Tony Park and Elad Dror made a splash when they appeared on 60 Minutes in January to talk about their plans to convert a rundown Koreatown office building into 77 apartments.
PD Properties’ brokers and principals are tackling their first large-scale redevelopment at 110 West 32nd Street. They’re going big with an ambitious office-to-residential conversion – an undertaking that even some of the most seasoned developers have shied away from because of the unexpected costs and complications that can arise.
The eight-story Class C building sits in the middle of a busy block off Penn Station that is dominated by older office towers, including Vornado’s 100 West 33rd Street and 11 Penn Plaza. The first two floors used to house a Jack’s 99 cent store, and a giant sign for the retailer still hangs on the dirty facade.
“I don’t have any doubts that this will work,” said Park, who beyond his brokerage work has made headlines as an ATM entrepreneur, restaurateur, private club owner and pastry chef. “I’m already looking at a bigger building that will require the middle to be carved out. It’s very ambitious. I have a lot of dreams.”
If it does work, the project could pave the way for other untested developers to scoop up Class B and C office buildings at bargain prices and convert them to residential. Preliminary construction has started and the plans are in the final stages of the approval process for building permits, said the project’s architect, Gene Kaufman.
“I think it will show that idea of converting commercial to residential works and I think it would be great to see more of these happening around the city,” Kaufman said.
Park teamed up with Korean media company MediaWill to buy the 113,000-square-foot building for $37 million in September. Dror was the broker on the deal. In January, they sold the commercial condo on the first and second floors of the 1920 building to investor Hi Jong Lee for $30 million.
Park spent $2 million to renovate the commercial condo for the new owner and he expects to spend $16 million to $18 million on the conversion in total, he said. Signs in the windows of the building advertise 5,000 to 40,000 square feet of available space for lease by PD Properties, but Park said they have no plans to rent the upper floors as offices.
“When we looked at this deal, it was a retail play. The retail had the most value in the deal,” Dror said. “The numbers make sense on this project. We’re going to finish at a time when there is not a lot of rental inventory on the market and, hopefully, God willing, in the next couple of years interest rates will come down and we’ll be in a good market for refinancing.”
The pair make an odd couple: Park is talkative and flamboyant while Dror is more reserved, after cutting his teeth as a broker at the Moinian Group and working with Park on a few prior retail deals.
“I repped a lot of Korean clients – delis, groceries – and I started bringing 5,000- to 10,000-square-foot tenants to Joe Moinian’s buildings,” said Park, who grew up in Sicily and is of Korean descent. “We said, ‘Why don’t we create a company?’”
Park and Dror started PD Properties 14 years ago, first as a commercial brokerage. They later began connecting Korean investors with Dror’s network of landlords and buying small pieces of real estate with the commission checks, Park said.
“We started with a small retail condo, then we bought something on Long Island, then we bought a small share of another building,” he said.
PD Properties now owns and manages nine buildings with five to 10 units, Park said, but the 10-story building on West 32nd Street is the biggest by far. The planned apartment units will include one-bedrooms and studios ranging from 500 to 600 square feet. Park hopes to rent them for $75 a square foot.
The developers are in the process of selecting a contractor and plan to secure $22 million in construction loans from Alma Bank and Bank of Hope, where Park already has relationships, he said. It’s a big gamble, which the lender seems to recognize.
“It’s a fully guaranteed loan. If something happens to these $22 million, I have to pay every penny back,” Park said. “They’re gonna sell off all my buildings and restaurants and I’ll have nothing left.”
Park and Dror have lined up a team of experts, including Kaufman, an owner’s representative, and a design and construction manager, they said.
“Experience does matter and what these guys are going to really need to do is make sure they have the right team around them, because if they don’t, it will be a tough go,” said Joey Chilelli, a managing director at Vanbarton, which has done many conversions in the city. “You need a leader that has that experience, whether it’s consultants, engineers, construction crews.”
The project could serve as a model for future conversions on a smaller scale than those by the Vanbartons, Macklowes and Silversteins of the real estate world.
“I think we’ll see more and more of them, but I don’t think there will be a floodgate of people,” Chilelli said. “I think people will find a way, whether it’s taking on some of the smaller-scale projects and making them work, but I think the more housing that people can create and the more developers that can do this, the better.”
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