How Jeffrey Epstein Secretly Backed Manhattan Condo Project

On the north side of Madison Square Park, the conversion of a five-story Neo-Georgian property into condos drew outsize attention when it launched sales in 2013.

A-list celebrities were picking up the four full-floor units in the Flatiron property. NASCAR champ Jeff Gordon bought the second-floor unit. Chelsea Clinton scooped up the third floor. The coup de grâce was Jennifer Lopez buying the duplex penthouse for $20 million. About a year after launching sales, the project was an unqualified success.

Reaping the rewards? Jeffrey Epstein, among others.

At 21 East 26th Street, a little-known developer named David Mitchell cut Epstein in on a sweetheart deal that gave him access to the kind of returns reserved for insiders. Epstein was able to invest in Mitchell’s development entity, AdvanceStar. He also invested a smaller piece as a limited partner.

Mitchell did not return a request to comment. The Real Deal previously reported on the somewhat perplexing relationship between Epstein and Mitchell, and their series of increasingly poor ventures together.

After a $920,000 investment, documents show Epstein appears to have come out ahead of seasoned real estate executives like Howard Lorber, the longtime head of Douglas Elliman whose development firm New Valley invested in the project. One New York City developer who reviewed the financial projections was amazed at the returns Epstein received.

“We would trip over ourselves to do that [deal],” they said.

Epstein’s source of wealth is still something of a mystery. It is not clear how he amassed the funds needed to buy two private islands, an Upper East Side townhouse, a Palm Beach mansion, a New Mexico ranch and a private jet. But documents on individual development deals like 21 East 26th Street provide a window into Epstein’s investment strategy.

“No guarantees but should be good”

Mitchell first pitched the 21 East 26th Street condo project, known as the Whitman, to Epstein in August 2011. By this time, the two were well acquainted.

Epstein had previously used Mitchell for high-profile meetings. Epstein had instructed Mitchell to go to Dubai to meet Sultan Ahmed Bin Sulayem. Epstein hosted a meeting at his Manhattan townhouse with Peter Mandelson, a member of the U.K.’s House of Lords, so Mitchell could pitch his bid on the Silverstone racing track. (Mandelson was recently arrested on suspicion of misconduct in public office.)

This time, it was Mitchell offering Epstein something. Mitchell’s firm bought out his co-developers and acquired a century-old building used as a fabric importer showroom from the Plumber’s Union for $13 million. He took on $25.7 million in financing, hired architect Jeffrey Cole and planned to convert the historic structure to luxury condos.

Manhattan’s condo market was on an upswing and Mitchell secured key approval from the city’s Landmarks Preservation Commission to build an additional floor. The developer tapped the brokerage then known as Prudential Douglas Elliman to handle sales.

“I think this is attractive because most of the risk of approvals and asbestos removal is behind,” Mitchell emailed Epstein in his initial investment pitch in 2011. “No guarantees but should be good.”

The project’s capital stack looks like that of a typical condo development: the development entity, AdvanceStar, at the top, set to reap the highest returns for taking on the greatest risk, followed by the equity partners and the debt.

In this case, the project was expected to cost a little over $32.6 million and return almost $55 million after sales. The project was 80 percent financed with a $25.7 million loan. (“The returns were pretty juiced because they borrowed a lot of money,” the developer told TRD.)

Mitchell offered Epstein the most lucrative part of the deal. Epstein was able to get a 30 percent stake in AdvanceStar for just $700,000. He could also invest $220,000 as a limited partner.

Epstein, however, asked Mitchell if he could take the penthouse, instead of any profit.

“Tough to do as the deal closed in February,” Mitchell said in an email in 2012. “Lorber is an investor and Prudential [Douglas Elliman] is the broker.”

Epstein told Mitchell to send details anyway, noting “I could always ask howard [Lorber], i like him.”

A strong market

When the project launched sales in 2013, New York City’s real estate market had recovered from the doldrums of the 2008 Great Financial Crisis and was hitting a new peak. The average sale price for new development condos reached $3.43 million in the third quarter that year, a record at the time and up over 50 percent from the previous high set in 2008, according to a Corcoran Sunshine report.

The building’s three non-penthouse units sold out shortly after sales launched in 2013, and early projections for the project looked promising. After returning the debt and nearly $5 million in cost overruns, there would be about $24 million to divvy up among the investors. Limited partner investors, including Lorber’s New Valley, put in the remaining $7.4 million and were set to double their money, according to projections from February 2014. (New Valley controlled a 12.86 percent stake in the project, according to an organization chart.)

“The margin on cost is insanely high. The developer must have really timed the market well,” said David Eyzenberg, president of Eyzenberg and Company, a ground lease & capital advisory firm, of the projected returns.

Epstein’s sweetheart deal

Epstein’s total investment in 21 East 26th Street totaled about $920,000. By Mitchell’s projections, Epstein should double his $220,000 investment as a limited partner investor. Epstein’s stake in the AdvanceStar could bring in as much as $3.7 million, according to Mitchell.

Epstein’s returns were contingent on the penthouse, a 6,000-square-foot duplex with two staircases and 3,000 square feet of outdoor terrace space.

Listed for $25 million, it sat on the market for a year until a mystery buyer emerged. In October 2014, Mitchell told Epstein in an email that someone offered $19.8 million for the penthouse. The buyer also agreed to pay $225,000 in transfer taxes.

The buyer, not named in the email, was later revealed to be pop icon Jennifer Lopez.

“I think we take it Bottom line on your investment You put up 920,000 Out of this you will receive about 1,668,000,” Mitchell wrote to Epstein. “Of which 220,500 was returned in 2013.”

“Not amazing returns but ok,” Mitchell added.

Epstein’s final return based on those numbers would be close to 80 percent of his initial investment.

Thanks and Good Luck

The deal provided an exceptional return and a piece of Manhattan’s then-roaring condo market, but his overall track record as a real estate investor is mixed at best. His success came from a personal connection to the developer via Mitchell, but the two men’s later deals didn’t fare as well.

A $3.4 million investment in a boutique condo on the Upper East Side was a complete wash for Epstein. Mitchell and his wife, a Douglas Elliman agent who launched sales at the property, repaid Epstein in increments as small as $2,200 to Epstein over the course, totaling over $600,000, up until April 2019.

Epstein’s vast connections across business and finance gave way to a multitude of investments, including startups, private funds and even a marina. But despite the volume of deals, Epstein doesn’t appear to have been particularly discerning about which ones were winners and losers. In the case of 21 East 26th Street, he didn’t even seem to really care. Less than a week after Mitchell brought it to Epstein’s attention, Epstein appeared to agree to the deal.

“I m closing today on your deal,, with no due diligence. I am merely relying on your representations . thanks and good luck,” Epstein told Mitchell.6675555