loft developer in default at 654 Broadway

crunched by numbers
Not a pretty story reported in The Real Deal (last Friday, on line) about a Manhattan loft developer default, CIT Group sues for $12M at Noho condo site. I don’t have a lot of any experience running numbers on a development project, but this seems like it was a tough needle to thread even when it was fresh.

It appears that the six-story building had been upstairs rentals (vacant?) when purchased by the developer in August 2007 for $12.6mm. August 2007 … probably within 6 months of the tippy-top of The Market. Plan was to create five full-floor condo residential lofts and one commercial unit at street level. The building is awfully long, at 29 x 123 ft, and is shorter than both its neighbors along Broadway (i.e., not so narrow but very long, with no side windows). The only unit that I see that was ever marketed was the fifth floor, listed as "2,540 sq ft". That unit was offered at $2.95mm in a fully done condition ("the ultimate in downtown living … and hi-end finishes throughout") from February into August; the listing has expired.

Using 2,500 sq ft per floor, that is 12,500 sq ft for the five residential lofts to have been developed; maybe the developer could have done them for $150/ft. That’s nearly $2mm in construction costs for the five residential units. They did not sell #5 for $2.95mm, so the top of the resale recoupment is something south of $15mm. Maybe the plan here was to break even on the residential units and make dough on the commercial unit….

I have no idea what the value of a commercial condo is along this stretch of Broadway, but I suspect that it may have more value for cash flow (renting it out) than selling it. The coop next door at 652 Broadway has always had absurdly low maintenance because they own the store front: they generate nearly all of that building’s operating costs from the rental stream. (The full-floor #2 at 652 Broadway was marketed in 2006 and 2007 as "3,300 sq ft" of raw space [I think it had been a sweat shop], with maintenance of only $548/mo — barely 20 cents per foot.)

coincidence?
That raw 2d floor had been marketed since March 2006 and closed in December 2007 at $2.2mm, $667/ft. 654 Broadway Partners LLC closed on their purchase in August 2007 at $800/ft (using 2.500 sq ft per floor). It’s gotta be the commercial income stream that made this (appear to) make sense, right??

In the event, no sense was made …. Somebody needs to re-set the sunk costs for this building to be developed. (I am pretty sure the retail tenant has been paying all along, but that is a wee small flow of cash.)

© Sandy Mattingly 2009