In 1970, Houchang “Henry” Elghanayan, then about 30 years old, founded a real estate company along with his younger brother Thomas, and was joined later by brother Frederick. The trio named their business the Rockrose Corporation, after Rockrose Place, the street they grew up on in Forest Hills, Queens.
Over its 39-year history, Rockrose built itself into one of the biggest residential success stories in New York real estate. The company has 20 residential apartment buildings in New York City, mostly rental buildings, which include more than 5,000 units. In addition, Rockrose has five commercial office buildings in New York and six in Washington, D.C.
Now, after nearly 40 years together, the three Elghanayan brothers are about to formally split up the powerful real estate empire they created. Sources say there are philosophical differences about the road forward.
Eric Anton, senior managing director at Eastern Consolidated, says that despite the split, the Elghanayan brothers are well positioned to withstand the real estate downturn due to a large reserve of cash.
“They’ve been tremendously successful together,” said Anton, whose company brokered the sale of 290-300 Park Avenue to the family in 1999. “They’ll do better than most during the downturn.
“They have a lot of cash, and they have a lot of rental apartments.”
As first reported by Crain’s New York Business, the split will create two companies: A new company called TF Cornerstone has been formed under the leadership of Thomas and Frederick. It will remain at the company’s 290 Park headquarters.
Meanwhile, Henry, who emigrated from Iran as a child and was educated as a lawyer at New York University, will relocate the rest of the company to 666 Fifth Avenue, where it will continue to operate under the Rockrose name.
Both Rockrose and TF Cornerstone officials declined to comment on the breakup, citing delays in closing the spinoff.
Sources say the breakup is due in part to disagreements about which direction to take the company. They added that the dispute may have extended beyond the brothers to the new generation of executives emerging within the company.
However, it’s clear that both companies will be faced with major decisions in a challenging market.
Languishing in LIC
While it’s unclear what role, if any, the changed market has played in the brothers’ breakup, there are definitely areas that one could imagine would have emerged as sources of serious tension since the economy turned.
A major concern of both companies might be Rockrose’s considerable investment in Long Island City, where it has built or is developing more than 3,000 rental and condo units on seven parcels of land.
The projects are part of the 22-acre Queens West development that city officials have promoted to convert the Queens waterfront into an around-the-clock neighborhood for residents priced out of Manhattan.
Long Island City has proved to be a risky proposition for several developers, as hundreds of units have come online at the same time and rental prices face pressure from stalled condo projects. The slow market forced Rockrose to offer some major incentives to entice new buyers.
In December, in a bid to generate new sales, Rockrose introduced a buyback guarantee at the View at East Coast, the company’s new condo development on Center Boulevard. The guarantee functioned as a price support amid fears of a declining market: Rockrose promised to buy back an apartment at 110 percent of the original sales price after five years.
At the time of the announcement, only 18 of the building’s 184 units were in contract and prospective condo buyers were reluctant to sign new deals across the city, let alone in emerging neighborhoods like Long Island City.
The incentive was designed to help Rockrose generate enough activity to reach the mandatory 15 percent sales threshold that is required for the state attorney general to declare the condo plan effective.
Six months later, it remains unclear whether the incentive program generated any new business at the View, as the building’s sales information has been removed from public viewing on listing site StreetEasy, and company officials declined to comment on the property.
According to data released from Prudential Douglas Elliman and real estate appraiser Miller Samuel, there were 162 recorded sales in northwest Queens, which includes Long Island City, in the first quarter of 2009, a 47 percent drop from the year-ago quarter.
While there was a bright spot — the percentage of sales from new developments rose to 47 percent from 19 percent a year ago — it is still sluggish.
“It’s been much slower than they expected,” said Paul Januszewski, president of the Queens West Development Corp. “I think [Rockrose only] just got to the level where they were about to close a bunch of apartments.”
The debut of EastCoast 4, which is actually the third rental building from Rockrose, will likely be delayed until 2010, due to the economic slowdown and large amount of inventory, Januszewski said.
He said Rockrose will retain leases on four undeveloped sites and that TF Cornerstone will take control of at least two of the existing buildings.
Meanwhile, it remains unclear which company will control Rockrose’s planned 800,000-square-foot commercial tower at 10 Court Street in Long Island City, and whether the project will be pushed back.
Crain’s also reported that TF Cornerstone will take over the company’s five commercial buildings in Washington, D.C., but both sides have been mum on what is going to happen with the Manhattan portfolio.
Attorney Ed Mermelstein, who in the early 1990s worked for another member of the Elghanayan family on a Flatiron condo building, said the company could lose some operating efficiency by splitting up. Still, he noted that Rockrose has survived previous real estate downturns.
“The fact that they have several new projects in a very difficult market doesn’t help what they’re doing,” said Mermelstein. “At the same time, they’ve done this before in the early 1990s, so this is nothing really new for them.”
A complicated portfolio
Rockrose started out renovating brownstone apartments on 16th Street in Manhattan.
The company spent many of its early years transforming industrial buildings into residential properties. Properties included the Cast Iron building, a former 19th-century dry goods store at 67 East 11th Street that the developer converted into co-ops in 1972.
By the late 1970s, Rockrose rapidly expanded its conversion of properties in the West Village, including Shepherd House at 277 West 10th Street and a number of projects on Horatio Street. By the early 1990s, the firm had thousands of units in that neighborhood.
“They’ve always been early investors in neighborhoods that had not been identified as future residential enclaves,” said Woody Heller, executive managing director and head of the capital transactions group at the commercial real estate firm Studley.
Rockrose was one of the first major residential developers in the Financial District, converting 45 Wall Street from a vacant office building into a 435-unit rental complex, a $75 million development financed by Goldman Sachs in 1996. The 45 Wall conversion was one of the first major deals under the city’s Lower Manhattan Revitalization Plan, designed to convert FiDi into a 24-hour neighborhood.
In 1996, Rockrose also spent $17 million on an office building at 99 John Street, which it operated as a rental property for more than 10 years, and eventually converted into a condominium, 99 John Deco Lofts.
However, since going effective in June 2008, Rockrose has struggled to sell out the condos there. The 442-unit building includes mostly studios and one-bedroom apartments, with prices ranging from $565,000 for studios to $3.3 million for a 2,320-square-foot penthouse.
The building still has about 250 previous renters living on site. However, Rockrose is also offering a five-year buyback guarantee to buyers at 99 John, as well as a choice between a $20,000 discount off the purchase price or subsidized closing costs.
The condo is also offering a rent-to-own program for those who may be reluctant to buy in the current market or unable to get financing.
In an effort to move some unsold inventory and generate cash, Rockrose also hired the Corcoran Group in March to sell a package of 15 units to potential investors for $11.3 million.
And as if it weren’t enough to figure out how to divide up all of those buildings, the company also has several ground-up residential buildings in Lower Manhattan, including 2 Gold Street, a 51-story rental tower that opened in 2005. The 650-unit property took about 10 years for Rockrose to develop and serves as the anchor for several additional properties planned by the developer.
And in one more fringe neighborhood, Rockrose is rolling the dice in the Hudson Yards submarket. Earlier this year, it debuted 455 West 37th Street, a 24-story luxury rental tower, where studios start at $1,900 a month. The company is also developing a pair of luxury rental buildings across the street at 505 West 37th Street, which will add another 835 units to the market. Those buildings will go head-to-head with Silver Towers, a pair of 60-story luxury towers at West 42nd Street from developer Larry Silverstein. The buildings have nearly 1,400 combined units.
Andrew Berman, a leading critic of the Hudson Yards redevelopment plan and a member of the Hudson Yards Community Advisory Committee, said the new Rockrose buildings, combined with Silverstein’s massive rental towers on West 42nd Street, are virtually unsustainable.
“It’s hard to believe the market exists to support it,” said Berman. “There is a worry we’re going to have these massive empty apartment buildings sitting there for years.”
Filling those buildings and withstanding the current market forces as they divvy up their portfolio could be part of the lasting legacy of Rockrose and the future that TF Cornerstone carves out for itself.