More than 150 Real Estate executives filled Club 101 in midtown Manhattan in October to hear how developers are financing their projects in the current economy.
The event kicked off with Edward Minskoff, President of Edward J. Minskoff Equities, Inc., describing two of his more recent real estate development projects, 101 Avenue of the Americas, a commercial office building that was gutted and retrofitted and now 100% leased, and 51 Astor Place, a newly constructed mixed use office, technology, retail and educational purpose building that is nearly 100% occupied.
The event, hosted by accounting and business consulting firm Margolin, Winer & Evens LLP, and moderated by Crain’s New York Business Senior Real Estate reporter Daniel Geiger, also included Richard Wagman, Managing Partner & Founder of Madison Capital, as well as Bryan Czop, Vice President of Wells Fargo.
Minskoff noted that the world has changed from decades ago when office buildings were only built on Sixth, Seventh and Park Avenues. “When I first moved here from the West Coast, you wouldn’t think of building an office headquarters anywhere else,” Minskoff said. Now start-up companies are flooding the tenant market and creating a need for alternative addresses, he added. Contrary to popular belief, Minskoff said he never viewed the two projects as risky investments, citing the need for such buildings in a growing Manhattan South market – but he did warn owners about taking on start-ups as tenants. Taking his own advice, he ultimately chose the established and credit worthy IBM as his anchor tenant in his new 51 Astor building. Minskoff always maintained faith in the development when others had doubts. “It is a thriving environment. We had 13 subway lines converging on our front door.”
Minskoff said his business model is geared towards renovation and development projects like these since he can create significant value in these properties with the work performed and he has the capacity to run these projects efficiently by having his own construction, management, leasing and financing teams in place within his organization. His view is that redeveloping and holding onto these properties yields stronger returns than competing with the bigger REITS who pay huge premiums for operating property in NYC and get lower returns on their investment. That sentiment was echoed by Wagman of Madison Capital.
Wagman discussed his current development project in SOHO on the corner of Houston and Broadway. Geiger noted that Wagman initially passed on the deal, and asked what changed his mind.
“It’s an unusual and great location,” Wagman replied. “It’s at the base of seven different train lines and is also at the edge of SOHO. For any retailer who wants a presence in SOHO, this is perfect.” He also noted that buying the property from the MTA rather than from another developer helped push the deal through more quickly. Wagman said the area is rapidly evolving and rich with opportunity. Due to the increased development and demand in the area, he also envisions rents being pushed up.
Czop said interest rates on current construction financing are more affordable than they have been in years, spurring developers to move forward with their projects. He also noted that lending institutions have changed dramatically since the early 80’s and 90’s in that most are now requiring owners to put in more equity than in the past to help minimize the banks’ risk. He has seen equity requirements rise to 30% – 40% for certain projects. Minskoff and Wagman also noted that there has been an influx of new foreign funds coming into the City which seems to be a major source of new project funding.