Ceruzzi Properties is struggling to secure a lifeline at its Hayworth condominium on the Upper East Side, as the pandemic heaps pressure on overstocked developers across the city.
The firm has been working with JLL’s Chris Peck for months on arranging an inventory loan for the 61-unit development at 1289 Lexington Avenue. However a financing deal with Slate Property Group was stalled by the state shutdown in late March, according to Ceruzzi’s president, Art Hooper.
More recently, JLL’s Jeff Julien has pitched prospective investors about buying out Ceruzzi’s position, touting the building as a potential luxury rental project, according to two sources familiar with the matter.
Julien and Peck did not respond to requests for comment. Asked about plans to sell his firm’s stake, Hooper said he didn’t know who Julien was, and said JLL wasn’t asked to find a buyer. However, he acknowledged his firm was “exploring everything.”
“There’s no question that the condo market is not robust in New York,” Hooper said. “So right now, we’re looking at [either] coming out of Covid selling condos … renting units in the building … Or is there a possibility of somebody coming in and investing in the building? Or maybe selling all the residential units to a bulk buyer … Or some combination of all of the above.”
Ceruzzi and its partner on the Hayworth, Kuafu Properties, spent $118.6 million assembling the site at East 86th and Lexington Avenue between 2013 and 2014. By the time sales launched in 2019, the condo market had weakened significantly.
Just two units have gone into contract, according to Hooper, with a third in talks. The project’s overall projected sellout, pre-Covid, was $375 million, documents filed with the New York Attorney General’s office show. The blended average target price at the project was north of $2,600 a foot, according to Julien’s pitch.
“They were trying to sell at too high a price in a falling market, and they never got momentum,” said a source close to the project.
“Everybody’s got an opinion,” Hooper said in response, noting that the firm had made several adjustments to pricing. “Where is the right price? It’s not an exact science.”
Corcoran Sunshine, which is handling sales at the building, did not respond to requests for comment.
The Hayworth is also carrying $260 million in construction debt from The Children’s Investment Fund, a London-based hedge fund that’s written billions of dollars in checks to a host of New York developers, including Related Companies, Silverstein Properties and HFZ Capital Group.
Hooper said the construction loan doesn’t expire until December 2021, meaning a deal could still be brokered later down the line.
“Obviously we want to refinance it — we don’t want to let it go to 2021 — but we do have time on the loan,” Hooper said, adding that, “it’s a good loan, but it’s also expensive.”
Children’s did not respond to requests for comment.
The lending environment has changed significantly since the pandemic struck, with fewer parties willing to bet on projects and loans getting more expensive. According to Dustin Stolly of Newmark Knight Frank, who is not involved with the project, inventory loans are 300 to 400 hundred basis points more expensive than they were last year.
For Ceruzzi, the Hayworth is the latest in a line of projects to hit snags since the firm’s founder and president, Louis Ceruzzi, died suddenly in 2017.
A project at 520 Fifth Avenue, on which Ceruzzi partnered with the U.S. arm of the Shanghai Municipal Investment Group, was hampered by delays and faced foreclosure when Rabina Properties came on board as an equity partner in July.
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Another Ceruzzi project, the Centrale at 138 East 50th Street, recently started closings and secured a $350 million inventory loan in February — right before the pandemic hit.
Since the shutdown, the entire luxury market has been feeling the pressure. New deals have mostly dried up, existing contracts are vulnerable, and Manhattan’s shoulder-to-shoulder lifestyle suddenly seems more risky than desirable.
There’s no clear timeline for when business will resume and deals will restart, meaning buildings with huge numbers of unsold units are effectively frozen in time — an agonizing, money-sucking position for developers hoping for relief.
“In this environment, nothing is happening fast,” said a source involved in several developments. “No one wants to catch a falling knife, especially a rusty one.”
Some owners are coming up with incentives. This month, Extell Development announced it would slash prices by up to 20 percent on all remaining units at its One Manhattan Square condo “in response to global conditions related to COVID-19.” At HFZ’s XI condominium, the sales team recently discussed the possibility of a bulk offering.
Hooper said all options were on the table.
“People are coming to us all the time now, and we’re certainly willing to listen to everybody,” he said. “We’re not committed to anything.”
Mary Diduch and Kevin Sun contributed research.
Write to Sylvia Varnham O’Regan at so@therealdeal.com and Rich Bockmann at rb@therealdeal.com