By Vanessa Londono and Gabby Warshawer - February 13, 2007
The Real Deal
While the Upper East Side's massive Manhattan House is slowly being converted from rental to condo, questions remain about the project's controversial financing structure, which involves securitization bonds.
Fitch Ratings released a statement yesterday flagging the property's loan, noting, "Fitch is concerned about delays at the Manhattan House...The Manhattan House loan is secured by a 583-unit multifamily rental building...As of the January 2007 remittance, there had been no sales or contracts signed for any of the units."
Contracts and sales for the conversion, however, cannot occur until the project is approved by the New York State Attorney General's Office, an approval that Manhattan House's owners expect to occur shortly.
Manhattan House's owners said the project was not experiencing delays.
"There has been no delay in the Manhattan House project. We are awaiting approval from the Attorney General and until Manhattan House receives that approval, there can be no sales or contracts signed," they said.
The first condo conversion bonds appeared in 2005, but relatively few investors have utilized the securities. Real estate experts have warned that the financing could be problematic if a conversion is unsuccessful.
Manhattan House's owners Richard Kalikow and Jeremiah O'Connor obtained $450 million in securitization bonds underwritten by Credit Suisse to finance the conversion of the building. The condo's mortgage loan was sold with other loans to investors backed by the condo building itself.
"The Manhattan House is among the first condo projects of its size to get financing," said Neil Shapiro, partner at the law firm of Herrick, Feinstein.
According to tenants of the Manhattan House, when Kalikow and O'Connor used securitization bonds to fund the condo conversion, details were released to the public by independent rating agents before the proposal was reviewed. Tenants argue that this violated the Martin Act, which governs condo conversions.
"The issue has been resolved," said Jin Lee, chief financial officer for Kalikow's company, Manchester Real Estate. "To have a loan financed in the public market, rating agents will do their own independent underwriting reports of the building. We can't stop them from doing their own decisions and judgments but that's not what our offer is."
Wednesday, February 14, 2007
Monday, February 12, 2007
Fitch remains negative on the Manhattan House loan
Fitch is concerned about delays at the Manhattan House (32.1%) and Toy Buildings (13.5%) loans. The Manhattan House loan is secured by a 583-unit multifamily rental building located on the Upper East Side of Manhattan, New York. As of the January 2007 remittance, there had been no sales or contracts signed for any of the units.
Read the full press release here
Read the full press release here
Saturday, February 10, 2007
Manhattan House goes condo -- slowly
Owners begin renovations of only a handful of units
By Vanessa Londono, February 2007, The Real Deal
Manhattan House The developers of Manhattan House, who paid a record price for the Upper East Side building, are going to be making back their money only a few units at a time.
Owners Richard Kalikow and Jeremiah O'Connor have begun the first round of conversions on the 580-unit white-brick rental property located at 200 East 66th Street, which they purchased for $623 million in mid-2005. At the time, it was the most expensive price paid for a rental complex, setting a Manhattan record at $1.072 million per apartment.
The high price the developers paid at the peak of the market led the industry to speculate about whether they had overpaid and whether they could recoup their investment. At the time, Kalikow was quoted as saying that even if the broader market remained flat, he expected prices at Manhattan House to rise, due to a shortage of high-quality condos on the East Side.
"[Kalikow and O'Connor] certainly paid a very high per-unit price, making their margin for error that much smaller," said Neil Shapiro, a partner at the law firm of Herrick, Feinstein who deals with commercial financing.
"When they purchased, the market was stronger, but now the market for million-dollar or a million-and-a-half homes isn't so strong," Shapiro added.
Renovations of 30 units are under way as part of a project that will eventually be worth $1.1 billion, according to documents filed by the developers. Units won't hit the market until the building's offering plan is approved by the state attorney general's office; it was filed more than a year ago, said Jin Lee, chief financial officer for Kalikow's company, Manchester Real Estate.
The mix of units and prices has yet to be released, hinging on expected attorney general approval. Other apartments will be renovated and converted to condos as they become vacant, said Lee.
While the number of units hitting the market at first will be small, it's also part of a marketing strategy, Lee said.
The first phase will be completed in four months, but the time frame for converting the entire block-long Manhattan House has yet to be determined. It "may be never," according to Mikhail Khlyavich, director of construction for Manhattan House.
For one thing, developers face limits on how many units can hit the market. Units that are rent-stabilized cannot be converted automatically into condominium units. At Manhattan House, approximately 250 of the 580 units are rent-stabilized.
Scope of renovations
Plans for Manhattan House will include a full range of apartment sizes, from studios to four- and possibly five-bedroom condos. The top-floor units will remain full-floor penthouses.
Units will range from around 600-square-foot studios to 2,400-square-foot four-bedrooms. Developers are also considering combining apartments, because there is a demand for larger units, and they could make some as big as 3,600 square feet.
Aside from combining units, renovations will be superficial. Apartments will retain their working fireplaces, wide hallways and north- and south-facing windows, which provide cross-ventilation.
"It's not a gut renovation," Lee said. "It has the same layouts with expensive finishes."
The developers are adding new fixtures to the bathrooms and crown molding to the living rooms, as well as glass tiles in the kitchens.
Ceiling heights in the postwar building are eight-and-a-half feet, which is considered a drawback. However, with both north and south views, ceiling heights are not a problem, Khlyavich maintained. He said some apartments will have washer-dryers, and a gym is in the works.
Two months ago, Manhattan House implemented a full concierge service as part of an amenities package available to all rental tenants free of charge. The complex also has one of the largest private gardens in the city.
"We're giving people an option to buy ultra-luxury residences at a luxury location," Lee said. "We think there will be tremendous demand because of the highest quality of design and amenities."
The tenants speak
In the meantime, the tenants association that represents the renters still in the building, the Manhattan House Tenants Group, is trying to get greater price discounts.
"We're trying to get what we think pricing should be for the apartments in the area, given the facilities," said Rafael Urquia, president of the tenants group.
According to Urquia, tenants have been forced to leave because Manhattan House is not renewing leases. He also said tenants have been harassed for a good part of 2006. "We're not happy about what they've done," he said.
Some residents were not offered any renewals when their leases expired, while others were offered short-term leases at exorbitant rates, said Urquia. "Rent-stabilized renters were accused of having other homes, forcing them to incur legal fees" to prove that Manhattan House was their primary residence, he said.
"The owners are in full compliance with the law and are mindful of the rights of all the tenants," Lee responded, noting that "beautiful, spacious apartments with wonderful views and doorman service in the heart of the East Side of Manhattan are in high demand, and the owners are permitted by law to increase market apartments to market rates."
Urquia also said the Manhattan House Tenants Group has raised concerns about asbestos removal with the attorney general as a result of the construction.
"There is absolutely no asbestos problem at Manhattan House," said Lee.
Plastic coverings with zippers separate rental units from the renovated condo units on some floors of the Manhattan House.
Everyone will benefit from the renovations, said Lee, who added it was hard to predict when all of Manhattan House will be a condo.
By Vanessa Londono, February 2007, The Real Deal
Manhattan House The developers of Manhattan House, who paid a record price for the Upper East Side building, are going to be making back their money only a few units at a time.
Owners Richard Kalikow and Jeremiah O'Connor have begun the first round of conversions on the 580-unit white-brick rental property located at 200 East 66th Street, which they purchased for $623 million in mid-2005. At the time, it was the most expensive price paid for a rental complex, setting a Manhattan record at $1.072 million per apartment.
The high price the developers paid at the peak of the market led the industry to speculate about whether they had overpaid and whether they could recoup their investment. At the time, Kalikow was quoted as saying that even if the broader market remained flat, he expected prices at Manhattan House to rise, due to a shortage of high-quality condos on the East Side.
"[Kalikow and O'Connor] certainly paid a very high per-unit price, making their margin for error that much smaller," said Neil Shapiro, a partner at the law firm of Herrick, Feinstein who deals with commercial financing.
"When they purchased, the market was stronger, but now the market for million-dollar or a million-and-a-half homes isn't so strong," Shapiro added.
Renovations of 30 units are under way as part of a project that will eventually be worth $1.1 billion, according to documents filed by the developers. Units won't hit the market until the building's offering plan is approved by the state attorney general's office; it was filed more than a year ago, said Jin Lee, chief financial officer for Kalikow's company, Manchester Real Estate.
The mix of units and prices has yet to be released, hinging on expected attorney general approval. Other apartments will be renovated and converted to condos as they become vacant, said Lee.
While the number of units hitting the market at first will be small, it's also part of a marketing strategy, Lee said.
The first phase will be completed in four months, but the time frame for converting the entire block-long Manhattan House has yet to be determined. It "may be never," according to Mikhail Khlyavich, director of construction for Manhattan House.
For one thing, developers face limits on how many units can hit the market. Units that are rent-stabilized cannot be converted automatically into condominium units. At Manhattan House, approximately 250 of the 580 units are rent-stabilized.
Scope of renovations
Plans for Manhattan House will include a full range of apartment sizes, from studios to four- and possibly five-bedroom condos. The top-floor units will remain full-floor penthouses.
Units will range from around 600-square-foot studios to 2,400-square-foot four-bedrooms. Developers are also considering combining apartments, because there is a demand for larger units, and they could make some as big as 3,600 square feet.
Aside from combining units, renovations will be superficial. Apartments will retain their working fireplaces, wide hallways and north- and south-facing windows, which provide cross-ventilation.
"It's not a gut renovation," Lee said. "It has the same layouts with expensive finishes."
The developers are adding new fixtures to the bathrooms and crown molding to the living rooms, as well as glass tiles in the kitchens.
Ceiling heights in the postwar building are eight-and-a-half feet, which is considered a drawback. However, with both north and south views, ceiling heights are not a problem, Khlyavich maintained. He said some apartments will have washer-dryers, and a gym is in the works.
Two months ago, Manhattan House implemented a full concierge service as part of an amenities package available to all rental tenants free of charge. The complex also has one of the largest private gardens in the city.
"We're giving people an option to buy ultra-luxury residences at a luxury location," Lee said. "We think there will be tremendous demand because of the highest quality of design and amenities."
The tenants speak
In the meantime, the tenants association that represents the renters still in the building, the Manhattan House Tenants Group, is trying to get greater price discounts.
"We're trying to get what we think pricing should be for the apartments in the area, given the facilities," said Rafael Urquia, president of the tenants group.
According to Urquia, tenants have been forced to leave because Manhattan House is not renewing leases. He also said tenants have been harassed for a good part of 2006. "We're not happy about what they've done," he said.
Some residents were not offered any renewals when their leases expired, while others were offered short-term leases at exorbitant rates, said Urquia. "Rent-stabilized renters were accused of having other homes, forcing them to incur legal fees" to prove that Manhattan House was their primary residence, he said.
"The owners are in full compliance with the law and are mindful of the rights of all the tenants," Lee responded, noting that "beautiful, spacious apartments with wonderful views and doorman service in the heart of the East Side of Manhattan are in high demand, and the owners are permitted by law to increase market apartments to market rates."
Urquia also said the Manhattan House Tenants Group has raised concerns about asbestos removal with the attorney general as a result of the construction.
"There is absolutely no asbestos problem at Manhattan House," said Lee.
Plastic coverings with zippers separate rental units from the renovated condo units on some floors of the Manhattan House.
Everyone will benefit from the renovations, said Lee, who added it was hard to predict when all of Manhattan House will be a condo.
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