Paydirt: Mayday for Barnett, commissions plummet, Rosen channels Ted Cruz … & more
The industry news you need to know to start your week, and what's ahead
(Paydirt is a new weekly column that riffs on the biggest NYC real estate news of the moment, providing analysis and historical context on the deals and players that make this town tick.)
“What hath God wrought?”
On May 24, 1844, Samuel Morse sent those words in the world’s first telegraph message. By May 24, 2017, though, the industry may be asking: “What hath Gary Barnett wrought?”
That’s Barnett’s deadline to score a construction loan for Central Park Tower, Extell Development’s $4.4 billion condominium project at 217 West 57th Street. If he can’t by then, SMI USA, his new equity partner on the project, can force him to buy back its $300 million stake, Bloomberg reported Sunday. If he’s unable to, SMI can push him to sell the entire project.
Despite making the blood oath, Barnett is, as always, bullish. “If I thought there was a more than 1 percent chance of that happening, I wouldn’t put that in there,” he told Bloomberg. Remember, he did pull it off at One Manhattan Square, and in even more impressive fashion at One57. But this is a very different project, and JDS [TRDataCustom] and PMG, who are building a similarly ostentatious condo nearby, have opted to hold off on sales until the billionaires emerge from hibernation. Banks note that stuff.
What a difference a year makes: Investment sales activity hit a record $74.5 billion in 2015, with heaps of trophy deals. Broker commissions (and egos) swelled accordingly.
But this year, several factors, not least the death of 421a and global economic uncertainty, led to fewer deals. The Real Deal estimated that broker commissions fell more than 22 percent year-over-year in the first half of 2016. Land deals are way down, and even the hospitality investment sales market, according to JLL’s Jeff Davis, is “in the eye of the hurricane.”
Brooklyn was hit especially hard, with estimated commissions down more than 30 percent. And that’s after a year in which many of the city’s top commercial firms bet big on the borough.
How are brokers dealing? The fly-by-nighters, sources say, are getting out. The resilient ones are making do with a lighter wallet. And while some are stubborn about their compensation on deals — “I never take less than 1 percent,” one prominent broker told me — others are willing to eat humble pie to get deals done.
Vote your conscience: Right before heading to the mountains of British Columbia for some zip-lining and skeet shooting, Aby Rosen took on Donald Trump in the way only a developer can: He plastered a massive “Vote your conscience” billboard on a development site he owns in Noho.
“Wake up America,” the RFR Realty chief wrote on Instagram, in a move that was seen as not only a rebuke of Trump, but also of his son-and-law and de-facto campaign manager Jared Kushner. Rosen and Kushner are co-owners of a major office complex in Dumbo Heights, and were set to team up again on the $340 million purchase of the Watchtower building at 25-30 Columbia Heights. But Rosen bailed at the last minute, to be replaced by CIM Group.
Happy Holliday: Speaking of CIM, the California-based private equity shop saw a huge payday last year when along with the Sapir Organization, it sold 11 Madison Avenue for a record $2.6 billion (the price tag included $300 million in lease-stipulated improvements) to SL Green Realty. The REIT financed the acquisition by selling a number of other buildings. But last week, SL Green brought in a partner, Prudential, which took a 40 percent stake and assumed some of the debt on the tower.
SL Green also announced big One Vanderbilt news. It settled the lawsuit over air rights brought by Grand Central owner Andrew Penson, which removes a big barrier to construction. Terms of the settlement were not disclosed.
Rechler goes resi: For Scott Rechler, real estate is very much a family business. In 2007, he sold the firm started by his grandfather, Reckson Associates, to SL Green for $6 billion. Since then, through RXR Realty, he’s been steadily amassing a trophy office portfolio including the Helmsley Building, 237 Park Avenue and 1285 Sixth Avenue. The firm recently jumped into the mezzanine construction loan game and is now planning its first NYC residential project, a major rental in Brooklyn.
Big brother is watching you: WeWork’s David Fano spoke about ways the co-working giant wants to use data to track the way its members use office space. The hope, he said, is to use the intel to design spaces that are more responsive and efficient. The company continues to gobble up space around the city: It signed a massive 159,000-square-foot lease in Midtown East just last week.
On the co-living front, however, WeWork is struggling. WSJ revealed that the company will now only put the concept into new developments, and that banks aren’t that hot on the concept. Turns out adult dorms aren’t as sexy as they sound. Or maybe, they’re exactly as sexy as they sound.