Dramatic bonus cuts could devastate luxury housing market
New York’s troubled residential sales market could face even more peril than expected in 2009, as some of Wall Street’s top investment banks slash or weigh plans to cut bonus compensation for top executives.
Late last month, American International Group announced that its top seven executives would accept no bonuses for 2008 and that its top 57 executives would accept no salary increases through the end of 2009.
Edward Liddy, chairman and chief executive of AIG, agreed to cut his annual salary to $1 for 2008 and 2009.
Goldman Sachs and UBS earlier last month said they would forego bonus compensation for their top executives, and Citigroup’s board of directors is expected to make a decision on bonuses in early 2009. Meanwhile, Morgan Stanley officials were expected to make a decision on bonus pay sometime this month, according to Wall Street sources. JPMorgan Chase declined to comment on the investment bank’s plans for bonus compensation.
New York real estate experts say the loss of such compensation could devastate an already weakened market for luxury housing.
Wall Street bonus compensation fueled the real estate boom in New York, rising from $9.8 billion in 2002 to a record $33.9 billion in 2006. After slipping to $33.2 billion in 2007, a report released on Nov. 24 from New York State Comptroller Thomas DiNapoli warned that bonus compensation could plunge more than 50 percent over the next two years.
“Since Wall Street accounts for such a large share of the state and city economies, lower bonuses will have a significant adverse impact on the economy and tax collections for some time to come,” the report stated.
Barbara Byrne Denham, chief economist at commercial brokerage Eastern Consolidated, said that Manhattan sales would be hit the hardest, and could shift some buyers into rentals.
“As many prospective buyers put off buying a condo/ co-op, this could be beneficial to the rental/multifamily market, but only at the margin,” she said.
Attorney Hugh Finnegan, co-director of the real estate department at New York-based Sullivan and Worcester, said it would hit both primary and second-home sales.
“The first impact will be on the residential condo market in Manhattan and Brooklyn. That market is often driven by Wall Street bonuses,” he said, adding that the loss of bonus money will make it tough for buyers to make deposits on luxury apartments. In the second-home market, he said that the loss of bonus money would hurt home sales in the Hamptons and the Jersey shore. By David Jones
Trump Soho tops off, tallest building in ‘hood
Troubled luxury hotel-condo Trump Soho topped out last month at 46 stories tall, making it the tallest building in Soho. The tower at 246 Spring Street is being developed by the Trump Organization, Bayrock Group and the Sapir Organization. Completion is expected by fall 2009. Prodigy International Development Sales is the exclusive sales and marketing agent for the project, which has faced many obstacles during construction. Violations from the Department of Buildings include one for a crane that smashed the window of an adjacent building. Three construction workers were hurt on the site, and in January, one worker fell to his death when the building’s scaffolding collapsed. TRD
No buyers sign Obama contingency clause contracts
No buyers took developer Erik Ekstein up on his offer to include an “Obama contingency clause” in contracts signed before last month’s presidential election at Ekstein’s Chelsea condo tower, a spokesperson for the building said. The clause, which could be applied to units at +Art, at 540 West 28th Street, would have allowed purchasers to back out of their deals in the event of a John McCain victory. But the option “definitely increased” traffic through the +Art sales office, the spokesperson said. Units in the building start at $520,000. By Sara Polsky
Elliman retail partner buys at Manhattan House
Joseph Aquino, executive vice president of retail leasing and sales at Prudential Douglas Elliman, closed on a $1.48 million apartment at Manhattan House, the controversial Upper East Side converted condominium that his firm is marketing, according to sources and government records.
The deal makes Aquino one of the first buyers at the 200 East 66th Street tower, which just began closing apartment sales in October following a year-long conversion process.
“He bought when the offering was first presented,” said Faith Hope Consolo, chairman of the retail leasing and sales division at Elliman and Aquino’s longtime business partner. “He’s very happy. It’s a wonderful building.” Aquino was not immediately available for comment.
The move comes at a time when several major commercial banks, including Citibank, have decided not to underwrite mortgage loans at Manhattan House or have asked buyers for down payments of up to 50 percent. JPMorgan Chase officials said they were only following guidelines set by Fannie Mae and Freddie Mac, which call for banks to lend in new condo conversions only when more than half of available units are sold.
As of early November, more than 120 apartments in the 583-unit building were under contract, and 15 deals had closed. About six apartments were sold for cash, with the remaining financed with down payments of at least 25 percent, according to sources and city records. The building has another 190 rent-stabilized and 35 market-rate rental tenants.
Manhattan House officials have been under pressure to boost sales at the building. The sponsor, O’Connor Capital Partners, lost a December 2007 court battle to evict 31 existing market-rate tenants, which left the developer with fewer available units to sell, although the case is under appeal. The building’s Germany-based lender, HSH Nordbank, was forced to assume the risk on the Manhattan House loan after a deal to syndicate it fell apart.
Aquino and his wife Suzanne closed on their apartment, unit A1107, in late October, according to property records posted last month. The 1,113-square-foot, one-bedroom unit was originally listed at $1.48 million and was taken off the market 10 months ago after the Aquinos signed a contract, according to Streeteasy.com and records filed with the city Department of Finance. By David Jones
German director Herzog buys Flatiron co-op
Influential German-born film director Werner Herzog paid $630,000 for a one-bedroom cooperative unit at 7 East 14th Street in the Flatiron District. The 600-square-foot apartment is on the seventh floor of the Victoria, a 21-story residential building between Fifth Avenue and University Place built in 1964. The 66-year-old movie and opera director, who is also a screenwriter, resides in Los Angeles with his wife, photographer Lena Herzog. He was behind the 2005 documentary “Grizzly Man” and most recently a documentary on Antarctica called “Encounters at the End of the World,” completed last year. Herzog closed on the East 14th Street sale on September 18, according to property records posted last month. By Adam Pincus
Sales begin at 20 Henry
Sales started last month at the new seven-story Brooklyn Heights condominium 20 Henry. The two-building condo, at 20 Henry Street, between Poplar and Middagh streets, has 38 residences ranging in price from $580,000 to $2.56 million. Urban Realty Partners bought the buildings, which were previously in the Mitchell-Lama affordable housing program, in 2007 for $19.6 million. The developer is listed as 20 Henry Street Development LLC, which is run by Stan and Shelly Listokin. Units include studios and one- to four-bedroom homes. The condo was formerly the Peaks Mason Mints Candy Factory building. Architectural firm Pasanella, Klein, Stolzman, Berg Architects converted the former landmark factory to a condo. Amenities include a roof deck, courtyard, doorman, storage and fitness center. Halstead Property Development Marketing is the exclusive sales agent. Occupancy is expected for fall 2009. TRD
Dozens of CMBS slated to mature in NYC through 2010
Nearly 100 commercial mortgage-backed securities, or CMBS, loans are coming due over the next two years in New York City, forcing those real estate borrowers to find financing in a far more difficult lending environment than when the notes were written.
In the city, there are 52 such commercial real estate loans expiring in 2009 and 43 in 2010, according to Manhattan-based financial analytics firm Trepp. Such loans are typically held for five years, but neither the terms nor the additional information on the 95 securities was immediately available.
In 2009, refinancing will be needed for $2.6 billion in fixed-rate loans and $4.5 billion in floating-rate loans, while in 2010, $3.6 billion in fixed-rate loans and $271 million in floating-rate loans will need to be refinanced, according to Trepp.
The borrowers will likely have to pay higher interest rates as well as contribute equity — or seek out expensive mezzanine lenders to provide that equity — because lenders are underwriting loans at lower loan-to-value ratios.
“The amount of money available for lending for real estate is a small fraction of what it was over the past few years,” said Craig Evans, senior managing director for institutional investment sales at Colliers ABR. “A huge amount was done through the CMBS market, which is not functioning now.”
With the commercial mortgage-backed securities market frozen, he said borrowers would more aggressively seek out alternatives to the CMBS market, including banks and life insurance companies that do not appear to have the ability to deliver the volume of funding required. By Adam Pincus
Corcoran brokers, teams rank in top 200
Eleven brokers and teams from the Corcoran Group were ranked in “The Real Estate Top 200,” a national ranking and awards event that took place last month. Five Corcoran brokers were named among America’s top-selling individuals by sales volume, including Susan Breitenbach, Timothy Davis and Gary DePersia of the East End offices, and Dennis Mangone and Lauren Muss from Manhattan. The six broker teams that were ranked were all from Manhattan, including the Deanna Kory Team; the Carrie Chiang team; Robert Browne, Gregory Sullivan and Chris Kann; Deborah Grubman and Carol Cohen; and teams headed by Barrie Mandel and Sharon Baum. Corcoran was the New York City brokerage with the most teams on the list. The event took place on Nov. 7 at the National Association of Realtors Conference and Expo in Orlando, Florida, and was sponsored by the Wall Street Journal, Lore Magazine and Real Trends. TRD
Chang sells Chelsea hotel for $39 million
Hotel developer Sam Chang of the McSam Hotel Group and a partner sold their newly opened Wyndham Garden Hotel Manhattan Chelsea West for $39.06 million, according to property records published last month. The buyer was Gemini Real Estate Advisors, a real estate firm based in Manhattan. The 17-story hotel with 124 rooms — the first Wyndham in New York City — opened early last month at 37 West 24th Street, a hotel employee said. The transfer was planned to occur once the hotel opened, McSam Hotel Group COO Gary Wisinski said in an e-mail. The sale went into contract in May 2006, and was finalized November 4, the property records indicate. Gemini owns several hotels in New York City, including a Howard Johnson at 135 East Houston Street at Forsyth Street and the Comfort Inn Midtown West at 442 West 36th Street between Ninth and Tenth avenues. By Adam Pincus
Winick Realty founding partner dies
Frank Terzulli, a founder and executive vice president at Winick Realty Group, died on Sunday, November 2, at the age of 47, according to Victoria Juharyan, spokeswoman for the company. Terzulli helped found the 20-year-old Manhattan-based retail real estate services firm. He got into real estate after working as an executive at Macy’s department store, where he developed an interest in the retailer’s properties. At Winick, Terzulli represented a number of large retailers, including McDonald’s, Starbucks, Duane Reade, AT&T and Barnes & Noble.
Terzulli, who was raised in Brooklyn and lived in Manhattan, handled deals in both boroughs. He was marketing about 600,000 square feet of real estate in Brooklyn at the time of his death, Juharyan said.
Terzulli is survived by his two children, ages 10 and 13. By Sara Polsky