Miki Naftali and Len Blavatnik scored $385 million in construction financing for their expansive residential project on the Williamsburg waterfront.
Naftali Group and Blavatnik’s Access Industries scored a $310 million senior loan from Arkansas-based Bank OZK along with $75 million in mezzanine financing from Barings, the investment arm of MassMutual, for the three-building, 561-unit project at 470 Kent Avenue. Two of the buildings will be rental apartments while a third will contain condos.
A Walker & Dunlop team led by Aaron Appel and Keith Kurland arranged the deal, which comes as some lenders are pulling back on commercial real estate while high interest rates curb demand for financing.
“It’s definitely much more difficult to get construction financing today,” said Miki Naftali, CEO of Naftali Group. “Lenders are very careful.”
The development site sits between South 11th Street and Division Avenue in South Williamsburg, near the Brooklyn Navy Yard. It will join a handful of nearby luxury residential projects on Kent Avenue, which offers views of the East River and the Manhattan skyline.
Naftali went into contract to buy the site, a former lumber yard owned by Abraham Rosenberg, for about $180 million in early 2019. The developer closed on a portion of the site in May 2020 for about $100 million. Naftali said he expects to close on the rest of the assemblage, known as phase two, in January.
Phase one of the development was already approved for the now-expired 421a tax break, so about 30 percent of the rental units will be set aside as affordable.
The project will rise on one of the last undeveloped waterfront parcels in northern Brooklyn and is set to be completed in 2025. Naftali Group, one of the city’s most active condo developers, has launched three luxury condo developments since 2020, including The Benson at 1045 Madison Avenue and 200 East 83rd Street on the Upper East Side.
“We timed this cycle perfectly and frankly the last two cycles as well,” said Naftali. “I have basically zero inventory to sell.”
Naftali predicts that in the near term, however, there will be a downturn.
“It’s quite clear we are heading into a recession,” he said.
That could also prove advantageous to the project, in Naftali’s view. By the time 470 Kent launches condo sales in 2024, he said he expects the Federal Reserve to have once again begun lowering interest rates, meaning the market will be stronger.
“By 2024, we’ll start to see a reverse in the momentum of changing interest rates,” said Naftali. “We will start to see more and more buyers feel confident to buy.”
In the meantime, a drag on new construction, partly caused by higher interest rates, will lead to less supply and more pent-up demand for condos coming to market in the coming years, Naftali said.
While some banks have pulled back on commercial real estate lending because of interest rate hikes and economic uncertainty, Bank OZK has remained one of the most active construction lenders in New York City and other major markets. In July, the bank provided a $176 million loan to Domain Companies for its 360-unit retail and apartment development in Gowanus.