Roy Stillman likes to keep it in the family. The president of Stillman Development International, and the developer of the I.M. Pei-designed Centurion condo project, he recently purchased a penthouse in the Centurion and then gave it to his mother. She will move in when it’s delivered in March.
This isn’t the first time Stillman has purchased a unit in one of his own projects. Back in 2004, he bought one of the residences in the Upper East Side’s Metropolitan, which he also developed. He gave that one to his father.
In fact, living in family-developed properties is something of a tradition in the Stillman family, as he himself lives in the Kimberly, a Greenwich Village project that was developed by his family, and built by his father and his brother in 1999.
“I know what goes into these buildings, the integrity in terms of design and construction, and I know for sure that there are none better,” he said about the reasons he’s chosen to buy in his own buildings. “I think of my work as art, and I like to collect art.”
Stillman is far from the only developer who is eating his own cooking. Ian Schrager purchased a unit at 40 Bond, and Arthur Zeckendorf bought at 15 Central Park West.
“My hunch is that it’s pretty common. Everyone has a need for a place to live… If you’re in the business of developing a property, it would be natural to buy your own apartment,” said Mario Procida, the head of SDS Procida and the developer of the Financial District’s Be@William, where he has bought a one-bedroom apartment he plans to give to his children after they graduate from college.
“There are serial developers, who develop [a project] and live in it for a while, then develop another and live in that for a while,” added Marc Landis, an attorney with Phillips Nizer.
Pat Thompson might be one such developer. Though he and his wife Gayle Hardy have lived in Pelham for the last 10 years, they have always maintained an apartment in the city, and always in one of Thompson’s rental developments. Over the last few years, Thompson has slowly sold off these rental projects and is now in the midst of developing a few condos. One of which, Loft 14, he intends to live in.
“It indicates confidence in your product,” said Procida. “It’s like the guys who work at Budweiser who only drink Bud. They don’t drink Miller.”
Ultimately that confidence can translate into sales.
“Certainly a developer who is buying an apartment, or retaining an apartment for his or her own residence, sends a signal that they have confidence in what they’ve built,” said Landis. “[That] is an incentive to other buyers.”
The instilling of confidence aside, there really isn’t any other financial incentive for a developer to purchase in his own project. For example, it won’t help speed up the approvals process. “From a legal standpoint on a new construction, there’s a minimum of 15 percent of units that have to be sold before a plan is effective, and insiders don’t count,” said Landis.
Logistically speaking, the biggest factor for how the deal is done is whether or not the developer has partners. If he or she does not, the sale is as simple as transferring money from one account to another.
“Ultimately it’s a seller and a buyer, and it could be your left hand and your right hand,” said Procida, who is also “seriously” considering buying a unit for his own use in the Dillon, a project he’s developing in Hell’s Kitchen. “You’re moving income for tax purposes.”
More frequently, partners are involved, which makes the transfer slightly more complicated because both the price and the means of payment have to be agreed upon by all parties.
“I always make these decisions in the beginning so that everyone knows what to expect,” said Stillman. “I want my partner to have the same opportunity to take for themselves.”
Stillman said he always pays the “stated price” before amendments, because he “wants to be fair” to his partner. The Centurion, whose 48 units are more than 50 percent sold, started at an average of $3,150 a square foot.
“I paid about that,” said Stillman of the penthouse he bought for his mother. Procida also paid the initial listing price at Be@William.
If the deal happens early on in the game, developers have to put money into the partnership in order to take title to the apartment. Sometimes they end up paying cash outright, or they can try to take out a mortgage.
If the developer decides to buy late in the game, however, the cost of the unit can be leveraged against his or her profits, which basically equals a capital account adjustment on the internal partnership books. In other words, the developer chooses to get paid in real estate instead of cash. (Of course, he or she still has the option of taking out a mortgage like anyone else.)
The New York Observer reported last year that when Steve Ross bought the penthouse at the Time Warner Center, he had stated a plan to pay full price for the 8,000-square-foot-plus apartment. In public records, however, the deed shows zero, presumably a leveraging of profits.
Thompson, who is a three-quarters partner in Loft 14, is taking out a mortgage in order to buy his unit.
“It’s really a timing consideration and a tax consideration,” said Thompson of his decision. “Having the mortgage, I’ll be able to write off the interest. Plus there’s the availability of equity out of the building for the next project, rather than having $3 million tied up in an apartment.”
Since they essentially get first choice, if they want it, most developers tend to take what they consider to be the best apartment in the building. Developer Tibi Zicherman, for instance, combined two penthouse apartments in his project, the Badge Building in Long Island City, to create the fifth-most expensive condo in the borough.
Interestingly, however, a developer’s first pick is not always the penthouse.
For his part, Procida chose a one-bedroom in Be@William because he felt it was a reasonable place for his kids to live. “They don’t need a penthouse apartment to live in,” he said.
Thompson also passed up buying the penthouse in the nine-unit Loft 14 in favor of a residence on the seventh floor, which is just a bit bigger.
“This unit is the best unit in the building, both on size and on light,” he said.
But does taking the best equal profit loss?
“It definitely cuts the profit margin,” said Thompson. “But I’m building this, and this is where we wanted to live, and I chose the best unit out of the building.”
Stillman sees it just a bit differently. From his point of view there is no loss, because “you have the asset. It’s not a cash asset — instead of selling to a third party, I’m selling it to myself. I don’t get the purchase price, but I do get the asset.”