Clockwise from left: Jamaica, Queens, 230 Park Avenue, Yitzhak Tessler, Bob Toll, Sam Suzuki and 621 Manida StreetFor the owners of distressed properties, it’s a harrowing ride to stabilization. Note sale, foreclosure, bankruptcy or recapitalization, there is no easy path from financial trouble to stable footing. And while some savvy investors have seized control of valuable New York City properties, many owners and lenders have lost billions of dollars through distressed real estate sales and restructurings since the financial crisis began. Manhattan’s investment sales market has recently improved, but the volume of losses here is staggering.
Commercial real estate firm Massey Knakal Realty Services estimates that from the start of 2010 through June of this year, there have been about $9 billion in note sales in New York City. From those transactions alone, lenders have lost $2.1 billion in debt and owners about $3.6 billion in equity. That estimate does not take into account restructurings or other recapitalizations.
And the pain isn’t yet over. While pricing has improved for buildings and land, and the volume of note sales has eased up, it still remains high. And experts expect these transactions to continue, at least for the foreseeable future.
“I think [notes] will continue coming to the market in steady fashion through the rest of the year and into next year,” said Robert Knakal, chairman of Massey Knakal, although, he added, “The rate is certainly slowing.”
This month, The Real Deal provides a step-by-step breakdown of five once-distressed deals that made the journey back to solid ground — all in very different ways. While there are hundreds of different methods for a property to regain its footing, these five examples vividly illustrate the kinds of creative workouts currently taking place in New York.
In several cases, weakened owners lost out to well-capitalized, opportunistic investors using hostile strategies to take control. In other situations, owners managed to hang on (just barely). In one case, an investor grabbed control of a 200-plus-unit apartment building by purchasing the owner’s line of credit. In another, a developer bought the note on a distressed property, then quietly also bought the mezzanine loan, making it nearly impossible for the owner to stay involved in the parcel.
Here’s a closer look at how each of these deals played out.
Deal No. 1:Foreclosing on the equity, not the real estate
Deal No. 2: Partner in, owner takes haircut
Deal No. 3: Fighting a hostile takeover
Deal No. 4: Owners (try to) give back keys
Deal No. 5: Tapping bankruptcy court for protection