Extell Development, the real estate group behind some of Manhattan’s Billionaires’ Row’s supertall towers, is raising more than $ 300 million from the sale of a stake in its lesser-known properties as it grapples with a slump in the luxury condo market.
Extell sells a 42 percent stake in a portfolio of Manhattan rental apartments to RXR Realty in a deal that shows how the pandemic has created both tensions and opportunities in the world’s most valuable real estate market.
The deal will bring an infusion of cash to Extell, whose founder, Gary Barnett, borrowed a lot of money to build a new generation of ultra-expensive luxury apartments but has struggled to sell them ever since.
Sales of such properties, with asking prices in excess of tens of millions of dollars each, fell even before the pandemic hit New York City a year ago. Coronavirus has made things worse by delaying construction and basically closing the market to foreign buyers due to travel restrictions and health concerns.
Meanwhile, for RXR, a deep-pocketed New York developer, the deal represents what it says is a Covid-era bargain. The Extell portfolio includes more than 750 rental apartments across two top Manhattan properties: 555TEN, located in the Hudson Yards neighborhood, and EVGB in the East Village. The portfolio was valued at over $ 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 reported by several real estate developers and executives in recent months: Nearly a year after the pandemic, there was little outright concern. But, they say, there are increasing opportunities to provide capital to stressed developers on favorable terms. One developer called it “dislocation instead of distress”.
The pandemic casts doubt on the future prospects of a city with densely packed office towers. The tax problems also raise fears of wealthy residents and businesses exodus to low-tax states such as Florida and Texas.
RXR chief executive Scott Rechler predicted that New York City will recover after a Covid-19 vaccine has been widely distributed, and regain its status as the world’s foremost magnet for talent.
“Before RXR, New York’s success was never in doubt and with this investment we are putting our money where our mouth is,” said Rechler.
Extell declined to comment. The company pioneered a new generation of supertall towers on West 57th Street in Manhattan with One57, a 300-foot spiky tower that it completed in 2014. Encouraged by its strong sales, including a then-record $ 100.5 million penthouse, it embarked on an equally bigger sibling, the $ 3 billion Central Park Tower, just down the street. Most of the 196 units have yet to be sold.
Extell financed Central Park Tower with a $ 900 million construction loan arranged by JPMorgan in 2017. Barnett also turned to hedge funds and issued bonds in Israel.
In a conversation with the The Washington City Times late last year, he complained about the state of the market. “It’s very frustrating to build the most beautiful buildings in the world – super quality, super finishes – and to sell at a loss.”
Rental housing has been more resilient. The number of new leases reached the highest number in 13 years in January – for the fourth month in a row – albeit at reduced prices. Rental collections in high-quality buildings, such as the one in the deal, have little impact on the pandemic, developers say.
The sale of apartments in New York has increased significantly in recent months. Analysts attribute this to bargain hunters and pent-up demand from mostly local buyers. They also say much of the activity has taken place in older mansions and in Brooklyn, which offer more space – not Billionaires’ Row.