Why Declining Homeownership Rates Might Not Be a Bad Thing

May 18th, 2011

Homeownership declined in five of the past eight quarters, remaining in line with historical averages

In the first quarter of this year, homeownership rates fell to levels not seen since 1998. Despite that gloomy statistic, some experts say the decline might not be such a bad thing.

The share of Americans who owned their homes dipped to 66.4 percent, according to the U.S. Census Bureau, continuing the downward trend that began in mid-2009. Homeownership peaked at 69.2 percent in late 2004.

“Falling back to the 66-percent level is probably a good thing,” says Ken Shuman, head of communications at real estate information website Trulia. “Homeownership isn’t the American dream for everyone. A lot of people bought homes who shouldn’t have been able to buy homes.”

Historically, homeownership levels have hovered between 63 and 66 percent since the 1950s, only recently spiking to nearly 70 percent as a result of the credit bubble. “We had a credit bubble with housing as a symptom, and essentially homeownership edged outside that ‘normal’ range where it had been comfortable,” says Jonathan Miller, president of New York City-based Miller Samuel Real Estate Appraisers.

After the implosion of the housing and banking sectors, homeownership rates have been on the decline, but remain perched near the top of the “comfortable” range, Miller says. “What’s happening is that [we're] reverting to the mean,” he says. “Remember why [the rate] went from 66 to 69 [percent]. It wasn’t because homeownership became more in favor as much as it was the credit vehicle to make it essentially a no-brainer was the driver.”

Lenders have reigned in credit standards, making it tougher to get financing for home purchases, but declining home prices and a chronically unstable job market may have a greater hand in keeping homeownership levels lower going forward.

“The single most significant driver in the housing market is consumer confidence,” says Mitchell Hochberg, principal at New York City-based Madden Real Estate Ventures. “A lot of people are still afraid to make what is the biggest investment in their portfolio—a house—right now until they feel that both the economy and the housing market have stabilized. You have a lot of people who are sitting on the sidelines.”

Nevertheless, experts say declining apartment vacancy rates and rising rental costs could give the housing market a much-needed boost. According to the Census Bureau, the rental vacancy rate was 9.7 percent in the first quarter, down from 10.6 percent in 2010. The uptick in renters has put pressure on rental rates in many areas, and buying is now more affordable than renting in nearly four out of five major U.S. cities, according to Trulia.

That might not sound like good news for tenants, but higher rents often boost home purchases and accelerate a housing market recovery. Historically low mortgage rates—the rate for a 30-year, fixed-rate mortgage was 4.63 percent as of May 12—are also a boon for would-be home buyers. “I’ve never in my life seen [interest] rates this low, where a family can go and borrow in the high fours and own a home,” says Dorcas Helfant-Browning, managing partner at Coldwell Banker Professional Realtors. “I can’t think of a landlord that’s not upping rates with the market right now.”

Along with an increase in the renting population, the glut of vacant homes serves as another reminder of the foreclosure crisis and housing market meltdown. “We’re at a good level and we’re starting to stabilize at two-third owners, one-third renters, and that’s a comfortable level,” Shuman says. “My bigger concern is the vacancies. We so overbuilt during the boom. What does that mean for home builders? What does it mean for the construction industry moving forward?”

According to Shuman, of the 130 million homes in America, about 10 percent remain vacant. “These aren’t even the bank-owned homes,” he says. “These are homes that have been vacant and are going to stay vacant.” That figure, coupled with foreclosures still trickling through the system, threatens to further inflate the supply of homes and push prices down further.

“Real estate is local, and what it’s going to come down to is what is happening in the different areas,” Shuman says. “There will have to be local or state government decisions. You don’t want values of neighborhoods being crippled.”

Posted in Housing, New York Real Estate, Real Estate Development | No Comments »

Royal Retreats: Where The World’s Monarchs Go To Get Away From It All

April 29th, 2011

Prince William and Kate Middleton will have fabulous second homes. So do other royals.

Michelle Cerone, 04.12.11, 04:00 PM EDT

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In Pictures: Royal Retreats

For those wishing to spend a night in the second home of a Queen, there is the route Kate Middleton took–marry a prince.

After her wedding West Minster Abbey to Prince William of Wales at the end of the month, Middleton will have all the perks of being a princess, including access to Queen Elizabeth II’s exclusive Balmoral Castle.

In advance of the impending wedding, Forbes has compiled a list of 10 homes where royals escape when they need a change of scenery. Some are restricted to royal visitors only. Others, including Balmoral Castle, are at times open to the public.

Balmoral was originally purchased by Queen Victoria in 1852. The Scottish retreat served as a safe haven for Queen Elizabeth II and her sister during World War II. In early November, rumors of an impending royal engagement heated up when Middleton’s parents Michael and Carole Middleton were seen visiting the castle. Within a few weeks, the prince had proposed.

Balmoral Castle is just one of many royal retreats worldwide. Some of the second homes are on the opposite side of the world from their patrons’ respective home countries. The Prince of Brunei, for example, has a retreat in Las Vegas.

In other cases, royals merely cross a border or two. Queen Margrethe II of Denmark and Prince Henrik purchased a home in the south of France, Château de Caïx, in 1965. This royal clan also has two summer homes in Denmark: Marselisborg Palace in Aarhus and Grasten Palace in Grasten.

In some cases, royal second homes are a holding of convenience. Prince Bandar bin Sultan of Saudi Arabia purchased the 95-acre Hala Ranch near Aspen, Colo., in 1991 and commissioned the construction of a 56,000-square-foot home. When the prince served as ambassador to the U.S., he visited the property several times a year. In 2007, he put the home on the market at $135 million but withdrew it after it failed to sell.

Prince Jefri Bolkiah of Brunei built two homes in Las Vegas, including a 16-acre compound on ritzy Spanish Gate Drive. But he sold the smaller abode, the Tomiyasu Ranch House, in 2004 to Eric Peterson, the president of Consumer Credit Services, Inc, according to The Wall Street Journal. It was put on the market again last year. Originally listed for $37.5 million, it is now being offered for an asking price of $25 million.

Finding the right buyer for a royal property often means finding the right price, even when few comparables exist, and marketing it to the right set of exclusive prospective buyers. That’s according to Mitchell Hochberg, managing principal of Madden Real Estate Ventures.

“If you price it right, it will sell tomorrow,” he says of homes in the ultra high-end market.

It’s typically easier to establish the market value for an urban property in places like Manhattan, where other high-end homes are for sale and the location itself is expected to provide long-term intrinsic value.

That was part of the logic behind Sheikh Mohammed Bin Rashid Al Maktoum’s purchase of the penthouse in La Bell Epoque, Monaco for $308 million.

If that’s out of your price range but you still crave a bit of the royal treatment, note that some royals have transformed retreats into ultra-exclusive hotels. Maharena Sriji Arvind Singh Mewar, the heir to the Mewar Dynasty, turned his family’s Lake Palace home in Udaipur, India, into a resort. Queen Elizabeth II and other royals are among its former visitors. Rooms start at $4,600 a night.

Posted in Hospitality, Hotel Development, Real Estate Development | 1 Comment »

Square Feet: The 30-Minute Interview with Mitchell Hochberg

April 8th, 2011

Jennifer S. Altman for The New York Times
Mr. Hochberg, 58, is the managing principal of Madden Real Estate Ventures, a real estate investment, development and advisory firm specializing in hospitality and residential projects.He was the founder of the residential developer Spectrum Communities, which he sold to WCI Communities, and once served as the president of the Ian Schrager Company.

Q What projects are you working on right now?

A We’re working on four projects. We’re in the process of buying the debt on two hotels: one in New York City, one in the suburbs. Our goal with those transactions would be to take back ownership, rebrand and reposition the hotels, then ultimately sell to an institutional buyer.

We’re also developing a hotel in Hollywood, Calif. And we’re working on a 50-unit condominium project in North Harlem, which hopefully will be started in the next six months or so.

Q So you’re pretty busy.

A We’re very busy. It really picked up toward the second half of last year. We’re dealing primarily with the financial institutions to find projects.

Q Mostly distressed projects?

A We won’t typically be a buyer if something is being sold through a major brokerage firm, because we can’t afford to compete with some of the big institutional buyers. We look for properties where we can add some value — for instance, a condo project that’s distressed — and come in with a different approach, brand and marketing campaign.

Q Are you seeing more opportunities these days?

A It’s increased, but it hasn’t increased exponentially. I think most of the deals that we’ve looked at today are as a result of existing relationships with financial institutions. Some of them know us and have come to us, and frequently we’ll go to them.

Q And, increasingly, you’ve played the role as adviser, no?

A You had a lot of seasoned developers sitting on the sidelines waiting for the market to turn. I was fortunate enough to have relationships with many financial institutions and investment funds that had been my partners in the past and we had done very well together. They came to me and said: “Look, you’re not doing anything anyway. Why don’t you take your 30 years of experience and help us work through these projects?” That really provided us with a new business.

Q Speaking of opportunities, you sold, bought back, then resold a company you founded, Spectrum Communities .

A I founded the company in the mid-’80s, sold it in ’95 to Skanska, the construction giant from Sweden, and stayed on with them until 2003. I bought the company back from them in 2003, and sold it in 2004 to WCI. We sold it for a lot more than we bought it for.

Q Is now a good time to get back into the market?

A On the hospitality side, it’s a great time — if you can buy well. The problem is there isn’t a lot of product on the market, and a lot of the product has been bid up. But the market has been recovering, particularly in New York. There’s been a double-digit increase in “rev par” in 2010 — the revenue per available room.

Q Are you still working with the hotelier Ian Schrager?

A Ian and I have been partners with Marriott on its Edition brand since its inception four years ago. The concept of Edition was to build a boutique hotel product that would deliver style and design for a particular location, and also deliver five-star service. You wouldn’t walk into one and not know what city you’re in. We opened our first two hotels — in Waikiki and Istanbul. We have five other projects under development, including one in Miami, on South Beach.

Q Are any coming to New York?

A We haven’t found the right property yet.

Q Is there a name for the Harlem condo development?

A It doesn’t have a name yet. Basically, it’s going to be a small project — 50 units — in northern Harlem, mostly one- and two-bedrooms, with some studios. No amenities, just a nice building. It will be market-rate but affordable with a lower case “a” compared with Midtown. We’ll be able to sell at $550 a foot and make a good profit.

Q What has been your favorite project?

A I’m proudest of BelleFair in Rye Brook, which we completed in the early 2000s. It was a 250-unit residential project, at the foot of the runway for Westchester County Airport. Everybody told us we’d never be able to sell it, because it would be too noisy.

We spent considerable money on technology to make the houses soundproof, and we put in lots of amenities. Now the homes are reselling at almost double the original price.

A version of this interview appeared in print on April 10, 2011, on page RE9 of the New York edition.

Posted in Hotel Development, Mitchell Hochberg, New York Real Estate | No Comments »

Roll with the new- New developments are ready to come out & play

February 15th, 2011

New developments are ready to come out & play

It’s been a frigid New York winter, but the city’s once frozen new development market seems to be thawing.

“We’re building quite a lot,” says developer Zach Vella, a partner with Justin Ehrlich at VE Equities. “We’ve got five ground-up projects right now.”

Next week, Vella’s building at 949 Park Ave., which is being marketed by Leonel Piraino of Prudential Douglas Elliman, is hosting its first broker party — and the 12-story, six-duplex condo isn’t playing the wallflower when it comes to prices. The cheapest unit is $4.675 million, for a 1,900-square-foot two-bedroom — over $2,400 per square foot.

The upscale 949 Park Ave. condo building (model unit pictured) has six big duplexes priced at more than $2,400 per square foot.

Zandy Mangold
BREAKING PADS: The time is suddenly ripe for new condos like 305 W. 16th St. (pictured) and 77 Reade, both of which will start selling in the coming months. “We should have a short trigger between launching the property and move-ins,” says Corcoran Group broker Barrie Mandel of 77 Reade, which is expected to have five penthouses.

Zandy Mangold
Meanwhile, signage will go up on another VE project at 471 Washington St. in TriBeCa next week; apartments in the 12-unit building will start at approximately $1.7 million and go up to $15 million.

Also on Vella’s to-do list: a 55,000-square-foot project at 250 Bowery; a building at 1 N. Moore St. that just topped off; and a fifth (also in TriBeCa), 50,000-square-foot building.

And other developers are taking the plunge, too.

“It’s a good time to launch a new product,” says Harlan Berger, one of the partners at Centaur Properties, who plans to unveil a 78,000-square-foot, 53-unit condo building at 305 W. 16th St. in the coming weeks. (The name of the project has not been announced, and pricing — expected to be about $1,200 per square foot, comparable to nearby buildings — has yet to be approved by the attorney general’s office.)

Centaur purchased the land in 2006 but decided to wait until the project was ready for move-ins before marketing units.

“In the last year, the existing inventory on the market has been sold or is being sold,” says Shaun Osher of Core, the brokerage that will be marketing 305 W. 16th St. “Anyone who comes to market with good product is going to do very well.”

Osher is not alone in this assessment.

“People are getting teed up for the market to return again,” says Mitchell Hochberg of Madden Real Estate Ventures. “Particularly in New York, where the existing supply will whittle its way down over the course of the year.” (Hochberg is himself in negotiations to buy the debt on two hotels and a distressed condo project.)

“Many of the trophy downtown listings are going to be picked up” over the next year, says Kelly Mack of Corcoran Sunshine Marketing, “and they’re not going to be replaced for some time.”

Corcoran Sunshine is marketing 30 loft units at 77 Reade, a new loft building in a cast-iron former warehouse in TriBeCa, where apartments start at about $1 million and should be ready for move-ins this summer.

Multiple real estate marketing firms are gearing up for the return of new developments all over the city.

Andrew Heiberger, the founder of Citi Habitats and a developer himself, recently founded the Town Residential brokerage, which just announced a strategic partnership with Thor Equities’ Joseph Sitt and has lured top brokers including Wendy Maitland and Reid Price.

According to Price, the head of Town’s new development division, “one of [the new buildings Town is going to be selling] is nine to 15 units. Another is approximately 35 units.”

And Michele Kleier of Gumley Haft Kleier has been openly flirting with the idea of starting a new developments division.

“It’s a sign of the strength of the market,” Kleier says. “I’ve been thinking about this for a while. I don’t know whether this is the exact moment, but the answer is yes.”“Developers are just now bidding on sites,” says Fredrik Eklund of Prudential Douglas Elliman, who is selling 471 Washington St.

A developer Eklund knows spotted a plot of land in Midtown for $31 million that he thought of buying but hesitated: “He found out a few weeks later it sold for $39 million. It’s amazing that sites that nobody wanted to touch, or sites that [developers assumed] were too complicated to build on, there are now bidding wars.”

That’s welcome news for the market.

As bad as NYC real estate was hit over the course of the recession, no sector was more badly bruised than new developments. Why? First, ground-up construction was more expensive than existing stock.

New development is currently “selling at $1,100, $1,200 per square foot,” Hochberg says. “But the truth is you can’t build new and sell at $1,200 and make money.”

Indeed, Hochberg says, one of the reasons prices came down was because banks and investors surrendered to the fact that a lot of these projects weren’t going to make much money. Many projects that cropped up in the past couple of years were distressed or stalled properties that rival developers snatched up at a big discount and finished at a much lower price.

The other sword hanging over new developments’ heads was whether properties would make it out of the recession alive. Would these new buildings be foreclosed on? Would they turn rental? Would their value plummet?

To a certain extent, that question has been settled. The healthy have pulled through.

“In our first 12 months we’re on track to surpass 100 sales,” says Jacqueline Urgo of the Marketing Directors about the Sheffield, one of the many rental-to-condo conversions that had been through extremely painful (and public) spats between its former developer and its residents. Since March, Urgo says, 88 units have closed, and there are another nine contracts out. (Prices go from $700,000 to $7.6 million.)

Buildings like the W New York-Downtown, with buyers that signed contracts as far back as 2007, have kept their nerve.

“What we had to do is maintain integrity,” says Jason Gohari of the Moinian Group, which developed the W. “If we were [slashing prices like] others in the area, we would have lowered the value of the product. So we said, we’re sticking to $2,000-per-square-foot pricing.”

Gohari says that the W signed two contracts two weeks ago for a combo unit at full asking price.

And while banks are still gun-shy about bankrolling bigger projects (those with hundreds of units), certain developers are still dreaming big. Will and Arthur Zeckendorf of Terra Holdings, who had possibly the greatest condo success in the city’s history with 15 Central Park West, now have set their sights on the old Parkside Evangeline building in Gramercy. They bought the property for $60 million and have reportedly hired Robert A.M. Stern to design it. (The Zeckendorfs declined to be interviewed.)

Likewise, Extell is in the middle of putting up a massive, 90-story tower called Carnegie 57, which will include a 210-room Park Hyatt Hotel and 135 condos.

And more is coming.

“Between 2012 and 2014, we’re going to start to see a completely different set of real estate offerings,” Mack says.

“I’m working with a foreign developer who wants to get into New York,” Eklund says. “They do not want anything less than 200,000 square feet.”

Posted in New York Real Estate, Real Estate Development | No Comments »

The 2011 Numbers Game

January 10th, 2011

Here’s what the industry can expect in transactions, loan and rate.

The handshake deal was in place: Buyers were going to purchase the debt that a New York City hotel owed its lender, and the deal was supposed to close in the first quarter of 2011.

Mitchell Hochberg, Principal at Madden Real Estate Ventures, was drafting a detailed letter of intent when a funny thing happened: The economy started to improve.

“The bank decided since numbers coming back were very encouraging, they would take another shot,” he said.

No deal.

Such is the weird world of hotel financing these days. The industry can expect a roller coaster of a year, with transactions finally expected to increase but lingering fears of a “double dip” recession.

“One of the reasons there hasn’t been as much activity as people thought is the market recovered a lot faster than people thought it would,” said Hochberg, who specializes in the luxury and boutique segments. “Lenders decided to work with existing borrowers/owners than go through a protracted foreclosure procedure.”

He predicted that capital would finally get off the sidelines and into the market.

“You’re starting to see capital jump in at the end of [last] year with deals getting done,” he said. “You’re going to see a lot more activity.”

CB Richard Ellis Hotels New York City office reported this week that it closed 17 transactions totaling nearly $300 million in the second half of 2010.

Ron Danko, executive vice president, attributed the sales to improving fundamentals that finally pushed investors to spend, especially for quality assets.

“Almost overnight the market shifted and we witnessed multiple aggressive bids for assets providing meaningful pricing and certainty of transacting,” Danko said in a statement.

The group also reported that it has six assets under agreement expected to close in the first quarter of 2011.

Hochberg also predicted robust lending in 2011, with some strings attached.

“If it’s a good property in a good market, it will require more equity to get developed,” he said. “Most financiers are reticent for new development because you can buy hotels below replacement cost. To the extent someone can show there is opportunity for a specific product and a specific product that works, you will see more lending.”

Isaac Collazo, IHG’s vice president of performance strategy and planning for the Americas, pointed out positive signs in RevPAR growth, rising occupancy and increasing ADR. Still, he noted during a talk at IHG’s conference, the industry is still looking to recover ground its lost since 2007. Occupancy may continue to look soft because of the growth in supply, he said.

Most hotels that closed in the past year were unaffiliated with brands, so Collazo said investing in brands was one strategy for success.

Hochberg shared that opinion.

“Owners, investors are going to continue to be attracted to quality brands, which is obviously a critical way to differentiate a product,” he said. “Frequently it adds significantly to the distribution ability. The quality brands will still do well. It’s questionable whether new independent brands, particularly in the boutique segment, will be able to survive.”

Individual markets no doubt will play a role. Not surprisingly, gateway cities will lead the way to recovery. New York, Miami and Los Angeles have been the superstars, Hochberg said, as have Chicago, Boston and Dallas.

The weakest market, Hochberg concluded, is Las Vegas.

“It’s hard to see how Las Vegas is going to come out of this in less than five or 10 years,” he said. “The market soft before all the new supply came on. When you look at the significant supply from City Center and Cosmopolitan, it will be very difficult for Las Vegas to recover in the near term. This has also been exacerbated by companies being reluctant to do business on a grand scale.”

When it comes to rates, only the top markets — again, New York and Los Angeles — truly have pricing power, according to Peter Yesawich, chairman and CEO of Ypartnership.

His firm’s research, along with the Harrison Group, Portrait of American Travelers, showed that Americans remain cautious about spending on travel services in the year ahead.

“We think suppliers — with the exception of airlines — who attempt to meet fares and rates are going to meet resistance. For the most part there isn’t pricing power in lodging.”

The buying psychology of the traveler has changed, he said, calling the phenomenon “the new frugal.”

“Even though occupancies are increasing slightly, the consumer, because of their new frugal attitude, is resisting paying more. That will be the case across the board, whether large corporate contracts, or individual business travelers. Even though many in lodging industry believe the window is starting to open, our view is the consumer will push back on paying more.”

The good news, though, is that it appears that luxury and upscale clientele are willing to travel more this year. For households with incomes of more than 125,000 — the top 10 percent of US households — about 20 percent said they would take more trips this year, as opposed to 9 percent who said fewer. That’s a net positive of 11 percent, compared to a net positive of 2 percent of households whose annual income is $50,000.

“As a consequence of the buying power, it is the more affluent households who will lead us out of the recession,” Yesawich said. “People for the past couple of years have felt they made the appropriate sacrifice. There was clearly a trading down phenomenon, but they’re clearly ready to reinstate buying behavior.”

Posted in Hospitality, Hotel Development, Las Vegas, Real Estate Development | No Comments »

Yankees’ Granderson does meet-and-greet as former Miraval Living prepares to unveil new spa operator

December 9th, 2010

alternate text

Clockwise from top left: Curtis Granderson signs autographs for fans, the indoor rock climbing wall at 515 East 72nd Street, outside 515 East 72nd Street, and (from left) Jim Sheehan, Curtis Granderson and Loretta Bradbury at the event

Yankees center-fielder Curtis Granderson headlined an event last night at the site of his current New York crash pad, 515 East 72nd Street, a new condominium which is revamping its image now that it has ended its association with the Arizona-based resort and spa, Miraval.

Residents at the condo formerly known as Miraval Living, which started sales in 2007, have waited a long time for the building’s much-hyped spa facilities to open. The sponsor, River Terrace Apartments, has a new spa operator lined up and plans to announce it to residents within the next few weeks, the sales team told The Real Deal.

In the meantime, Granderson appeared to provide a welcome distraction.

At the River Terrace-sponsored event, the developer presented a check for $15,000 to Granderson’s charity, the Curtis Granderson Grand Kid Foundation, which promotes education and athletics for urban children. The building had pledged to donate $1,000 to the foundation for every home run the slugger hit, starting Aug. 1.

Popcorn and pigs-in-a-blanket were served at the kid-friendly gathering, where Granderson signed autographs and took pictures with excited building residents. Many of the pint-sized fans sported “Granderson” T-shirts and carried baseball gloves. One youngster asked the center-fielder to go outside for a game of catch. Another, nine-year-old Rianna Doolaramani, said her brother “screamed” in excitement upon hearing that Granderson was downstairs signing autographs. She proudly showed off her mobile phone, which the ballplayer had autographed.

Granderson, who just completed his first season with the Yankees, joked that he was “homeless, per se” at the beginning of the season, since the team had had only a few home games. Since taking up residence at the 72nd Street building, located between East End and York avenues, he said he has enjoyed the views and extensive-square-foot fitness center, though he doesn’t use it much during the season.

He said he’s heading home to Chicago now that the season is over, and “hopefully” would be returning to the building in the spring, but will have to “wait and see.”

It is unclear whether Granderson is a buyer, renter or merely a guest of the developer at the building. The Post reported this spring that Granderson was “test-driving” the apartment and thinking about purchasing it.

Jim Sheehan, project manager of 515 East 72nd Street, said Granderson has signed a purchase agreement, but hasn’t yet closed. He declined to comment further on Granderson’s arrangement with the building.

Most new condo buyers, of course, aren’t allowed to live in their units before closing on them, unless they are in a rent-to-own program. But Granderson isn’t just any buyer.

In recent years, it’s become common for new development condos to court celebrity residents — often offering them free or greatly reduced accommodations — in hopes of generating buzz. In one notorious example, 42nd Street’s the Atelier reportedly gave actress Lindsay Lohan use of an apartment in exchange for hosting events at the building.

In recent months, 515 East 72nd Street has also turned to other methods of increasing its profile in hopes of jump-starting slow sales. A Bravo reality show called “Double Exposure,” about fashion photographers who live in the building, is filmed there.

After several years on the market, more than half of the building’s 365 units remain unsold.

Mitchell Hochberg, who was hired by the project’s lenders to help turn 515 East 72nd Street around, told The Real Deal this summer that “the creative team came up with new ideas for increasing the property’s profile, and one was to film commercials there, as well as the show.” He added: “No one is buying in the building because it’s featured on a TV show, but it can increase awareness.”

Regarding Miraval’s departure from the building, Granderson said it “doesn’t bother” him, although it may be a disappointment to visitors, like his mother.

For her part, nine-year-old Doolaramani said living at Miraval is “a lot of fun.”

Designed in collaboration with Miraval, it has a pool, indoor rock-climbing wall and half-court for basketball and racquetball. A number of treatment rooms for spa services are completed, but are currently sitting empty.

Unprompted, Doolaramani said: “I’m depressed that the spa is gone.”

The situation is a little more complicated than that, of course.

This fall, River Terrace Apartments ended its partnership with Miraval. The reasons are disputed; while Miraval has said that 515 East 72nd Street didn’t make payments on time, the building has said Miraval was responsible for delays in the spa’s opening.

Jim Sheehan, project manager at 515 East 72nd Street, told The Real Deal that problems with the spa had to do with turnover in personnel at Miraval, as well as the company’s inability to “make up their mind.”

The new spa will be “on par if not better in terms of service,” said Corcoran Sunshine Marketing Group’s Loretta Bradbury, the building’s sales director.

The new operator already has a presence in New York, which the team said is one advantage it has over Tuscon-based Miraval.

When asked if the building’s buyers have complained that Miraval is no longer associated with the building, Sheehan said it’s the opposite. Residents were disappointed that the spa hadn’t yet arrived, and are now hopeful some progress can finally be made, he said.

Under the auspices of the new operator, the spa is slated to open in the first quarter of 2011. A café will also open in the building with a different vendor, Sheehan said.

Things may be looking up, however; the building has done about $8 million worth of sales in the past six weeks, Corcoran Sunshine said.

By Candace Taylor

TheRealDeal.com

Posted in New York Real Estate, Real Estate Development, Real Estate Finance | No Comments »

CWCapital, Ackman Settle Stuy-Town Dispute

October 28th, 2010

NEW YORK CITY-Although PSW NYC LLC, a joint venture of William Ackman’s Pershing Square Capital Management and Winthrop Realty Trust, didn’t take control of Peter Cooper Village/Stuyvesant Town as originally intended, it has walked away with its money intact. In separate announcements late Tuesday, CWCapital Asset Management and PSW said a CWCAM affiliate had bought the junior debt previously controlled by PSW. The affiliate paid $45 million, the same amount that PSW had put toward acquiring $300 million of mezzanine debt at a discount, thus settling any remaining litigation between the two sides.

CWCAM also announced that it had cancelled the frequently postponed foreclosure sale on the 11,227-unit apartment complex; the auction was to have taken place this Friday. Instead, CWCAM says in a statement that it will focus on “ensuring a stable transition of the property and maximizing recovery of the $3.7 billion owed to the trust which it represents.”

To that end, CWCAM last Friday appointed Rose Associates as property manager for Stuy-Town. Rose had been working since last February as a transition consultant for PCV/ST LLP, the group which bought the sprawling rental complex for $5.4 billion in 2006 and defaulted on $3 billion in debt at the beginning of this year. Prior to selling Stuy-Town, original owner MetLife had also hired Rose as a consultant.

“Eliminating uncertainty in this transaction, and moving us toward a clear and clean resolution, is good for the tenants—so the settlement of this legal dispute is a welcome step,” says Daniel Garodnick, a Stuy-Town resident, New York City Council member and frequent spokesman for the complex’s tenants associations, in a statement. “We are pleased that CW Capital can now move forward with the tenants on this restructuring.”

Buying out PSW gives CWCAM and the senior lenders on Stuy-Town “the utmost optionality,” Mitchell Hochberg, principal with Madden Real Estate Ventures, tells GlobeSt.com. Those options include foreclosure at a later date—which would entail paying transfer taxes that have been estimated at $100 million—seeking a buyer, restructuring the debt or hammering out a co-op conversion of the complex.

The conversion plan seems the more likely route at this point, given that as a rental property the complex is likely worth less than $2 billion. “A conversion will probably work only if it’s done in conjunction with the existing residents,” says Hochberg, who is not involved with the deal. “The question then becomes, can you sit down and cut a deal with the existing residents that’s attractive to them and would cost them nothing more than they’re currently paying to live in a rental?”

At the same time, a conversion plan would leave in place some of the debt on the property, which is allowable under the co-op format. The debt would then be serviced by the tenants’ monthly maintenance payments. Hochberg says that for the lenders, the goal of a conversion plan would be to recoup “the maximum amount of their investment” over time.

Complicating the process will be the differing priorities of Stuy-Town residents. “Anything the lenders do is going to be subject to a very protracted negotiating process with a large constituency that has divergent interests,” says Hochberg.

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Acquiring distressed loans from FDIC helped Lennar Corp. return to profit

September 22nd, 2010

Investors lauded Lennar Corp. third-quarter results Monday, pushing the homebuilder’s stock up 8.2%, as the company reaps gains from a new unit.

Miami-based Lennar returned to a profit for its fiscal third quarter, reporting earnings of $30 million, or 16 cents a share, well above analysts’ estimates. Results were bolstered by Lennar’s Rialto unit, which acquired 40% of a portfolio of distressed loans from the Federal Deposit Insurance Corp. (FDIC) earlier this year and earned $7.7 million for the quarter ending Aug. 31.

The news helped Lennar’s stock price rise $1.15, or about 8.2%, to close at $15.14 Monday. But that’s still way off the $67.27 the stock was trading at back in January 2006 during the height of the housing-market bubble.

Shares of both DR Horton and Toll Brothers climbed steadily Monday, as well. Pulte Group’s common stock rose 0.4% to $8.66 yesterday.

Still it appears purchasing distressed assets from the federal government many only boost earnings for a short period, while homebuilders’ core operations continue to drag. Lennar reported a 15% decline in new-home orders and a 12% drop in its backlog of homes for sale for the third quarter.

President and CEO Stuart Miller said the company is “optimistic that our core businesses are on the right track to achieving sustainable profitability as the housing market recovers.”

“Our strategic investments in the FDIC loan portfolios and in the PPIP fund are performing extremely well and are producing strong earnings for our company,” Miller said. “Our disciplined approach to underwriting and investing in distressed opportunities holds us in good stead for future earnings growth.”

Mitchell Hochberg, a principal with Madden Real Estate Ventures, said the homebuilder’s understanding of the mortgage market makes investing in distressed loans advantageous.

“It makes sense for them to seek ancillary but related businesses to help raise earnings as the housing market sits on the bottom,” he said. “They’re being very clever right now. It’s a related business and one in which their executives know how to evaluate the risks.”

But it’s probably not a long-term solution for earnings growth and Hochberg expects the company will review the unit’s performance in a few years and determine if it’s still self-sustainable.

From HousingWire.com

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Home prices increase in 15 major cities, with Washington among the leaders

September 13th, 2010

From the Washington Post

By Ariana Eunjung Cha

U.S. single-family home prices in major cities saw a modest increase of 4.2 percent in the second quarter from a year earlier, but economists cautioned that the bounce was likely due to the final days of the tax credit and that prices would likely fall, perhaps dramatically, in the coming months.

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(Photo credit: Getty Images)

Of the 20 U.S. cities covered by Standard & Poor’s Case-Shiller index of home prices, 15 saw an improvement in year-over-year prices.

San Francisco led those with gains with a 14.3 percent jump in prices, followed by San Diego with 11.2 percent growth, Minneapolis with a 10.7 percent increase and Washington with a 7.3 percent recovery.

Las Vegas, where foreclosure signs were seen in practically every neighborhood during the worst of the crisis, remained weak. Prices were down 5.2 percent.

The unexpectedly high increase was good news–economists surveyed by Bloomberg had expected a 3.5 percent advance–but the nation’s housing sector worries are far from over.

Sales have tumbled since the tax credit expired despite a large inventory of homes on the market and mortgage rates that continue to fall to record lows. Homebuyers had to sign contracts by the end of April to be eligible for the credit and close their transactions by Sept. 30.

Because the Case-Shiller index measures repeat sales of homes in a rolling three-month average, the June data captured some transactions in April and May.

“The report shows the ship is dead in the water now that the homebuyer tax credits have expired,” said Mitchell Hochberg, principal with Madden Real Estate Ventures, said in a research note.

The effect of the end of the government incentives became apparent last month: The National Association of Realtors said sales of previously occupied homes plunged in July to the lowest level in 15 years and the Commerce Department reported that sales of new homes in July fell to their lowest level in 40 years.

That grim picture of the housing market painted by home sales and the optimistic one by home price points to an imbalance in supply and demand that they say cannot be sustained.

HSBC economists wrote in their weekly note, “Measures of U.S. house prices could be set to soften as the data begin to capture more of the transactions that occurred after the homebuyer tax credit expired at the end of April.” JPMorgan Chase chief U.S. economist Michael Feroli also said, “whether the softer trend in home sales results in lower house prices is the critical question for the outlook.”

Paul Dales, U.S. economist with Capital Economics predicted that “now that home sales have fallen through the floor, it is only a matter of time before prices fall back.”

Karl Case, Professor of Economics at Wellesley College and Founding Partner of Fiserv Case Shiller Weiss, Inc., pointed out in a call with analysts Tuesday morning that despite the recent increase, housing in the longer-term has gotten significantly cheaper.

Nationwide, prices are 28 percent off their peak in July 2006 but they are up 6 percent from the low in April 2009.

“It’s down from the peak an average of something on the order of 30 percent. If you take a 30-year fixed interest rate in the low 4s, you take a monthly payment down by roughly half,” Case said.

“It’s the best affordable housing program we’ve ever had in this country,” Case said.

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US July Existing Home Sales Plunge 27.2% To 3.83M Rate

August 27th, 2010

WASHINGTON (Dow Jones)–Existing home sales plunged to their lowest level in 15 years in July as inventories soared, painting a grim picture for the housing market absent government support in a stubbornly sluggish economy.

Home resales dropped a record 27.2%–nearly twice as much as real estate analysts had expected–to an annual rate of 3.83 million in July, the National Association of Realtors said Tuesday. Meanwhile, inventories rose to 12.5 months from 8.9 months in June, pressuring already depressed home prices. Inventories are at their highest level in more than a decade.

“Historically July is the peak inventory month in any given year,” NAR Chief Economist Lawrence Yun said.

Economists surveyed by Dow Jones Newswires had expected existing home sales to fall by 14.3% to an annual rate of 4.6 million.

Tuesday’s data drove the Dow Jones Industrial Average down more than 100 points and pulled down yields on 10-year Treasury notes.

“The report shows the housing industry has hit more turbulence, is not leveling off and is worried about a nosedive,” said Mitchell Hochberg, a principal at Madden Real Estate Ventures in New York. “Unemployment, foreclosures and shadow inventory are keeping consumers on the sidelines waiting for prices to drop further.”

The realtors revised their existing home sales figures for June downward, saying existing home sales dropped to a 5.26 million annual rate instead of the initially estimated 5.37 million annual rate.

“The question is whether this pause is a temporary pause,” Yun said. The National Association of Realtors is expecting sales to remain soft for much of the rest of the year.

The steep decline in sales in July reflects both a souring in the U.S. economic recovery and the expiration of a government tax credit program that has been supporting the housing market for more than a year.

The tax credits offered certain buyers up to $8,000 to sign a contract by April 30. Deals originally needed to close by June 30, but lawmakers pushed that deadline to Sept. 30.

Still, the tax credit’s expiration drove pending home sales down 30% in May and caused a double-digit dive in mortgage application volumes even as interest rates hovered near their lowest levels in generations. July’s existing home sales data reflects the May plunge in pending sales, which typically become existing sales within a couple of months.

Mortgage rates remain low, but lingering troubles in the labor market continue to restrain the nation’s housing recovery. That trend likely will continue for some time.

The Federal Reserve, in its latest forecast, scaled back its growth projections, saying it expects the soft job market to continue to hold back economic progress.

In July, existing home sales dropped 29.5% in the Northeast, 22.6% in the South, 25% in the West and 35% in the Midwest.

On a year-over-year basis, July existing home sales were down 25.5% from an annual rate of 5.14 million in July 2009.

A growing number of the existing homes sold across the U.S. in July were distressed properties. 

Median home prices in July rose 0.7% to $182,600.

By Meena Thiruvengadam, Dow Jones Newswires; 202-862-6629; meena.thiruvengadam@dowjones.com

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