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5Pointz trial will venture into uncharted legal territory: judge

Is graffiti an art — and does it need to be protected by the federal law? That’s the question at the heart of a trial that will determine whether developer Jerry Wolkoff has to pay damages to taggers whose works he destroyed at his 5Pointz site in Long Island City. This week, the trial in Brooklyn that will consider whether around 20 artists have a claim against the developer, who demolished his buildings and the […]

Source: realdeal


Contractor Groups Slam Legislation Raising DOB Fines

Trade groups that represent both open-shop and union contractors are vocally opposing a package of City Council bills that aim to increase fines and create new ones for serious building code violations. The council passed two of the bills yesterday, but the most controversial of the proposals is still wending its way through the legislative process.

“The level of fines they’re talking about are arbitrary and capricious,” Louis Coletti, the head of the Building Trades Employers’ Association, a contractor group that represents companies using open-shop and unionized labor, told Commercial Observer. He added that the bills will be “ineffective” because there was “no discussion with the experts in the buildings department or the experts in the industry.”

The bills were first introduced among a package of 21 construction safety bills at a hearing in January. But since the focus of that hearing was the controversial “apprenticeship bill” signed into law this on Monday, trade groups didn’t have much opportunity to comment on the New York City Department of Buildings fine proposals at the time. The council only notified contractor groups on Oct. 2 that the bills were scheduled for a vote, giving them two weeks to offer feedback and objections before the full council voted on the bills.

One of the proposals passed Tuesday, Int. 1404-A, would raise the minimum civil penalty for a “major violation” of the site safety plan portion of the building code to $1,000 and the lowest amount for an “immediately hazardous violation” to $2,000 from $1,000. Contractors with major violations can get slapped with a $250 fine for each month that the violation isn’t fixed. And those with immediately hazardous violations can fined $1,000 per day for each day the violation isn’t corrected.

Another bill voted through yesterday, Int. 1437, creates the concept of a “violation ratio,” a term that the DOB refuses to comment on and that doesn’t exist in the current building code. The legislation defines the phrase as the number of major or immediately hazardous violations that have been issued at a site in the last six months (excluding violations going through an appeals process), divided by the square footage of the site’s footprint. It also opens the door for the DOB to develop its own ratio to determine projects that have ongoing, unsafe conditions.  

If a site exceeds the “violation ratio,” the DOB can issue contractors with double the fines for each infraction. Essentially, council members want to punish contractors who are racking up what the bill terms “excessive violations.”

These are just so blatantly a cash grab to bring in money,” said Diane Cahill, a lobbyist who works with the city on behalf of an open-shop group, the Associated Builders and Contractors. “They’re looking to bring in money to support the training initiatives created by 1447 [a newly passed law that requires new safety training for construction workers].”

Notably, residential developments would be exempt if they were financed with subsidies or loans from the New York City Department of Housing Preservation and Development or the city’s Housing Development Corporation

When CO contacted the DOB for comment on the bills, a spokesman only responded that the agency was “reviewing the legislation.”

During a January council hearing, the Real Estate Board of New York testified that it “generally supported” the bills that introduced higher fines, because “increased civil penalties are [an] effective means to discourage bad behavior.” But the group argued the ratio bill was unnecessary because existing regulations and policies already allowed the DOB to shut down troubled sites.   

Others worried that major, high-rise projects are more likely to be affected by the new violation ratio policy. Building inspectors typically monitor these sites more closely than small projects, meaning that smaller projects may ultimately avoid both the extra violations and safety monitoring.

“The projects that are more visible are going to get more attention and potentially greater impact in this regard,” said Joe Hogan, a vice president for the Associated General Contractors for New York State. “A lot of the problems that need fixing—on projects that are less than 10 stories—we’re not getting where we need to by just administering these fines.”

He also noted that the nebulous categories of immediately hazardous and major fines introduce “a lot of subjectivity and issues of potential abuse” into the code enforcement process.  

However, the piece of legislation that sparked the most controversy hasn’t been voted on yet. The bill known as Int. 1419 would levy fines ranging from $500,000 to $1.5 million for a violation that happens when a worker is seriously injured or dies on a construction site.

Some industry experts worried that the potential fines for construction fatalities would boost the cost of liability insurance, and by extension, the overall cost of construction in New York City.

“This kind of fine—some of that is going to come back to the insurance companies as well,” said Brian Sampson, the head of the Empire State Chapter of the Associated Builders and Contractors. “If you’re a bank, you’re going to make sure you’re getting your loan repaid. If you know there’s going to be all these fines, are you going to loan less? At a higher rate?”

In a legislative memo issued last week, REBNY expressed concern that the bill keeps contractors liable for worker fatalities and injuries, even if a court rules that the accident was caused by a worker’s mistake.

“REBNY reiterates its concern that the bill does not include any relief provision if said injury or death is the result of a worker’s negligence,” the organization notes. “Without such a relief provision, the bill would impose a de facto strict liability standard upon the owner and permit holder that could be used against them in other related litigation.”

Source: commercial


Jackie O’s Hamptons home is under contract

The Hamptons home where Jackie Kennedy Onassis summered as a child has found a buyer at the reduced asking price of $30 million. The property, known as “Lasata,” is now owned by Tiffany’s chief creative officer Reed Krakoff, who paid $20 million for it in 2007, the New York Post reported. The property at 121 Further Lane has a six-bedroom home that features five-and-a-half bathrooms. There’s also a large pool, formal gardens and a guest […]

Source: realdeal


New York City Submits Bid for Amazon’s Second Headquarters

New York City lit up the Empire State Building and 1 World Trade Center “Amazon Orange” last night in an effort to attract the e-retailing giant. At the same time, it submitted a formal bid for Amazon’s second, $5 billion headquarters, according to a press release from the New York City Economic Development Corporation.

The proposal names four neighborhoods as potential destinations for the Seattle-based tech company: Midtown West, Long Island City, Lower Manhattan and the “Brooklyn Tech Triangle,” which includes Dumbo, the Brooklyn Navy Yard and Downtown Brooklyn.

After Amazon announced its search for a city to accommodate a new headquarters last month, New York launched its own mini-competition. Officials received 27 proposals. Borough Presidents Eric Adams and Ruben Diaz threw their respective hats for the Bronx and Brooklyn into the ring, and groups of developers and neighborhood organizations banded together for bids as well.

But only those four neighborhoods met the company’s requirements, which included a need for 500,000 square feet of commercial space by 2019 and up to 8 million square feet of commercial space beginning in 2027. The area would also have to accommodate up to 50,000 Amazon workers and offer mass transit options and easy access to highways and airports.

The city plans to offer Amazon the same subsidies and tax breaks that it would give any other corporation, according to The New York Times. The state is also assembling an incentive package, but it wouldn’t tell the paper exactly what it planned to include. Aetna, for example, scored $9.6 million in city tax benefits and $24 million in state tax credits for its planned 145,000-square-foot headquarters at 61 Ninth Avenue in Chelsea. The state is also submitting four bids for different regions of New York: Buffalo and Rochester, Syracuse, Albany, and the downstate area of Long Island, New York City and Westchester County.

“The brightest minds and innovators want to live in New York,” the mayor wrote in a letter addressed to Amazon Chief Executive Officer Jeff Bezos. “The people who live and come here experience a quality of life unlike anywhere else, from our incomparable public spaces and cultural institutions to our dynamic neighborhoods. This is the safest big city in America, an open city that welcomes people from every corner of the country and the globe.”

EDC’s pitch also highlights Amazon’s current footprint in New York City, which has grown rapidly over the past six months. The e-commerce behemoth recently inked deals for 360,000 square feet of office space at 5 Manhattan West, an 850,000-square-foot distribution center on Staten Island and a bookstore and offices spanning 470,000 square feet at 7 West 34th Street.

Source: commercial


Blackstone president still sees opportunity in US real estate

The U.S. real estate market may have slowed down, but Blackstone Group president Tony James still sees plenty of opportunities for profit. “Real estate is a gargantuan market,” he said during the company’s quarterly earnings media call Thursday. “There are always undermanaged assets.” Blackstone has been investing heavily in logistics real estate, hoping to capitalize in the rise of online retail, and James indicated more acquisitions are possible. “There’s just not near enough of it […]

Source: realdeal


Work still halted on Fortis’ One Seaport project. And deadlines are looming

Nearly a month after a worker plummeted 29 stories to his death, the site at 161 Maiden Lane remains shut down. And the clock is ticking on Fortis Property Group’s $273 million condominium tower. The Department of Buildings halted all construction at 161 Maiden Lane on Sept. 21, after 36-year-old Juan Chonillo fell from the building. He was wearing a harness, officials said, but it wasn’t hooked in. At the time of the accident, the […]

Source: realdeal


Katie Couric’s Park Avenue pad hits market

Journalist Katie Couric is selling her Park Avenue apartment for $8.25 million.

Source: realdeal


City Planning Holds First Hearing On Fate of Gamma Real Estate’s Sutton Place Development

The New York City Planning Commission yesterday held its first hearing on a revised rezoning proposal that aims to limit the scope of Gamma Real Estate’s planned project at 3 Sutton Place.

On October 2, the city certified the new proposal, which allows Gamma to move forward with construction on its planned 67-story, 800-foot-tall residential tower now called Sutton 58—located at 430 East 58th Street between First Avenue and Sutton Place—without the need for an affordable housing component or height cap.

The proposal, brought forth by the East River Fifties Alliance (ERFA), would force Gamma to follow “tower-on-a-base” requirements, which mandates that 45 to 50 percent of the building must be built below 150 feet. The initial rezoning proposal the coalition introduced last June called for a 260-foot height restriction and the inclusion of a significant portion of the tower to affordable housing.

“In their previous proposal, they alleged an affordable housing element. They ended up taking that part out,” Gamma Principal Jonathan Kalikow told CO. “This new proposal really shows their true colors.”

kalikow rally pic City Planning Holds First Hearing On Fate of Gamma Real Estate’s Sutton Place Development
Gamma Principal Jonathan Kalikow speaks in front of construction workers at a rally prior to the hearing. Photo: Mack Burke for Commercial Observer

Prior to the hearing, Kalikow organized and led a small rally in front of City Hall and marched to the Department of City Planning’s offices at 22 Reade Street with labor activists and roughly 20 construction workers carrying signs with messages such as “Preserve Jobs, Not Views,” “No ERFA Backroom Deal” and “Stop Spot Zoning.”

“At the end of the day, people understand this is not the New York City way,” Kalikow told CO while he and his group of supporters were en route to the hearing. “We had a viable process. The fact that we were railroaded, you know, no citizen should want to see that.”

The ERFA wrote in its revised proposal that “the combination of these [new] rules would more closely align future construction with the existing built environment, while still accommodating reasonable growth.” The community coalition consists of 45 area buildings and roughly 2,600 individual supporters who live in approximately 500 buildings in and outside the proposed area of rezoning; it was formed in 2016, shortly after the first announcements of the development, to oppose and combat the construction of Sutton 58. 

Mayor Bill de Blasio’s administration has championed the expansion of affordable housing throughout all five boroughs, but he, as well as the City Planning Commission, opposed the ERFA’s original rezoning proposal, which was backed by several community representatives, including Manhattan Borough President Gale Brewer and Councilman Ben Kallos, who represents the residents of Sutton Place. New York State Senator Liz Krueger has backed the proposal, and recently, New York Congresswoman Carolyn Maloney signed on in support of the ERFA’s mission, having already written and voiced concerns to the CPC on the organization’s behalf, according to an ERFA spokeswoman.

Opponents of the ERFA’s new proposal who testified at the hearing included construction workers from the two companies tapped to build the property—Lendlease, to oversee the project, and Urban, for the building’s foundation—charged with building the project, representatives of New York’s real estate industry, Gamma’s legal counsel and even some residents of the Sutton Place area, who claimed that the bill simply doesn’t benefit the public and only sets a bad precedent for rezoning efforts going forward. They argued that the plan is an effort to spot zone this one property, that it goes directly against de Blasio’s plan to expand affordable housing throughout the five boroughs and that it will also take work away from construction companies as well as inhibit the growth of neighborhood economies.

“The Mayor was very clear about it when he attended a town hall on the Upper East Side a couple weeks ago: [this proposal] would provide an opportunity for people who have the means to mount a challenge to try this method of spot zoning to go forward… it becomes a tool for people to use against any undesirable development,” Real Estate Board of New York President John Banks told CO. “We’re concerned that there is no comprehensive planning that would take place if this becomes more of a norm.”

Members of the ERFA and Kallos said that their efforts don’t constitute an attempt to spot-zone the property and that their rezoning application addresses the entire zoning area. The ERFA, backed by Kallos, wants to take its fight city-wide to stop super tall residential skyscrapers.

The proposal’s supporters at the hearing included elected officials and spokespeople for elected officials, ERFA representatives and residents of Sutton Place. They argued that the community is the victim of what Kallos called an “accident of history” in his official testimony, meaning the nine-block area is the only  residential area of the city zoned R10 without a tower-on-a-base standard or any type of contextual protection. 

“The Sutton area is uniquely vulnerable to the development of super tall towers, a building form that was neither contemplated nor feasible when the R10 district was created in 1961,” Kallos said in his official testimony. “By implementing tower-on-a-base zoning, we would prevent the construction of super-skinny buildings that get to heights of 1,000 feet, by requiring new buildings to pack roughly half of the building into a  base under 150 feet, leaving limited [floor area ratio] for a tower, thus restricting its height.”

Source: commercial


Morningstar’s Lea Overby on the ABCs of CMBS

It’s been a busy year for commercial mortgage-backed securities. The wall of maturities may be behind us now, but there’s plenty of new issuance to keep those in the sector busy, including Lea Overby. Overby joined Morningstar Credit Ratings last August and was appointed head of CMBS research and analytics in June. In her new role, Overby is responsible for the ongoing management and development of the rating agency’s CMBS business, including new issue and surveillance ratings, research and analytical products. Overby may have fallen into CMBS “somewhat randomly,” by her own account, but she already has 15 years of experience under her belt. Before Morningstar, Overby was the head of CMBS and asset-backed securities (ABS) research at Nomura Securities and, before that, a CMBS portfolio manager for BNY Mellon Treasury.

Commercial Observer: Tell us about your new role.

Lea Overby: Well, I have two groups that report up to me now. We’re branding one group as research—it’s client focused and produces a for-sale product for the investor community. That team is 15 people. The other piece is the rating agency business, which has two parts: the new issuance business and the surveillance piece of it, which surveils things we’ve already put a rating on.

Will you be adding to your teams?

I certainly hope so. The deal flow has been so heavy that we need to staff up a bit.

How did you get into CMBS?

Somewhat randomly, to be perfectly frank. I did graduate work out of Vanderbilt [University] with this idea that I wanted to teach, and after teaching for a couple of years I realized I didn’t. I took a job at Bank of America Securities and pitched myself as someone who knew how to program—which was not entirely true. This was back in the days when you were able to fake being able to program. I realized, fairly quickly, that wasn’t for me either, and then an opening on the CMBS desk popped up [in 2000]. They were looking for a database person to develop queries and write reports. I got started there, and I loved it.

What appealed to you about CMBS? 

My major is math, and CMBS is a nice combination of the qualitative and the quantitative. You can create a model that projects out default rates and prepayment rates that can be fairly accurate on the aggregate, however CMBS loans—each and every one of them—have unique characteristics that can make them fall off the model. It’s a mix of my analytical skills, and at the same time, there’s always a judgmental component to it.

As my career has developed, I’ve found there is an interesting dichotomy with commercial real estate being fixed assets in an ever-changing world. So, as our preferences for urban versus suburban living change, or online versus brick-and-mortar retail or even fashions change, the tenants in these locations also change while the structures themselves don’t. It’s fascinating to me how landlords and developers and tenants work together to figure out how commercial real estate works best.

 There seem to have been a lot of hotel special servicing transfers lately.

Hotels are always volatile because the rents reset every single night. If there is any change in the local economy, it is immediately reflected in the hotel market. We see it all the time—hotel developers look at the market, they all decide, “Oh, look, we’re undersupplied,” and start building. Then there’s oversupply. There’s this constant cycle of build, overbuild, stop, reassess and invariably something will happen that will trigger a hotel to be transferred. The default rates on hotels are higher, the loss severity on hotels are higher, and it’s a difficult asset class.

Is retail still experiencing the most pain as an asset class?

Yes, but we’re also seeing a decent amount of office stress. The office story flies under the radar, but I remember when I was buying bonds in early 2007 it was pitched as credit-positive if the main tenant had a lease that rolled near maturity of the loan—with the idea that in 10 years’ time you’d be able to up the tenant’s rent by X percent, making the loan an easy refi story. Which sounded great in 2007—when everything sounded great—but now that we’re in 2017, a lot of those tenants that were surefire “gonna stay” aren’t. We see a lot of office buildings where a tenant that took 50 percent and has decided to downsize or relocate or gone bankrupt and doesn’t need the same amount of space that it did 10 years ago. That’s decidedly a problem.

What was your experience through the crisis?

I bought bonds for a number of years through the credit crisis. That in and of itself was a fascinating experience, and I’m glad to have done it. When the market eased up, I realized I needed a little more of a challenge, and so I started at Nomura in 2010 to head up their CMBS and ABS research platform. I was at Nomura for six years until it closed down its CMBS and ABS trading desk.

Why did the move to Morningstar appeal?

I was looking for a place where I could continue to contribute to a research effort with my knowledge of CMBS but step away from a constant publishing regimen, which I found too restrictive. I joined Morningstar because working at a rating agency, from a researcher’s perspective, is a really great fit. You’ve got the resources you need to come up with great ideas, and you also have the flexibility to write whatever you want.

What was your biggest lesson from the crisis?

I think one of the things that I learned from it is that there are many more connections than you think. To say that a crisis is “contained” is foolish. There is no such thing as containment in this day and age. There are way too many links between nations and banks and financial institutions and the system is way too complex to be able to get a handle on what the fallout may or may not be. It bothers me when people start talking about containment because I don’t think that is something that can be properly defined.

But underwriting and loan origination standards have improved?

Definitely. The loans that were being securitized in CMBS [during the boom] were built on some very aggressive assumptions for continued growth, and at the time I don’t think any of us realized how aggressive those assumptions were. It didn’t take long after the wheels came off to see that they weren’t attainable. It’s interesting now, looking at some of the loans that are maturing—they never hit those projections. It’s been 10 years, and they’re still falling short.

I was as guilty as anyone else was at the time. I can remember looking at loans and saying “Okay, yes this is aggressive, but I think over the next two years the economy will be stable and they can hit these projections.” I applied that exact logic in 2007 and quite obviously I was wrong.

You weren’t alone.

No. But now, things are underwritten pretty much to how they’ve been performing historically. We see some upside but there’s nowhere near the level of pro forma aggressive underwriting that we saw back then.

Would you say that we’re in a healthy real estate market right now?

I think so. There are indications with certain property types that the cycle has started to turn in the wrong direction. The underwriting we’re seeing is still strong, but there is certainly this sense that even projecting that cash flows are going to stay flat might be a little more aggressive than it should be. It’s always a problem when you’re near the top of the cycle: You can feel it shift, but there are some indications that if it does shift it may be a shallow downturn. It’s hard to say.

Has issuance volume been what you expected?

I’ve been pleasantly surprised by how strong it is. I had concerns about the second half of this year, particularly about transaction volume, because there is considerably less that has to get refinanced. But there is every indication that we’re doing fine.

What’s driving the pipeline of deals?

The economy is still strong. There is still money to put to work, there’s foreign capital coming into the country, and there are still deals to be done. A lot of the deals we see are these large single asset-single borrower deals. That money is less prone to taking a breather than the guy who’s looking to buy a $50 million shopping center.

Why is the CMBS market the right place for these huge single assets?

If a loan gets large enough, the CMBS market is a more efficient way to move risk. That’s the long and short of it: CMBS is designed to transfer risk and for large assets in particular it makes sense to chop up that risk and transfer it as appropriate.

What trends are you seeing?

The retail percentage has dropped off a cliff. Of course, if one thing drops off, everything else has to increase, so now we’re seeing a good amount of office properties come into deals. We are also seeing an increase in interest-only loans, especially recently as interest rates tick up. An interest-only loan is an affordability product, and so my guess is that lenders are offering more interest-only loans because as interest rates tick up they can still keep the payment flat.

Source: commercial


UKan’t Ignore Multifamily

In 2016, more U.K. lenders were willing to finance hotel properties than multifamily properties. This may come as a surprise, since multifamily has long been an investment darling and an important part of U.S. institutional core commercial real estate portfolios. In the U.K., however, investors view the country’s multifamily sector—commonly referred to as the “private rental sector” (PRS)—as a relatively untested asset class unfit for inclusion in an institutional portfolio.

Over the past few years, a handful of institutional players have entered the U.K. market with the goal of changing that view. They’ve had some successes, but headwinds remain.

Conditions are ripe for the PRS market to attain the size necessary to justify inclusion in institutional portfolios. But will scale be achieved? If it is, investors who avoid PRS will miss an opportunity to add an asset class that, in more mature markets such as the U.S., has proven to be a core portfolio diversifier.

Market Growth Despite Institutional Reluctance

U.S. investors view multifamily as a low volatility, highly liquid, stable income-producing portfolio diversifier. In the U.K., however, where institutional portfolios are dominated by office and retail, investors eye multifamily with skepticism. To date, the U.K. multifamily market has largely operated as a cottage industry in which the majority of landlords own just one unit. This approach has not allowed for the economies of scale, data or liquidity necessary to create an institutional asset class.

Despite this, PRS has proven itself to be a viable asset class. The size of the £1.4 trillion PRS market has doubled over the last 15 years and now makes up roughly 20 percent of the overall housing stock, compared to 37 percent in the U.S. Mainstream investor PRS ownership is low but grew by over 30 percent in 2016.

Going Pro

The U.K. government has been vocal about the importance multifamily will play in addressing the severe housing shortage, estimated to be 90,000 homes per year. It would like to shift away from the mom-and-pop rental model, which it views as driving up prices for first-time home buyers, toward an institutional multifamily market, referred to as “build-to-rent” (BTR).

Large-scale multifamily operators bring the expertise necessary to build new housing supply that offers tenants what they need: the comfort of long-term tenancy while they save up to buy a home, landlord professionalism, prime locations, and—important to a growing renter segment—common spaces and amenities that create a sense of community.

Over the last few years, several major players have moved into the U.K. with the hopes of creating a U.S.-style multifamily product. A recent study suggests that BTR could deliver 240,000 new homes by 2030. To date, over 15,000 units have been delivered, and more than 68,000 are under construction or in planning.

Planting the Seeds for Growth

For PRS to achieve an institutional scale, an accommodative national policy framework will be vital. In the U.S., for example, dedicated public agencies provide multifamily financing and liquidity. This has helped lower volatility for both multifamily value and borrowing costs, allowing the asset class to grow beyond where it might have without the presence of such support.

Currently in the U.K., converting existing housing stock into rentals is difficult. Limited land is available for new development, and new projects often get delayed. Unlike the U.S., the U.K. doesn’t differentiate zoning between multifamily and residential, and market dynamics favor developers building units for sale.

Fortunately, the U.K. government has recently taken steps toward a more accommodative policy. Going forward, local authorities will be required to plan for realistic housing needs, including multifamily rentals. Approval processes will be streamlined, and once approved, projects will commit to faster delivery timelines. New developers will be encouraged to enter the market. This is a good start, but more may need to be done.

Home Sweet Home

Multifamily has long been an important component of any institutional U.S. real estate portfolio. Will U.K. housing policy be successful? If it is, U.K. investors should take advantage of the shift toward institutional sponsorship and diversify their portfolios. After all, in a downturn, office tenants may downsize and consumers may stop spending, but everyone needs a home.

Alison Jacobs is a director of research for PGIM Real Estate Finance (REF); she can be reached at alison.jacobs@pgim.com. Bryan McDonnell is a principal and head of the U.K. office; he can be reached at bryan.mcdonnell@pgim.com.

Source: commercial