited the Laurel for 25 violations.)
Eight months later, a piece of building material fell from the 26th floor onto an adjacent school. This time, the DOB temporarily halted construction on the project.
The following year — 2009 — was troubled, too. Buyers slapped Alexico with five escrow lawsuits and sales remained lackluster.
But in December 2009, the developer lowered asking prices from $1,800 to $1,600 per square foot. The drop did the trick: Within a week, 11 contracts were reportedly signed. That same year, marketing powerhouse Louise Sunshine also personally purchased a $3.2 million condo in the building.
And prices are now back up. StreetEasy shows that in 2008 the developer was asking an average of $1,861 per square foot. In 2013, listings have averaged almost the same, at $1,852 per square foot.
Corcoran Sunshine was the exclusive marketing team on the project, but the Corcoran Group partnered with Corcoran Sunshine to sell the last of the condo’s units, Hustis said.
Alexico declined to comment.
Tempo, 300 East 23rd Street
Developer: Menolly Group
Sales launched in: September 2008
Total number of units: 97
Sponsor units sold: 92
Sponsor units in contract: 3
Talk about terrible timing: Tempo went on the market Sept. 18, 2008 — three days after Lehman filed for bankruptcy.
“We had a huge press party that was catered, with orchids everywhere,” said Elliman’s Deanna Raida, who’s been handling the Tempo’s sales since it hit the market. “We started selling during the worst possible week.”
Tempo started out as a joint project between Irish homebuilder the Menolly Group and real estate investor Quantum Partners. But two years after construction began, Menolly sued Quantum for allegedly making false statements about work done on the 19-story luxury tower. In 2009, a judge ruled in Menolly’s favor and allowed the developer to fire Quantum.
Quantum did not respond to requests for comment.
Raida attributed Tempo’s slow sales during the downturn to the difficulty that the project had in securing a construction loan. Buyers, she explained, were simply hesitant to purchase condos in an unfinished building.
In addition, after the real estate slowdown, Raida said, banks were not issuing mortgages to those looking to buy in projects that hadn’t sold at least half of their apartments.
But eventually the project secured a construction loan, and shortly after construction was complete, around October 2011, sales started to pick up, Raida said.
“We sold very quickly once we were in the building and doing sales,” Raida said. “People just wanted to make sure we finished, because times were so uncertain.”
Raida said Tempo never saw a shakeup in marketing teams or a drop in prices. In fact, prices have increased. In 2010, the Tempo’s listings were priced at an average of $1,317 per square foot; so far this year they’re at $1,536, StreetEasy shows.
The Apthorp, 390 West End Avenue
Owner: Arefin U.S. Investment
Sales launched in: November 2008
Number of units: 152 (including 68 rental units that have yet to be converted)
Sponsor units sold: 57
Sponsor units in contract: 12
Maurice Mann doesn’t try to hide how bitter he is about the Apthorp.
In 2005, Mann partnered with real estate investor Africa Israel to buy the famed Upper West Side rental building for $426 million and convert it into luxury condos. Four years later — amid slow sales and a lawsuit from rental tenants trying to block the building’s conversion — Mann said Africa Israel began shutting him out of meetings. Mann, who told TRD that he voluntarily stepped aside as a managing partner, was soon replaced by the Feil Organization.
Mann cited the collapse of Lehman as the point when the project began going south. “You have a great, iconic building that we wanted to put at the top of the pinnacle,” he said last month. But “greed, lack of patience and no foresight,” along with “lousy management and ego” by his one-time partners, made that impossible.
If it were up to him, Mann said he would have taken the building off the market for two or three years and kept the units as rentals until the market picked up.
The project did see a brief halt in sales in 2011, when Attorney General Eric Schneiderman shut down its sales office to investigate whether Africa Israel had made misleading statements regarding a possible sale of the Apthorp’s $385 million mortgage by lender Anglo Irish. The AG’s investigation was never finalized because the building went into foreclosure, however.
Last year as part of the foreclosure, Africa Israel lost control of the Apthorp to Arefin U.S. Investment — an affiliate of Area Property Partners — one of the project’s original two lenders. Corcoran Sunshine took over marketing at the property in October 2010, replacing Douglas Elliman powerbroker Dolly Lenz.
In a statement, Corcoran Sunshine attributed the slow sell-out to a combination of factors, including the rocky economy, the ownership disagreement and the complicated nature of converting a landmark building to condos.
And recently, the Apthorp’s sales have picked up. Corcoran Sunshine said the building has done 15 sales worth a combined $90 million since September, and currently has only 15 of its condo units left to sell.
According to StreetEasy, there was a significant drop in listing prices in 2010, when listing prices fell from $4,206 to $3,843 per square foot. But asking prices this year are back up to $4,433, StreetEasy shows.
Africa Israel and Feil did not respond to requests for comment.
Manhattan House, 200 East 66th Street
Developer: O’Connor Capital Partners
Sales launched in: October 2007
Total number of units: 534 (including 35 yet-to-be-converted rentals)
Sponsor units sold: 249
Sponsor units in contract: 17
Manhattan House — one of the most high-profile condo conversions of the real estate boom — hit the market with a splash in October 2007. But more than five years later, the building is still little more than half sold.
The landmarked building — which was designed in 1950 by Pritzker Prize–winning architect Gordon Bunshaft of Skidmore, Owings & Merrill — was once home to actress Grace Kelly, jazz musician Benny Goodman and former New York Governor Hugh Carey.
The late Jeremiah O’Connor of O’Connor Capital Partners and real estate mogul Richard Kalikow purchased the building in 2005 for $623 million — reportedly the most expensive price ever paid for a rental building at the time. Elliman’s Lenz was hired to handle sales.
But converting the historic building from rentals to condos was rocky from the start. O’Connor sued Richard Kalikow in 2007, citing “numerous disagreements.” That dispute played out in court just as the conversion was getting underway, and was ultimately resolved with Kalikow selling his stake in the building to O’Connor.
Elliman retail broker Joseph Aquino was one of Manhattan House’s first buyers, signing a contract in October 2007. He said the development’s biggest challenge from the beginning has been the credit crunch. When units started to close at the 21-story tower around November 2008, Lehman had just collapsed and several banks refused to finance prospective buyers. The hard line on financing forced nearly 90 buyers to back out of contracts, estimated Aquino, who said he loves living there.
“We would have been up to 350 units [sold] now had it not been for the banks and then the people that dropped out,” said Aquino, who noted that the issue appears to be resolved now that large banks are more willing to approve mortgage loans.
Manhattan House had its most successful year to date in 2012 with more than $154 million in sales, Brian Fallon, a partner at O’Connor Capital Partners, told TRD in a statement.
“Manhattan House has been selling at a steady pace since launching in 2008, and on average has represented a greater than 20 percent market share of all Upper East Side new development condominium sales annually,” Fallon said.
According to Aquino, prices at Manhattan House dropped by about 10 percent during the recession, but have since increased to their pre-recession levels. According to StreetEasy, in 2008, listings in the building were priced at an average of $1,637 per square foot. So far, in 2013, they’ve averaged $1,763.
But the biggest difficulties for the building may still lie ahead: O’Connor’s $750 million construction loan on the project matures in December 2015.
Trump Soho Hotel Condominium, 246 Spring Street
Developer: Sapir Organization, Bayrock Group
Sales launched in: August 2007
Total number of units: 391
Sponsor units sold: 118
Billionaire developer Tamir Sapir’s Trump Soho has struggled with debt and foreclosure for years.
At one point, Trump Soho owed $295 million to commercial real estate investor iStar Financial. In 2010, the CIM Group provided a bailout for $85 million on the iStar loan.
Then, in 2011, 10 buyers sued Trump Soho for misrepresenting sales figures. In a settlement, they received 90 percent of their deposits back.
The building is a hotel/condominium, which means owners can use their units for up to 120 days a year. When the units are not in use, they are used as hotel suites. However, the net rental revenue accrued for each room goes to the unit owner, a Trump Soho spokeswoman explained.
Today, Douglas Elliman and Prodigy International are handling sales at the building, where the prices have gradually decreased over time, according to StreetEasy.
In December 2007 — the first month Trump Soho listed its units — the building’s units were priced at an average of $2,908 per square foot. So far this year, listing prices have averaged $2,349 per square foot.
As of last month, Trump Soho had sold 118 units, according to a building spokesperson. That’s only about a third of the building’s apartments.
Magda Dvir of Barkin and Associates, who has several re-sale listings in the building, said buyers find the building attractive because “somebody’s taking care of [the unit] for you, somebody’s collecting the money for you.”
Today, all of the unsold condos in the 42-story high-rise are doing double duty as hotel rooms and generating income for the sponsors. In a statement to TRD, Trump Soho said it was “pleased and encouraged by the tremendous success of the hotel.”