TRIPLED THE INITIAL OFFER PRICE FOR A CONDO BUILDING’S AIR RIGHTS

CLIENT TYPE - SMALL CONDO BUILDING

SERVICES - SELLER REPRESENTATION

PROBLEM
A small condominium building on the Upper East Side of Manhattan was approached by a developer to purchase its air rights a/k/a Transferable Development Rights (TDRs). The condominium association was offered $100 per sq. ft. of TDR.

SOLUTION
Our due diligence included the pricing of Off Site Inclusionary Housing (OSIH) certificates as it relates to ordinary air rights. After being involved in over 1.5 million sq. ft. of all types of air rights over the past few years, City Center established a ratio between the sale prices of regular TDRs and the OSIH certificates. In this particular community board it was a valid claim to state the condo TDRs were worth 80% of the OSIH, yielding a price of $340 per sq. ft. of TDR.

RESULT
The offer was increased by more than 3x per sq. ft. since City Center became involved in the negotiations.

 

ADDED 25% IN VALUE IN POST TRANSACTION VALUE

CLIENT TYPE - SMALL BUILDING OWNER

SERVICES - SELLER REPRESENTATION

Problem
Even experienced building owners are prone to underestimating the value of their air rights when trying to negotiate deals on their own. In one case a building owner, with properties in three boroughs, sold his air rights on a Manhattan building for 50% of the price the developer had already offered to pay other adjacent owners on the block. The entire due diligence regarding the fair market value of this third-generation real estate owner was to ask some of his real estate friends and attorneys what their thoughts were about the offered sale price. The end result for the building owner was a $3 million mistake. It was just after the sale that City Center was retained as owner’s broker and consultant to see if there was a way to recoup some of the lost profits.

Solution
A careful review of the purchase and sale agreement and the developer’s schematics revealed that the buyer did not address the need for a construction easement or a cantilever agreement. We bifurcated the two assets he had to sell – the easements and the cantilever, listing a separate price for each. This way the price could actually increase if the cantilever was higher and wider than originally planned.

Result
After entering negotiations with the developer, City Center was able to extract an additional $1 million plus (increase of 25%) on behalf of our client. 

 

USING TDR ALTERNATIVE WHEN ADJACENT PROPERTY OWNERS HAD UNREALISTIC PRICING EXPECTATIONS

CLIENT TYPE - DEVELOPER

SERVICES - BUYER REPRESENTATION

Problem
City Center was representing a developer in a somewhat complicated transaction to purchase air rights from neighboring properties that had to pass through an overbuilt property. The individual building owners with air rights continued to negotiate the price of the air rights upwards. The potential sellers had read previous news stories of holdouts that successfully increased the amount of money a developer paid for a seller's air rights.        

Solution
Each situation is different. Sometimes it depends on the specific supply and demand of air rights for a given development site, or in this case the maximum the developer could pay was hampered by the fact of having to “pay back” the overbuilt conduit property owner first before being able to use the air rights for its own development. City Center, on behalf of the developer, would have to purchase 28,000 sq. ft. of air rights, using 20,000 sq. ft. for the development site and 8,000 sq. ft. for the “pay back”. The sellers refused to recognize this fact and failed to realize that there were Off Site Inclusionary (OSIH) certificates that could be purchased that would meet the developer’s acquisition budget.  There is a point at which a developer/buyer will simply walk away. We recommended this action after we knew the 20,000 sq. ft. of OSIH were available.

Result
The developer ended up purchasing the OSIH at a higher price per square foot than what the individual adjacent building owners were holding out to get but that provided a greater value. City Center understood and educated the buyer that the true value was being able to use all 20,000 sq. ft. of the OSIH purchased since there was no pass through necessary; therefore the total dollars spent was less for the 20,000 sq. ft. of OSIH than for the needed 28,000 sq. ft. offered by the neighboring properties.

 

GENERATED AN ENDOWMENT FUND USING TDRs FOR A POST-GRADUATE COLLEGE

CLIENT TYPE - HIGHER EDUCATION

SERVICES - ALTERNATIVE DEAL STRUCTURE

Problem
A below market ground lease granted by New York College of Podiatric Medicine (NYCPM) to a developer. The developer was disinclined to sell the proposed development even though the project had no financial feasibility to succeed.

Solution
City Center was employed by NYCRM to resolve the situation. The transaction required bringing in a creditable development team to acquire the below-market ground lease. City Center devised a plan whereby Vornado Realty Trust, McFarland Partners, and Integrated would acquire the ground lease along with NYCPM's fee position including the 26,289 sq. ft. of TDRs from NYCPM's adjacent property at 55 East 124th Street.

Result
This financial engineering by City Center created over $30 million in additional equity for an NYCPM endowment. It also resolved NYCPM's immediate cash flow problems due to the right to invade $2 million of the deposit that had been posted by the contract vendee.

 

CREATED 500-BED STUDENT HOUSING CONDOMINIUM UNIT AS PART OF A DEVELOPER'S LARGER PROJECT

CLIENT TYPE - HIGHER EDUCATION

SERVICES - SITE IDENTIFICATION

Problem
In 1998, the assignment requirement was to find adequate and affordable housing for 500 students at Marymount Manhattan College ("MMC") on the Eastside of Manhattan. There was a preference for a location within walking distance of the main campus at 221 East 71st Street. MMC is a coed liberal arts college with 2,300 students and 3,000 individuals in continuing education. The out of town students requiring housing were currently spread out and housed at the 92th Street YMCA, a block of apartments at Roosevelt Island, a block of rooms in the Saint George Hotel in Brooklyn, and some apartments in Yorkville Towers.

An earlier attempt by the MMC, prior to City Center's involvement, had been made to consolidate the students in the Allerton Hotel at 57th Street and Lexington Avenue. This transaction did not work out and resulted in a terminated lease and claims of non-performance and inferior living conditions resulting in a lawsuit with the owners of the hotel.

Solution
If City Center was to be successful, it had to overcome the following obstacles:

1. The New York housing market on Manhattan's Eastside was extremely tight and sites are very difficult to find.

2. Even if new building sites could be located, developers could alternatively underwrite paying higher prices than MMC and its students could afford. Thus closing out the possibilities of an MMC deal.

3. MMC did not have funds, nor could they raise enough funds, to pay for even 20% of such a large project.  All of the funds would have to be borrowed.

The solution was to be a “matchmaker”. An existing developer client had acquired a small site (50 ft x 100 ft) at 231-235 East 55th Street between Second and Third Avenues adjacent to 919 Third Avenue. City Center was acquiring additional air rights for the developer from 237-243 East 55th Street, which was owned by the New York Telephone Company. The initial intent of the developer was to create a luxury rental or condominium at the site, but he was willing to entertain the creation of a condominium interest for a single large purchaser taking the base of the building. The developer would retain the upper portion of the building to accommodate luxury rentals or condominiums for sale with a separate entrance.

Result
City Center negotiated a deal for the 46-story building to accommodate 500 students in a 120,000 gross sq. ft. condo space in the lower portion of the building on floors 1 through 31. The upper portion of the building of approximately 50,000 gross sq. ft. on floors 32 through 46 are separately owned in condominium form by the developer. The financing for the MMC portion was obtained through the Dormitory Authority of the State of New York, and the developer obtained his own construction and permanent financing from conventional sources.

 

GENERATED A $68M PROFIT FOR HOTEL REIT FROM FLIPPING TDRs

CLIENT TYPE - NATIONAL REIT

SERVICES - BUYER REPRESENTATION

Problem
Add value to a property for a current building owner prior to the property's sale as a development site.  

Solution
On the behalf of our client, a publicly traded hotel REIT, City Center was able to arrange for the acquisition of 86,000 sq. ft. of development rights from 4 separate adjacent properties. As part of selling their building, our client flipped the TDR contract to the building's buyer to prevent having to pay the property transfer taxes twice. 

Result
The transaction made our client a $68 million profit, which was equal to 36% of the prior year’s profit for the entire operating business of the national hotel chain.