Chinese Fund NYC's Tallest Residential Skyscraper—at a Priceby
Partnership with Chinese firm sets May deadline for financing
Blackstone’s loan on Billionaires’ Row tower matured last week
In a bid to keep its planned Central Park Tower afloat, Extell Development Co. agreed to a deal that might one day force it to part with the luxury condo project.
A joint venture with China’s SMI USA to build the $3 billion skyscraper on Manhattan’s Billionaires’ Row comes with a deadline: If a construction loan isn’t obtained by May 24, SMI can require Extell to buy out its stake in the partnership -- about $300 million -- with interest. And if Extell fails to do that, SMI can push the developer to sell the entire project, according to documents filed last week on the Tel Aviv Stock Exchange, where Extell sells debt to investors.
“If I thought there was a more than 1 percent chance of that happening, I wouldn’t put that in there,” Extell’s president, Gary Barnett, said in an interview. “We’re going to get the construction loan.”
In Manhattan’s slowing luxury condo market, where lenders and investors are shying away from financing projects, the partnership with SMI offers a way forward for the West 57th Street tower, in exchange for sizable promises up front. SMI, the U.S. subsidiary of Shanghai Municipal Investment, will get 30 percent of the fees the developers collect during construction, according to the filings. The Chinese firm also will receive monthly interest payments on its investment, based on a 4.5 percent annual return.
While Extell is in charge of all day-to-day matters on the project, SMI’s approval must be sought for “significant decisions,” according to the filings, written in Hebrew.
“It tells you that to build high-end condos in New York today, you need to give more loan security to investors,” said Ori Eisenberg, a partner with New York-based One Ha’am, a real estate finance advisory firm focused on U.S. companies raising capital in Israel. “It used to be that equity investors would take less control and less guarantees and share a bigger part of the upside. Here, it’s the opposite.”
The agreement buys the partners more time to find financing, after the $285 million senior mortgage on the project, held by Blackstone Group LP, came due on Aug. 9. The joint venture will use some of its proceeds to pay $50 million of the outstanding debt and extend the remainder of the loan to December, the filings show.
Extending the loan until it can be refinanced, rather than paying it off and taking out a new one, means the developers can avoid paying a second mortgage-recording tax of 3 percent, Barnett said.
“By having another year and more resources to continue building, it potentially will be easier -- if they’re 20 stories out of the ground -- to convince banks to give a construction loan,” said Eisenberg, who analyzed Extell’s filings but doesn’t advise the firm.
The building, at 225 W. 57th St., is slated to be New York’s tallest residential property, at 1,550 feet (472 meters), and will house the city’s first Nordstrom store at its base. The tower has already reached 300 feet, Barnett said in the interview.
Extell expects to start unit sales later this year and to complete construction in 2019, according to a statement last week announcing the partnership with SMI.
The Chinese firm stands to collect an additional 10.5 percent on its investment after a construction loan is obtained and after Extell gets a 6 percent preferred return on its stake, according to the filings.
The deal’s terms are reasonable, given SMI’s sizable equity commitment to the project, Barnett said.
“They want to know that the building can actually get built,” he said in the interview. “They negotiated very hard and they did an exceptionally good deal for them. It also works well for us.”
Extell’s 4.65 percent bonds due in 2019 tumbled to 86 agorot on the shekel in Tel Aviv on Monday, the first day of Israeli trading since Extell made its filing Thursday evening. It was the biggest drop in almost two months, and the yield jumped to 10.4 percent.