NYC's Extell Brings in Partner to Help Fund Projects

  • Rechler's RXR to get equity stake and a portion of cash flow
  • Venture to have condo development and two rental buildings

New York luxury-condo builder Extell Development Co. is getting help from a major office landlord to complete the construction of three residential projects in Manhattan. And Extell is offering that partner half of the future cash flow in exchange.

Extell and its president, Gary Barnett, are forming a joint venture with Scott Rechler’s RXR Realty LLC, which will lend $463.2 million for the construction of a condo tower at 250 South St. and rental buildings at 500 E. 14th St. and 555 10th Ave., according to a regulatory filing by Extell with the Tel Aviv Stock Exchange. Combined with expected construction loans, RXR’s financing, described as a mezzanine loan at 7 percent interest, “will enable the company to complete the projects,” according to the March 2 filing, written in Hebrew.

RXR, whose New York City holdings include 14.2 million square feet (1.32 million square meters) of mostly offices, will get a preferred equity stake in the projects, entitling it to 50 percent of their cash flow after the loan has been paid, and Extell gets back its equity, according to the filings in Tel Aviv, where Extell sells corporate debt. Extell’s One57 skyscraper, where a penthouse was sold for a record $100.5 million, touched off an ultra-luxury construction boom in Midtown.

“We recognized there was a lot of development potential out there, and there were developers like Gary who had accumulated land early in the cycle,” Rechler, RXR’s chairman and chief executive officer, said in an interview. “He is probably one of the best land assemblers out there, and needed more capital to get all this into service.”

Lower Prices

RXR began talking with Extell about a partnership about eight months ago, and ultimately agreed on those three properties because they were acquired at land costs that allowed the homes to be marketed at attractive price points, setting them apart from a luxury market that appears to slowing, Rechler said. Weakening demand for the borough’s costliest homes has prompted some builders to delay plans, lower prices or alter existing apartments to make them less expensive and more palatable to would-be buyers.

Extell said in October that most of the condos at the South Street project would be listed at $1 million to $3 million, a range where the supply of homes is tight. Extell is still exposed to the high-end market through projects such as the 179-unit Central Park Tower on West 57th Street, which will have Manhattan’s first Nordstrom store at its base.

After the RXR loan is repaid, Extell will collect 90 percent of the next about $800 million in cash flow from the projects, enough to see a full return of its equity, and RXR will get the other 10 percent, Barnett said in an interview. After that, RXR and Extell will split the cash flow evenly, he said.

“They get a real pop if everything turns out nicely,” Barnett said. “We don’t mind giving up a little bit more if there’s a home run there.”

Calming Investors

Barnett was in Israel earlier this month to calm investors in Extell’s debt, which is tied to the performance of the firm’s luxury projects in Manhattan, according to the Israeli finance newspaper Calcalist. Barnett assured investors that any slowdown in high-end sales was temporary, the newspaper reported.

The firm’s 6 percent bonds were trading at a yield of 9.4 percent on Tuesday, a sign that investors view the debt as risky. Extell has raised 1,650 shekels ($424 million) in Israel’s corporate-bond market.

The properties included in the joint venture with RXR have 1,778 residential units and more than 200,000 square feet of retail space, according to a statement by RXR. Development costs for all three projects total $2 billion.

A rental tower at 555 10th Ave., in the Hudson Yards area, has been topped off at 52 stories and will have 598 apartments, RXR said. In the East Village, 500 E. 14th St. will have 160 rental units and 57,000 square feet of retail space.

In lower Manhattan, the 250 South St. development will include an 80-story condo tower with 816 homes, which Extell said last year it would begin marketing exclusively to buyers in Asia. Plans for the site also call for a second, 13-story building, with 204 affordable units.

(Corrects reference to cash flow in first deck headline.)
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