EXCLUSIVE: Former Jay-Z Development Site Approaches $60 Million Acquisition

An 88,000-square-foot warehouse currently sits on the site but about 140,000 square feet can be built there. Because the parcel is located in a manufacturing zone, only retail, hotel or office, but not residential space, can be constructed. .

An investment group that included Shawn Carter, the rapper known as Jay-Z, purchased the site in 2007 at the height of the real estate market for over $50 million, eventually laying on millions of dollars more to buy additional air rights and develop a hotel there. Work never started on the project, however, and the group defaulted on their mortgage by 2009 when the recession hit. Eventually a deal was reached for Jay-Z to hand the property over to lender Highland Capital, a Texas-based investment fund.

Prices tanked in the neighborhood during the tough economic times and for a time 511 West 21st Street was especially hard hit because of its zoning restrictions.

Alan Miller, an executive at the sales brokerage Eastern Consolidated who arranged the property’s sale to Jay-Z but is not involved in the present transaction, said a prominent real estate investor and developer active in that neighborhood told him in 2009 that the site wasn’t worth $150 per buildable square foot—less than half what it’s trading at now.

The value has surged back, in part because of the way Manhattan’s real estate market as a whole has recovered but also due to the success of the High Line park and the surrounding neighborhood’s growing popularity as an area for new development.

“Between 10th and 11th Avenue is gold,” Mr. Miller said. “It slowed down for a couple of years but the bounceback in pricing is simply astonishing.”

Sources familiar with the deal that Highland is arranging with the Albanese Organization say it will allow the investment fund to exit the property at a profit, likely putting the purchase price somewhere just under $60 million, a figure that could not be verified by press time.

The Albanese Organization has had recent success in the West Chelsea neighborhood. The firm, led by its chief executive Christopher Albanese, bought the Chelsea Art Museum at 556 West 22nd Street earlier this year for $19.35 million. Onlookers wondered what the company would develop at the site since it came with air rights. The Albanese Organization surprised observers by leasing the 35,000 square foot property to Hewlett Packard and selling off the property’s buildable rights.

It’s not clear what type of structure the Albanese Organization will build on 511 West 21st Street, since it is zoned for office or hotel. One source said that the firm could go ahead with a hotel project or convert it into a high end art gallery, an industry that has thrived in West Chelsea. Another source said he wouldn’t be surprised if the Albanese Organization built an office property at the location. Though few developers have undertaken the construction of office space in recent years, the site is near the Meatpacking District, an area that has become increasingly popular as a destination for office tenants and that commands premium rental rates. The source estimated that in that scenario, the project’s economics would require the Albanese Organization to charge office rents at least $80 per square foot.

The Albanese Organization nor reps at Highland Capital could be reached for comment.

dgeiger@observer.com