With 150 Charles Street and Now 10 Madison Square West, Steven Witkoff May Be the King of Condo Financing
Damian Ghigliotty May 1, 2013, 8 a.m.
Steven Witkoff paced back and forth in a conference room at his partnership’s New York City office, eager to talk about his latest endeavors, but just as eager to tackle the other 10 commitments that had come his way.
His partner, Scott Alper, and his personal assistant each stopped by the room twice to remind him about various appointments on his schedule, and Mr. Witkoff bounced between conversations about meeting an inspector in the city the next morning, picking up a friend of the family on his way home, heading down to Florida the following Monday to take care of more business before “hitting some golf balls,” and the best way to approach potentially sensitive questions.
Mr. Witkoff, 56, has stayed active in the New York and Miami real estate arenas, among others, through their respective ups and downs. Not only as an owner, operator and leaser of high-end properties, including 1745 Broadway, 10 Madison Square West and the landmark Woolworth Building, but also as a developer who continually oversees new construction projects, from legal and safety compliance to financing each development through its various phases.
Several of those construction projects have been notable not only for their scope but also for what they represent: the return of successful financing for high-profile condo construction, at least for the right borrower and the right project.
Condo construction financing in New York City hit a brick wall during the economic downturn and has rebounded only for top-ranking developers, such as Mr. Witkoff and Gary Barnett, whose Extell Development Company is behind One57.
And with relationships key to getting deals inked, the Bronx-born Mr. Witkoff proudly boasts about putting deep relationships with his lenders above all else. Those lenders include M&T Bank’s John Cook, Gino Martocci and Peter D’Arcy, as well as Wells Fargo’s Alan Wiener and Michael Kaczynski, whom Mr. Witkoff calls “dear friends.”
“We do business with other banks too, but we’ve invariably done more of our business with Wells and M&T because we enjoy that relationship,” he told The Mortgage Observer on a cool spring evening on the 15th floor of 130 East 59th Street. “They do what they say they’re going to do and we try to return the favor. In fact, we try to return the favor even more.”
M&T and Wells Fargo provided the bulk of the construction loans for 150 Charles Street in Manhattan’s West Village, which The Witkoff Group originally purchased in 2004 and secured construction financing for at the end of 2012. Mr. Witkoff had gone through a previous round of loan negotiations in 2007 before the project was stalled, he said.
The project hit several road bumps along the way, beginning with the financial crisis and followed by protests and a lawsuit by neighbors who alleged that the Witkoff Group had torn down an on-site building it was supposed to expand rather than destroy.
That lawsuit was later dismissed.
Construction on the luxury condominium is now finally under way and slated for completion in the final quarter of 2014. The 16-story brick-and-glass building is set to include 40,000 square feet of outdoor space with a courtyard garden, valet parking and a 75-foot lap pool lined with mosaic stone. Market prices range from $3 million to $6.5 million for one- and two-bedroom units and between $6.5 million and $9 million for three-bedroom units. A five-bedroom, five-and-a-half-bathroom penthouse is on the market for $35 million.
“The sales office we built down there was as much for the buying public as it was for our bankers,” said Mr. Witkoff. “We wanted to say to them, ‘Look, you lent us $230 million in the construction loan. Look at what we’re creating here.’”
M&T and Wells Fargo, along with PNC, are also in the final stages of negotiations to provide a $234 million loan for the former International Toy Center-turned-luxury condominium at 1107 Broadway in the Flatiron District, which the Witkoff Group purchased in 2011. The developer is in the process of expanding the 16-story building, rebranded 10 Madison Square West, adding six additional floors on top as well as a yoga studio, fitness center and 60-foot pool.
The drop-off in financing for such projects is a well-documented chapter in the economic downturn’s impact on commercial real estate lending in New York City and elsewhere.
Between 2007 and 2012, there were virtually no construction loans from commercial banks for new condo developments as construction financing “effectively dried up,” said Jonathan Miller, president and chief executive of the real estate appraisal firm Miller Samuel Inc. As the lending market for condo construction in the city shows signs of improvement, nearly all of the latest developments in the works, including 150 Charles Street and 10 Madison Square West, are at the top 10 percent of the market, he said.
“There are a lot more condo developments in the pipeline over the next two years,” Mr. Miller said. “But the types of projects being lent on now are far different than what we saw during the last boom. I like to say 3,000 is the new 1,500, in terms of square footage. The majority of new condo developments in New York are all varying degrees of luxury pricing, which starts at around $3 million a unit. The reason for that, primarily, is because land prices and construction costs right now only make it feasible to go after the upper end of the market.”
This recent trend of luxury condos being in the works doesn’t mean that the banks only want to lend at the upper end of the market, Mr. Miller noted. “That’s just what they’re being presented with,” he said.
Peter D’Arcy, regional president for the New York metropolitan area at M&T Bank, acknowledged that financing for non-luxury condos is still hard to come by, though smaller banks and nonbank lenders are coming in to fill the void. “A greater number of banks are open to financing condo deals today,” Mr. D’Arcy, who played a key role in helping finance 150 Charles Street, told The Mortgage Observer. “The larger, more established banks are still sticking to the name-brand developers, but 2013 has seen smaller banks increase the overall money available to finance condos.”
Mr. Witkoff, who owns about 30 properties in the United States and London, once had a strong financing relationship with Lehman Brothers, among the other big lenders he works with today. But that relationship ended when the financial giant filed for bankruptcy in 2008. The connection with M&T and Wells Fargo proved to be longer-lasting.
“When you’re dealing with familiar faces, you know they’re going to be there at the closing table and if, God forbid, there’s a glitch along the way, you know you can talk to them,” said the developer, whose sociable nature is expressed without the aid of a computer. His office, in fact, doesn’t have one, and he uses a BlackBerry for business and personal calls and emails. An iPad he owns sits somewhere, unused.
Mr. Witkoff’s relationship with M&T goes back to the early 1990s, a few years after he and his partner at the time, Laurence Gluck, left their lawyer jobs at the former New York City firm Dreyer & Traub and dove headfirst into the real estate business. Back when the two took regular trips to Harlem and Washington Heights and Mr. Witkoff wore a licensed handgun on his ankle for protection, M&T helped finance some of their first residential purchases in upper Manhattan.
“In the early days of us operating, every time we went in for a loan, it was another ‘proctology’ report and interview on how we were going to do things,” Mr. Witkoff said with a laugh. “The president of M&T’s New York City division at the time was John Cook, and I remember walking into his office sometime around 1996, when we were buying 1 Broadway for $15 million.”
“Back then we didn’t have the kind of liquidity we have today, and that’s just the way it was,” Mr. Witkoff remembered. “Everything was a question, and at times that was frustrating—but it was fair.”
Mr. Cook, 71, still works at M&T as an executive vice president and chairman of the mortgage committee of the bank’s New York City advisory council, which approves its commercial mortgages for the metropolitan area, including the ongoing stream of deals from the Witkoff Group. The M&T veteran acknowledged that he took an almost paternal role with Mr. Witkoff in the first few years of his real estate career.
“I was always telling him in the early going, ‘You’re pretty leveraged here, you should pull something off the table on every deal and put some real liquidity away so that you can feed a building if it gets underwater,” Mr. Cook remembered. “Now when I see him, he says, ‘Hey John, my liquidity’s over $70 or $80 million.’ He can’t resist reminding me of that.
“When Steve and Larry split apart, Larry took most of the residential stuff, while Steve took most of the office stuff and later diversified into other forms of real estate, including residential construction and rehab.”
In 1999, after Mr. Witkoff had become well accustomed to “putting real liquidity away,” Mr. Wiener of Wells Fargo and the late Bernard Mendik, former chairman of the Real Estate Board of New York, asked him to join the executive committee of REBNY.
“I remember Bernie and Alan coming to me and saying, ‘You know you’re doing good things, and you’ve got to give back. We need young representation on the executive committee, so we’d like you to consider coming on board,’” said Mr. Witkoff. “These guys were icons to me, so my immediate response was, ‘If you’re asking, I’m honored and privileged. How could I say no?’
“A year or two later, I joked with Alan and told him, ‘Now I figured it out: you got me into this thing, but this was all about getting another checkbook to write charitable and political donations.’ Of course, I couldn’t say no to that either.”
When asked about that jovial conversation, which had taken place at a point when New York’s real estate market was in one of its primes, Mr. Wiener laughed at the thought, but said his professional appreciation for Mr. Witkoff went beyond his liquidity.
“Steve is incredibly knowledgeable about the market, he knows when to pull back, and he doesn’t overpay for things,” said Mr. Wiener, group head of Wells Fargo Multifamily Capital. “Wells Fargo is attracted to doing business with both him and Scott Alper because they’re good at what they do and they’re very hands-on, yet they don’t try to do too much at the same time. There are a lot of people in the business that don’t know what they’re doing,”
In Miami, Mr. Witkoff mingles with a different group of lenders than his old pals in the tristate area. The Witkoff Group recently began construction on a Hilton Cabana hotel on the northern end of Miami Beach that it partnered on with Highgate Holdings and real estate private equity firm Rockpoint Group and financed through a $40 million loan from Ladder Capital.
Mr. Witkoff and his team also recently purchased the former Wyndham Garden Hotel in Miami’s South Beach with the Carlyle Group, financed through a $25 million loan from UBS, as well as a large office building in Downtown Miami with Highgate, financed through a $50 million loan from Deutsche Bank.
“The Miami financing market is much more inefficient than New York’s,” Mr. Witkoff noted. “There are significantly less lenders operating down there, even today. Three years ago there were way less, maybe two or three. Also, you can’t get the type of good pricing in Miami that you get here.
“There’s a perception that New York real estate is a lot more secure and that the market is more liquid and trades more easily, and it does. But the Miami marketplace is coming on pretty good, and I think when the banks do come in there and it does get more efficient, it’s only going to lead to further uptick in valuations.”
As the evening wound down and most of the New York office cleared out, Mr. Witkoff received a call from one of his business partners in Florida. He spent several minutes going over various project details to prepare before he flew out to Miami the following Monday. As with many of his day-to-day conversations, the business talk quickly turned to casual banter about golf, the weather and their respective families. The call carried on for about eight minutes, but Mr. Witkoff hadn’t lost his focus on the other conversation at hand when it wrapped up.
“It’s not that M&T and Wells Fargo refused anything I did down there; I just didn’t think to ask them,” he said after putting down his BlackBerry. “I didn’t get the feeling that that was something they had an appetite for. But I recently talked to Alan and Mike Kaczynski and the M&T guys, and each of them has said to me, ‘If you see things down there, we want to see them too.’”
- 10 Madison Square West
- 1107 Broadway
- 130 East 59th Street
- 150 Charles Street
- 1745 Broadway
- Alan Wiener
- Bernard Mendik
- Carlyle Group
- Deutsche Bank
- Dreyer & Traub
- Extell Development Company
- Gary Barnett
- Gino Martocci
- Highgate Holdings
- Hilton Cabana
- John Cook
- Jonathan Miller
- Ladder Capital
- Laurence Gluck
- Lehman Brothers
- M&T Bank
- Michael Kaczynski
- Miller Samuel Inc.
- Peter D'Arcy
- Real Estate Board of New York
- Rockpoint Group
- Scott Alper
- Steven Witkoff
- The Carlyle Group
- The Witkoff Group
- Wells Fargo
- Wells Fargo Multifamily Capital
- Woolworth Building
- Wyndham Garden Hotel