By doubling down on what at first blush appeared to be a prohibitively expensive construction loan, a team of brokers from The Singer & Bassuk Organization was able to secure financing for a Billionaires’ Row tower and close an award-worthy deal nearly a decade in the making.
“We came up with a strategy that was totally counterintuitive,” said Scott Singer, who along with partners Kathleen McSharry and Andrew Singer are nominated for the Real Estate Board of New York’s Ingenious Deal award for their transaction titled, “252 East 57th Street – An 8.5 Year Financing Odyssey.”
[Related: Check out “Divine Intervention” makes for award-worthy transaction,” another story in this series.]
The tale of the transaction, as Singer told The Real Deal, started back in 2006, when the city issued a Request for Proposals to develop a site fronting Second Avenue between 57th and 56th Streets, then home to an elementary and high school.
The city was looking for newer and better facilities for the schools, and in return was willing to offer the winning developer a 75-year ground lease and air rights on the prominent parcel.
The right to purchase the air rights and land lease went to the World Wide Group, which Singer & Bassuk had represented in financing deals through the 1990s. (CBRE’s Darcy Stacom and Bill Shanahan would actually win REBNY’s third-place Edward S. Gordon Award in 2011 for brokering this first part of the deal.)
The project would return new school facilities for the city, and World Wide would build a 65-story condominium and rental tower with a nearly 40,000 square-foot Whole Foods at the base. But first the developer had to locate, and finance, a temporary home for the schools during construction.
World Wide found a suitable spot a few blocks away on 67th Street, a former medical facility. McSharry and Andrew Singer were able to put together a mutli-faceted deal to help finance construction.
The next step was to find financing for the tower, but by this time the recession had ground real estate investment to a halt, and Singer & Bassuk realized they only way they were going to get a construction loan was through a consortium of banks.
Getting three or four lenders to agree on a deal, however, presented a smorgasbord of snags.
“The banking community was very much mired in recession issues and here we were looking for around $350 million construction loan on a project where the ground is owned by city and the ground lease had been negotiated six years prior and the project site is attached to two different schools,” Scott Singer said. “It was quite complicated.”
This was when he stepped into the deal, suggesting World Wide turn to Barry Sternlicht’s private-investment firm Starwood Capital Group, which at the time was known for making relatively small, high-interest loans, but hadn’t yet financed any new construction in New York City.
Because Starwood hadn’t done construction loans it wasn’t bogged down the way the banks’ real estate funds were, Singer said, and he knew Sternlicht was looking to make a “big splash” in the city.
There was only one problem, albeit a big one: Starwood’s loan was going to cost significantly more than what World Wide would get from the banks. But Singer knew that because Starwood wanted to be aggressive, they would be willing to put up a larger stake in the project.
The solution, he said, was to borrow more from Starwood, and cut back on the amount equity partner JPMorgan would put into the deal.
“The source that would subsidize the higher cost of Starwood’s debt was even more higher-cost debt from Starwood, which positively leveraged the deal by replacing equity,” he explained.
Starwood ended up with a construction loan around $450 million, reducing the equity returns to JP Morgan, which was amenable to the deal because, as Singer put it, the project was expected to yield high returns and everyone involved was eager to see it get done.
“It all sounds easy in retrospect,” he said.