By Josh Barbanel
August 26, 2007, New York Times
The huge $1.1 billion redevelopment of the Manhattan House on East 66th Street was to be the biggest condo conversion deal ever for Prudential Douglas Elliman and its best-selling broker, Dolly Lenz.
But with the project stalled by a tenant lawsuit and a fight for control between the sponsors, it may soon become a potential liability for Prudential Douglas Elliman, Manhattan’s largest brokerage.
In a court filing last week, N. Richard Kalikow, a developer who is the project’s managing partner, accused Douglas Elliman of colluding with his financial partner, Jeremiah W. O’Connor Jr., to wrest control away from him, sabotaging the project. Ms. Lenz was the lead broker in the deal.
In the filing last week in State Supreme Court in Manhattan, Mr. Kalikow asked the court to allow him to amend his complaint to include Prudential Douglas Elliman as a defendant in the case and to seek $75 million in damages as well as punitive damages against the company.
Mr. Kalikow said in the filing that he had discovered that although he was in charge of day-to-day operations, Ms. Lenz and other Douglas Elliman staff members held a series of secret weekly meetings with Mr. O’Connor’s team, reviewing plans and making decisions behind his back.
Stanley S. Arkin, a partner in Arkin Kaplan Rice, the law firm that represents Douglas Elliman, said the filing was an “unjustified, dishonest lawsuit, a shakedown designed to bring some kind of pressure to bear.”
He said that the meetings were “not clandestine” and that they were held because Mr. Kalikow “was not performing well” and Mr. O’Connor was “probably complaining.”
The dispute led to what seemed to be a showdown between the partners earlier this spring, soon after the attorney general approved the project’s offering plan. Under their agreement, Mr. O’Connor set a price for the project and gave Mr. Kalikow a chance to buy him out or be bought out.
Mr. Kalikow tried to put together a financing package to buy out Mr. O’Connor but was unable to complete the purchase. He contended that Mr. O’Connor scared away his financial backers by threatening an escalation of the legal dispute. Now Mr. O’Connor is asking the court to let him complete the purchase, while Mr. Kalikow is raising new legal issues.
Friday, August 24, 2007
Tuesday, August 21, 2007
Well is running dry for real estate deals
Real estate lending evaporates, transactions stall and buyers walk.
Tom Fredrickson, Crain's New York Business
August 19, 2007
The credit crunch is paralyzing the New York real estate market.
In the past few weeks, financing for almost all large commercial and residential projects in the city has dried up.
As a result, some property developers and investors are being forced to abandon deals and are losing hundreds of thousands of dollars in deposits. Those who are closing deals are being forced to double their down payments and pay significantly higher interest rates.
"The blood on the streets proved that things go down as well as up," says Geoffrey Rice, a senior director at CB Richard Ellis/Capital Markets. "The markets have just changed."
The credit crunch results from the meltdown in subprime residential loans, which has quashed investor interest in any type of real estate securities. Wall Street banks issue most large loans, which they package into securities and sell to investors. In recent weeks, growing concern about bad real estate loans has brought that activity to a virtual standstill.
With the residential real estate market looking increasingly overbuilt, interest has been particularly weak in financing new condominium developments anywhere except in prime Manhattan locations.
Deals on hold
"Condo developments in fringe locations are soft," says Dan Fasulo, managing director at Real Capital Analytics.
With the securitization pipeline for all sorts of projects closed, 37 commercial deals in Manhattan collectively worth $9.5 billion remain unfunded, according to Real Capital Analytics. They include $1.29 billion to acquire the Park Avenue Atrium office tower; $1.2 billion for the Manhattan House apartment complex; and about $53 million to buy an industrial property at 511 W. 21st St., demolish it and put up a hotel. These transactions may still be done, however.
In the past month, such Wall Street firms as Goldman Sachs, Lehman Brothers and Bear Stearns, as well as money-center banks like Citigroup and J.P. Morgan Chase, have drastically reduced the number of deals they are willing to finance.
"We are finding it almost impossible to get a real quote or anything that will stick," says James Murphy, executive managing director, New York metropolitan region, at real estate brokerage GVA Williams.
Deposits at risk
Several sources say they know of cases in which investors are losing deposits because they can't find financing. The chief hurdle most of them failed to clear was the additional equity that lenders are requiring. Buyers could lose many millions of dollars in the next several weeks as the 30- and 60-day closing deadlines--typical in New York--arrive.
One Brooklyn investor who borrows on Wall Street says that in recent weeks he has walked away from acquiring about eight office building and shopping centers collectively worth $150 million.
One of those deals required a $500,000 deposit, which is now lost. The buyer thought he had locked in an interest-only mortgage at 6%, but his lender changed the terms, making the loan 7% and requiring monthly principal payments. The monthly cash outlay for the latter loan would have been 37% higher than that for the former, the investor says. "I would have ended up making no money."
About the only transactions moving ahead are smaller ones financed by savings banks and insurers; those lenders will not sell mortgages in the secondary market but hold them in their own portfolios.
In the past two weeks, New York Life has begun processing $200 million of commercial real estate loans nationally. Manhattan-based Amalgamated Bank, which caps its mortgages at about $25 million, is hiring commercial lenders and aims to increase its commercial loan portfolio to $1 billion from $600 million.
"We view the current disruption in the marketplace as a short- and intermediate-term opportunity," says Amalgamated Chief Executive Derrick Cephas.
Wall Street is altering terms on the few loans it is completing. Lenders cite contract provisions that allow such revisions in response to "material adverse changes"--namely, the freeze-up in the debt markets. The result is that interest rates on commercial mortgages in the pipeline are now a full percentage point higher than 10-year Treasury notes. Lenders are also demanding equity contributions of 30% or more, compared with only 10% or 15% before the credit crunch.
With so much uncertainty, some sellers are lowering prices to help make deals happen. Mr. Murphy at GVA Williams says prices for office buildings under contract for $100 million are being slashed by up to 6%.
"Prices are down 5% to 10% on all purchases," says Ira Zlotowitz, president of Eastern Union Funding, a Brooklyn-based commercial mortgage brokerage. "No one thinks prices are going to go up."
Tom Fredrickson, Crain's New York Business
August 19, 2007
The credit crunch is paralyzing the New York real estate market.
In the past few weeks, financing for almost all large commercial and residential projects in the city has dried up.
As a result, some property developers and investors are being forced to abandon deals and are losing hundreds of thousands of dollars in deposits. Those who are closing deals are being forced to double their down payments and pay significantly higher interest rates.
"The blood on the streets proved that things go down as well as up," says Geoffrey Rice, a senior director at CB Richard Ellis/Capital Markets. "The markets have just changed."
The credit crunch results from the meltdown in subprime residential loans, which has quashed investor interest in any type of real estate securities. Wall Street banks issue most large loans, which they package into securities and sell to investors. In recent weeks, growing concern about bad real estate loans has brought that activity to a virtual standstill.
With the residential real estate market looking increasingly overbuilt, interest has been particularly weak in financing new condominium developments anywhere except in prime Manhattan locations.
Deals on hold
"Condo developments in fringe locations are soft," says Dan Fasulo, managing director at Real Capital Analytics.
With the securitization pipeline for all sorts of projects closed, 37 commercial deals in Manhattan collectively worth $9.5 billion remain unfunded, according to Real Capital Analytics. They include $1.29 billion to acquire the Park Avenue Atrium office tower; $1.2 billion for the Manhattan House apartment complex; and about $53 million to buy an industrial property at 511 W. 21st St., demolish it and put up a hotel. These transactions may still be done, however.
In the past month, such Wall Street firms as Goldman Sachs, Lehman Brothers and Bear Stearns, as well as money-center banks like Citigroup and J.P. Morgan Chase, have drastically reduced the number of deals they are willing to finance.
"We are finding it almost impossible to get a real quote or anything that will stick," says James Murphy, executive managing director, New York metropolitan region, at real estate brokerage GVA Williams.
Deposits at risk
Several sources say they know of cases in which investors are losing deposits because they can't find financing. The chief hurdle most of them failed to clear was the additional equity that lenders are requiring. Buyers could lose many millions of dollars in the next several weeks as the 30- and 60-day closing deadlines--typical in New York--arrive.
One Brooklyn investor who borrows on Wall Street says that in recent weeks he has walked away from acquiring about eight office building and shopping centers collectively worth $150 million.
One of those deals required a $500,000 deposit, which is now lost. The buyer thought he had locked in an interest-only mortgage at 6%, but his lender changed the terms, making the loan 7% and requiring monthly principal payments. The monthly cash outlay for the latter loan would have been 37% higher than that for the former, the investor says. "I would have ended up making no money."
About the only transactions moving ahead are smaller ones financed by savings banks and insurers; those lenders will not sell mortgages in the secondary market but hold them in their own portfolios.
In the past two weeks, New York Life has begun processing $200 million of commercial real estate loans nationally. Manhattan-based Amalgamated Bank, which caps its mortgages at about $25 million, is hiring commercial lenders and aims to increase its commercial loan portfolio to $1 billion from $600 million.
"We view the current disruption in the marketplace as a short- and intermediate-term opportunity," says Amalgamated Chief Executive Derrick Cephas.
Wall Street is altering terms on the few loans it is completing. Lenders cite contract provisions that allow such revisions in response to "material adverse changes"--namely, the freeze-up in the debt markets. The result is that interest rates on commercial mortgages in the pipeline are now a full percentage point higher than 10-year Treasury notes. Lenders are also demanding equity contributions of 30% or more, compared with only 10% or 15% before the credit crunch.
With so much uncertainty, some sellers are lowering prices to help make deals happen. Mr. Murphy at GVA Williams says prices for office buildings under contract for $100 million are being slashed by up to 6%.
"Prices are down 5% to 10% on all purchases," says Ira Zlotowitz, president of Eastern Union Funding, a Brooklyn-based commercial mortgage brokerage. "No one thinks prices are going to go up."
Thursday, August 16, 2007
Manhattan House Bonds Downgraded to Junk; Loan Transferred to "Special Servicing"
August 16, 2007 11:06 AM Eastern Daylight Time
Fitch Downgrades 1 & Places 2 Classes of CSFB 2005-CND2 on Rating Watch Negative
CHICAGO--(BUSINESS WIRE)--Fitch Ratings downgrades the following class of Credit Suisse First Boston's (CSFB) commercial mortgage pass-through certificates, series 2005-CND2:
--$18.8 million class N to 'B-' from 'BB-'.
Fitch places the following classes on Rating Watch Negative (RWN):
--$32 million class L rated 'BBB-';
--$23 million class M rated 'BB'.
In addition, Fitch affirms the following classes:
--$327.5 million class A-2 at 'AAA';
--Interest-only class A-X-1 at 'AAA';
--Interest-only class A-X-2 at 'AAA';
--Interest-only class A-X-3 at 'AAA';
--Interest-only class A-X-4 at 'AAA';
--Interest-only class A-X-5 at 'AAA';
--Interest-only class A-Y at 'AAA';
--$64 million class B at 'AAA';
--$63 million class C at 'AA';
--$39 million class D at 'AA';
--$36 million class E at 'AA-';
--$35 million class F at 'A+';
--$37 million class G at 'A';
--$33 million class H at 'A-';
--$36 million class J at BBB+';
--$32 million class K at 'BBB'.
Classes A-1, A-1S, and A-1J have been paid in full.
The downgrade of class N and placement of classes L and M on RWN are due to concerns about fees resulting from the transfer of the largest loan, Manhattan House (58%), to special servicing as well as concerns about the transaction's remaining loans, two (8.9%) of which have matured and remain in the trust.
As of the August 2007 remittance date, the transaction's principal balance had decreased by 61% to $776.3 million from $1.9 billion at issuance. Six loans remain in the pool: Manhattan House (58%), River Terrace (24.3%), Mizner Court at Broken Sound (7.4%), Spring Harbor (4.9%), Spring Landing (4.0%), and 80 John Street (1.4%).
The Manhattan House loan has been transferred to special servicing due to an unresolved buy-out dispute between the partners as well as resident-initiated litigation. There have been no sales or contracts signed for any of the units. The loan matures on Nov. 9, 2007. The loan, which has a trust balance of $450 million and additional subordinate debt of $306 million, is secured by a 583-unit multifamily rental building located on the Upper East Side of Manhattan, New York.
At issuance, the Prestige Portfolio loan was secured by five rental apartment properties (Spring Harbor, Tuscany Place, Spring Landing, Florida Club, and Summer Cove) in four different Florida cities with a total of 1,296 units that initially were to be converted to condominiums. The borrower cancelled the conversion of the rental units into condominiums, and is sold three of the five properties. The two remaining properties, Spring Harbor and Spring Landing, matured on Aug. 9, 2007.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
Contacts
Fitch Ratings
Michelle Thomas, +1-312-368-3149
Britt Johnson, +1-312-606-2341
Sandro Scenga, +1-212-908-0278 (Media Relations)
Fitch Downgrades 1 & Places 2 Classes of CSFB 2005-CND2 on Rating Watch Negative
CHICAGO--(BUSINESS WIRE)--Fitch Ratings downgrades the following class of Credit Suisse First Boston's (CSFB) commercial mortgage pass-through certificates, series 2005-CND2:
--$18.8 million class N to 'B-' from 'BB-'.
Fitch places the following classes on Rating Watch Negative (RWN):
--$32 million class L rated 'BBB-';
--$23 million class M rated 'BB'.
In addition, Fitch affirms the following classes:
--$327.5 million class A-2 at 'AAA';
--Interest-only class A-X-1 at 'AAA';
--Interest-only class A-X-2 at 'AAA';
--Interest-only class A-X-3 at 'AAA';
--Interest-only class A-X-4 at 'AAA';
--Interest-only class A-X-5 at 'AAA';
--Interest-only class A-Y at 'AAA';
--$64 million class B at 'AAA';
--$63 million class C at 'AA';
--$39 million class D at 'AA';
--$36 million class E at 'AA-';
--$35 million class F at 'A+';
--$37 million class G at 'A';
--$33 million class H at 'A-';
--$36 million class J at BBB+';
--$32 million class K at 'BBB'.
Classes A-1, A-1S, and A-1J have been paid in full.
The downgrade of class N and placement of classes L and M on RWN are due to concerns about fees resulting from the transfer of the largest loan, Manhattan House (58%), to special servicing as well as concerns about the transaction's remaining loans, two (8.9%) of which have matured and remain in the trust.
As of the August 2007 remittance date, the transaction's principal balance had decreased by 61% to $776.3 million from $1.9 billion at issuance. Six loans remain in the pool: Manhattan House (58%), River Terrace (24.3%), Mizner Court at Broken Sound (7.4%), Spring Harbor (4.9%), Spring Landing (4.0%), and 80 John Street (1.4%).
The Manhattan House loan has been transferred to special servicing due to an unresolved buy-out dispute between the partners as well as resident-initiated litigation. There have been no sales or contracts signed for any of the units. The loan matures on Nov. 9, 2007. The loan, which has a trust balance of $450 million and additional subordinate debt of $306 million, is secured by a 583-unit multifamily rental building located on the Upper East Side of Manhattan, New York.
At issuance, the Prestige Portfolio loan was secured by five rental apartment properties (Spring Harbor, Tuscany Place, Spring Landing, Florida Club, and Summer Cove) in four different Florida cities with a total of 1,296 units that initially were to be converted to condominiums. The borrower cancelled the conversion of the rental units into condominiums, and is sold three of the five properties. The two remaining properties, Spring Harbor and Spring Landing, matured on Aug. 9, 2007.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
Contacts
Fitch Ratings
Michelle Thomas, +1-312-368-3149
Britt Johnson, +1-312-606-2341
Sandro Scenga, +1-212-908-0278 (Media Relations)
Kalikow Passes on Manhattan House
By Braden Keil, New York Post
August 2, 2007 -- Developer Richard Kalikow, who sent out a press release two weeks ago proclaiming that he was taking over the city's costliest condo conversion, has just thrown in the towel on the project.
A legal rift between Kalikow and his partner Jeremiah O'Connor over control of the billion-dollar Manhattan House condo conversion prompted a Manhattan Supreme Court judge in June to order the two warring developers to either sell or buy the other out within 30 days.
Occupying a full block on East 65th and 66th streets and Second and Third avenues, Manhattan House, includes 575 rental units that are slated to become luxury condominium apartments as tenants' leases expire.
Kalikow's Alpha Manhattan group sent out a release on July 18 stating that it had received financing from UBS and "has exercised its right to buy out O'Connor North America (ONA) and purchase its interest in Manhattan House."
But late yesterday, Kalikow sent a signed letter to ONA saying: "Alpha will not become the purchasing member pursuant to the Buy-Sell notice."
The letter further stated that "Alpha confirms that ONA will close the acquisition of Alpha's interest in Manhattan House Partners LLC no later [than] August 31, 2007."
"Now that Mr. O'Connor has prevailed, I'm sure the conversion will be an even bigger success," said an exuberant Dolly Lenz, the vice-chairman of Prudential Douglas Elliman, who will be heading the marketing of the pricey project.
August 2, 2007 -- Developer Richard Kalikow, who sent out a press release two weeks ago proclaiming that he was taking over the city's costliest condo conversion, has just thrown in the towel on the project.
A legal rift between Kalikow and his partner Jeremiah O'Connor over control of the billion-dollar Manhattan House condo conversion prompted a Manhattan Supreme Court judge in June to order the two warring developers to either sell or buy the other out within 30 days.
Occupying a full block on East 65th and 66th streets and Second and Third avenues, Manhattan House, includes 575 rental units that are slated to become luxury condominium apartments as tenants' leases expire.
Kalikow's Alpha Manhattan group sent out a release on July 18 stating that it had received financing from UBS and "has exercised its right to buy out O'Connor North America (ONA) and purchase its interest in Manhattan House."
But late yesterday, Kalikow sent a signed letter to ONA saying: "Alpha will not become the purchasing member pursuant to the Buy-Sell notice."
The letter further stated that "Alpha confirms that ONA will close the acquisition of Alpha's interest in Manhattan House Partners LLC no later [than] August 31, 2007."
"Now that Mr. O'Connor has prevailed, I'm sure the conversion will be an even bigger success," said an exuberant Dolly Lenz, the vice-chairman of Prudential Douglas Elliman, who will be heading the marketing of the pricey project.
Kalikow buys out Manhattan House Partner
Daniel Geiger, Real Estate Weekly
July 19, 2007
Pays $119 million for Jeremiah O'Connor's stake in the property settling lawsuit
Richard Kalikow has bought out his investment partner, Jeremiah O’Connor Jr., in the Upper East Side rental apartment building, Manhattan House, which the two purchased in October 2005 in order to convert into condominiums. The two had been in a lawsuit in recent months that was launched by O’Connor’s ownership interest, ONA Manhattan House LLC, in order to force a breakup of the partnership.
According to court documents O’Connor and Kalikow had been feuding over the conversion’s financing, the scope of the work, as well as how the project would be marketed and the design of its Web site. Among the complaints listed in court documents, O’Connor alleged that Kalikow’s ownership entity in the property, Alpha Manhattan LLC, submitted insufficient budget proposals for the conversion work that subsequently were rejected by lenders, delaying O’Connor’s plans for the property. It appears that O’Connor and Kalikow had different ideas regarding how much work would be conducted.
“ONA has objected to Alpha about the proposed apartment renovations,” ONA’s complaint stated. “Alpha has attempted to justify its suggested mix of apartments on the ground that it wants to create a large inventory of smaller apartments and offer customized units in lieu of larger combination apartments. Alpha never consulted ONA concerning this unilateral, significant and improper diviation from the strategy of maximizing the number of larger combination units.”
But the acrimony seemed to permeate even the project’s smaller details.
“Alpha and ONA have been unable to agree on the website design,” ONA’s complaint read. “First, the concept pages for the website initially presented to ONA incorporated elements from the marketing materials and were of inferior design.”
ONA had sought to force Kalikow to either sell his stake in the property for $31 million or buy ONA’s for $119 million as part of a buy-sell clause in their partnership agreement. ONA’s interest was more valuable the documents show because the firm had invested considerably more in the $889 million Manhattan House, $97.6 million versus Kalikow’s $24.6 million. The documents noted that only $779 million of the purchase price has been paid so far through equity and debt.
ONA had been suing Kalikow because it said he hadn’t recognized their decision to invoke the breakup.
Lawyers for both Kalikow and O’Connor would not comment on the case.
A statement released by Rubenstein Associates only stated that Kalikow had exercised his right to buy out his partner in the 575-unit luxury apartment building on East 66th Street. It said that UBS is providing the financing for Kalikow, but wasn’t specific about whether it would be for the acquisition of O’Connor’s interest or to cover the cost of the conversion.
That release also stated that Kalikow and O’Connor purchased the building from New York Life for $623 million, not the $889 million that O’Connor’s complaint states.
July 19, 2007
Pays $119 million for Jeremiah O'Connor's stake in the property settling lawsuit
Richard Kalikow has bought out his investment partner, Jeremiah O’Connor Jr., in the Upper East Side rental apartment building, Manhattan House, which the two purchased in October 2005 in order to convert into condominiums. The two had been in a lawsuit in recent months that was launched by O’Connor’s ownership interest, ONA Manhattan House LLC, in order to force a breakup of the partnership.
According to court documents O’Connor and Kalikow had been feuding over the conversion’s financing, the scope of the work, as well as how the project would be marketed and the design of its Web site. Among the complaints listed in court documents, O’Connor alleged that Kalikow’s ownership entity in the property, Alpha Manhattan LLC, submitted insufficient budget proposals for the conversion work that subsequently were rejected by lenders, delaying O’Connor’s plans for the property. It appears that O’Connor and Kalikow had different ideas regarding how much work would be conducted.
“ONA has objected to Alpha about the proposed apartment renovations,” ONA’s complaint stated. “Alpha has attempted to justify its suggested mix of apartments on the ground that it wants to create a large inventory of smaller apartments and offer customized units in lieu of larger combination apartments. Alpha never consulted ONA concerning this unilateral, significant and improper diviation from the strategy of maximizing the number of larger combination units.”
But the acrimony seemed to permeate even the project’s smaller details.
“Alpha and ONA have been unable to agree on the website design,” ONA’s complaint read. “First, the concept pages for the website initially presented to ONA incorporated elements from the marketing materials and were of inferior design.”
ONA had sought to force Kalikow to either sell his stake in the property for $31 million or buy ONA’s for $119 million as part of a buy-sell clause in their partnership agreement. ONA’s interest was more valuable the documents show because the firm had invested considerably more in the $889 million Manhattan House, $97.6 million versus Kalikow’s $24.6 million. The documents noted that only $779 million of the purchase price has been paid so far through equity and debt.
ONA had been suing Kalikow because it said he hadn’t recognized their decision to invoke the breakup.
Lawyers for both Kalikow and O’Connor would not comment on the case.
A statement released by Rubenstein Associates only stated that Kalikow had exercised his right to buy out his partner in the 575-unit luxury apartment building on East 66th Street. It said that UBS is providing the financing for Kalikow, but wasn’t specific about whether it would be for the acquisition of O’Connor’s interest or to cover the cost of the conversion.
That release also stated that Kalikow and O’Connor purchased the building from New York Life for $623 million, not the $889 million that O’Connor’s complaint states.
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