Blocks & Lots

Elad Group’s $87M Charlie West bulk condo deal by the numbers

The Elad Group is selling 70 condo units at its Charlie West tower for $87 million to Tishman Realty, The Real Deal reported. Elad has developed numerous residential projects in New York but is best known for its purchase and redevelopment of the Plaza Hotel in 2004. Tishman is a developer and owner of diverse residential, commercial, and hotel assets In New York and other cities.

Marketproof New Development data shows that financing for Charlie West was provided by Bank Hapoalim, the largest bank in Israel. Hapoalim currently has active loans in nearly 20 NYC condo projects. Cleaning the 70 Charlie West condos from its books reduces Hapoalim’s condo lending volume by more than 15%.

The apartments at the Hell’s Kitchen new development reportedly sold for just $1,100 per square foot. But Marketproof data shows the average closed PPSF of the building’s apartments prior to this deal was $1,858. The deal represents a 41% discount from the average PPSF previously achieved.

On the one hand, the discount could be a sign that Manhattan’s troubles in the COVID market will persist into 2020. The pandemic, the progressive 2019 mansion tax, and the political turmoil of the past few years have been driving buyers away from pricey Manhattan condos.

On the other hand, the deal is a sign that Manhattan developers are finding a way to capitalize on assets and that investors see value in what’s out there.

“To get back to a healthy market, inventory has to move, but it also says that there is positivity,” Marketproof CEO Kael Goodman said of the bulk deals hitting the market. “The doom and gloom was rough, but if investors are coming in and putting their money to work in the market, it means that they see future upside.”

The timing

Charlie West has 121 units. Marketproof data indicates that 42 had sold or were in contract before this deal. This means that the building had sold or signed contracts for about 34% of its units.

At this point in the new development sales process, offloading units can be tough because lenders are hesitant to back a project that may not succeed. That can deter buyers, making it hard for the project to hit a higher sales threshold and take off. These dynamics are especially relevant during a pandemic, when financing is even riskier than usual.

Therefore, the appeal of the deal for Elad, the sponsor, is evident. Tishman offered Elad the chance to effectively wrap up the project and move on. The 70 units Tishman bought will just about get the building to the finish line.

For Tishman, the deal, at $1,100 per square foot, affords them plenty of time to hold, rent or hold, or implement whatever their strategy may be.

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How Charlie West was performing

Sales started at Charlie West in July 2017. The building was declared effective, meaning it had sold at least 15% of its 121 units, in February 2019. This indicates that it took the building about 18 months to sell 18 units.

Since then, the pace of sales appears to have remained steady. The building has sold 1.0 units per month throughout its tenure. At this rate, it would have taken until the end of 2027 for the project to sell out.

Charlie West is one of many higher-end condos to encounter difficulty in a market that privileges cheaper properties. But the emergence of bulk buyers and real estate funds signals that these developers have options.

The Real Deal reports that Elad is among many Manhattan sponsors increasingly open to bulk deals. On the other side of the equation, buyers are increasingly popping up to scoop up the supply, Goodman said.

What the Charlie West deal portends for NYC condos

Marketproof data indicate that NYC new developments buyers have been gravitating toward the $1 million condo market in Brooklyn. And while Charlie West offers 17 studios priced at $1 million or less, the vast majority of its offerings exceed that threshold.

The building also offers 30 one-bedrooms at $1.22–1.85 million, 52 two-bedrooms at $1.7–2.95 million, 21 three-bedrooms at $2.75–5.08 million, and a $5.25 million four-bedroom penthouse.

To be clear, this is not the ultra-luxury market, and $1,922 per square foot, the asking price, is not extraordinary for Manhattan condos. But it is still higher-end territory in a city full of such offerings and largely lacking the recent appetite for them. Given that, it is not hard to imagine why Elad went the bulk deal route.

But the reported figures suggest there is reason for optimism on both sides of the deal. Ultimately, Elad is walking away from a successful new development. Tishman bought itself the opportunity to realize the potential of what may, for now, be an under-valued asset.

The photo above is courtesy of Charlie West.