Just months after selling its Hudson Yards office complex for over $1 billion, Cove Property Group is planning its next project only one block away.
Cove, led by Kevin Hoo, quietly revealed plans to build a 178,122-square-foot, 31-story office and retail building at 413-419 Ninth Avenue in a filing with New York City’s planning office.
But getting to this point has not been easy. The effort has involved a lease, a sub-lease, a sub-sub-lease and a transfer of air rights from a nearby condominium.
“This is the most complicated deal almost anyone has seen,” said Anthony Kissling, a long-time Manhattan landlord who now owns the ground lease.
The deal shows how developers are creatively using leases to build ground-up projects, and also sheds light on the next frontier of Manhattan development.
Kissling acquired the derelict mid-rise apartments in the early 90s for pennies on the dollar by buying loans tied to properties in a forgotten corridor of Manhattan from a Buffalo-based community bank. The landlords were Long Island dentists with financial issues and Kissling acquired the buildings through a deed in lieu of foreclosure, he said.
The apartment and retail properties were not in great shape, and for the next 20-plus years, Kissling watched their operating costs rise.
“There were all types of problems,” said Kissling. “You can’t make money on an old building with a thousand repairs.”
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But eventually a rail yard now known as Hudson Yards was rezoned, leading Related Companies and Brookfield Properties to plan a megadevelopment just a few blocks from the Ninth Avenue site.
Eyeing an easier life, Kissling called Randy Modell and Steven Hornstock of the New York brokerage ABS Partners about six years ago. They made a plan: Kissling would lease the properties to ABS, who would pay rent to Kissling as well as maintain the properties. ABS aimed to build a standalone building, possibly a limited-service hotel. The deal was valued at $20 million, property records show.
Randy Modell (left) and Steven Hornstock (right) of ABS Partners (LinkedIn/Randy Modell, LinkedIn/Steven Hornstock)
Then the dealmaking got creative.
Modell and Hornstock talked to former New York governor Eliot Spitzer and Daren Hornig of Hornig Capital Partners, who owned neighboring 419 Ninth Avenue and the air rights to a nearby condo building on West 34th Street.
The hotel plans were nixed in favor of building something larger and taller, which required Spitzer and Hornig to transfer their air and land rights to Kissling. Then Spitzer and Hornig subleased the property from ABS.
By late 2020, Cove had finally become interested in the site. Cove entered into a sub-sublease with Hornig and Spitzer in a transaction valued at about $46 million, property records show.
In other words, Cove would pay Hornig and Spitzer, who would pay ABS, who would pay Kissling for the original lease. Kissling, ABS and Hornig and Spitzer would all get a cut of the deal. Kissling said he has the most secure position because if Cove or Hornig defaults, ABS would still be in the deal.
Ultimately, it was Cove who filed construction plans. The developer is also seeking an additional 25,000 square feet through the Hudson Yards District improvement bonus, in which development rights are sold to repay bonds issued several years ago to fund local infrastructure improvements. PincusCo first reported the deal.
Cove bought on Manhattan’s far West Side before a burst of activity in the area, including Facebook’s 730,000-square-foot lease at the Farley Post Office. In 2016, Cove and the hedge fund Baupost Group acquired Hudson Commons at 441 9th Avenue for $330 million. The investors revamped the dated office building, adding 17 new floors with outdoor terraces, and leased space to Peloton. Cove did not return a request for comment.
Whatever Cove’s new project designs look like, Kissling said he is a winner.
“What I had was temporary,” said Kissling, who is semi-retired and living in Florida.
His current position is much more secure.
“I just wait [for Cove] to build the property,” he said. “I have a 100-year lease.”