US Society Updates
Sign up for myFT Daily Digest to be the first to know about the news from American society.
Extell Development, the real estate group behind some of the super-tall towers of Manhattan’s Billionaires’ Row, is raising more than $ 300 million through the sale of a stake in its lesser-known properties, as it struggles with a slump. in the luxury apartment market. .
Extell is selling a 42 percent stake in a portfolio of Manhattan rental apartments to RXR Realty, in a deal that shows how the pandemic has created tensions and opportunities in the world’s most valuable housing market.
The deal will provide a cash injection to Extell, whose founder, Gary Barnett, borrowed a large amount of money to build a new generation of ultra-expensive luxury condos, but has since struggled to sell them.
Sales of such properties, with sales prices exceeding tens of millions of dollars each, were falling even before the pandemic hit New York City a year ago. The coronavirus has made the situation worse by delaying construction and, in effect, closing the market to foreign buyers due to travel restrictions and health concerns.
Meanwhile, for RXR, a wealthy New York developer, the deal represents what it believes to be a Covid-era deal. Extell’s portfolio includes more than 750 rental apartments spread over two high-end buildings in Manhattan: 555TEN, located in the Hudson Yards neighborhood, and EVGB in the East Village. The portfolio had been valued at more than $ 1 billion before the pandemic, but the sale of the stake to RXR values it at just over $ 800 million.
The transaction is consistent with a situation that several developers and real estate executives have reported in recent months: Nearly a year after the pandemic, there has been little absolute heartbreak. But, they say, there are increasing opportunities to supply capital to stressed developers on favorable terms. One developer called it “dislocation instead of heartbreak.”
The pandemic has raised questions about the future prospects of a city made up of densely populated office towers. Its tax woes are also generating fears of an exodus of wealthy residents and businesses to low-tax states like Florida and Texas.
RXR CEO Scott Rechler predicted that New York City will rebound after a Covid-19 vaccine is widely distributed and regain its stature as the world’s leading magnet for talent.
“For RXR, New York’s success was never in doubt and with this investment, we are putting our money where our mouth is,” Rechler said.
Extell declined to comment. The company pioneered a new generation of super-tall towers on West 57th Street in Manhattan with One57, a 1,000-foot-tall spiny tower that it completed in 2014. Encouraged by its strong sales, including a record $ 100.5 million penthouse, it embarked on an older brother, the $ 3 billion Central Park Tower, just down the road. Most of its 196 units have yet to be sold.
Extell financed Central Park Tower with a $ 900 million construction loan arranged by JPMorgan in 2017. It is due in December. Barnett also turned to hedge funds and issued bonds in Israel.
Speaking to the Financial Times late last year, he regretted the state of the market. “It is very, very, very frustrating to build the most beautiful buildings in the world – super quality, super finishes – and have to sell at a loss.”
Rental properties have been more resilient. New lease signings hit their highest number in 13 years in January for the fourth consecutive month, albeit at reduced prices. Rent collection for high-quality buildings like the ones in the deal has been little affected by the pandemic, according to developers.
Condo sales have rebounded in New York in recent months. Analysts attribute it to bargain hunters and pent-up demand among mostly local buyers. They also say that much of the activity has occurred in older townhouses and in Brooklyn, which offer more space, not Billionaires’ Row.