(Bloomberg)—New York City’s struggling luxury condo market is providing a prominent developer with an opportunity to expand the lending unit it launched last year.
Silverstein Properties Inc., looking to double its lending business to more than $1 billion in 2020, is eyeing so-called inventory loans in Manhattan neighborhoods like Gramercy, Tribeca and Midtown East, according to Michael May, president of Silverstein Capital Partners.
“You’re seeing some projects that are completed that have just had very, very slow sales,” May said. “Given the amount of condo developers seeking debt, if we open the floodgates, we could probably load $1 billion of that product on within the next 60 days.”
Silverstein is in negotiations for about $700 million worth of inventory loans, which are often used to provide a temporary lifeline for developers to pay off construction debt without having to slash prices as they ride out slow sales. The money can also allow builders to take equity out of projects earlier. Extell Development Co. recently secured this type of loan on its One Manhattan Square project, using the unsold condos in the 815-unit tower as collateral.
New York’s luxury developers, who financed projects during a more optimistic era for high-end condos, are bumping up against rosy loan repayment projections in a slowing market. Rather than cut prices to meet sales milestones, builders are finding temporary financing solutions so they can live to sell another day.
“Our goal is not to lend to projects that fail: We’re in a position where if a project has a problem, we believe that we could execute the business plan and we could finish the construction,” May said. “We think that there’s still demand for units that are priced well, but in many cases, the owners of these projects have not adjusted their expectations to where the price would sell in the market yet.”
Silverstein Properties, best known for its World Trade Center office skyscrapers, formed a lending unit last September, looking to fill a gap left by banks that shied away from funding big construction projects. Its debut was $240 million in mezzanine financing for JDS Development Group’s 9 DeKalb Ave., slated to become Brooklyn’s tallest tower.
The New York-based firm has completed about $500 million in financing to date, including a construction loan for the conversion of a loft building in Tribeca to a glitzy luxury condo tower. It recently signed its first West Coast deal in Los Angeles and has plans to expand to markets including San Francisco and Seattle.
Inventory loans will represent a growing chunk of the firm’s business in 2020, but construction lending will likely make up the majority of its deals, May said.
To contact the reporter on this story: Natalie Wong in Toronto at [email protected].
To contact the editors responsible for this story: Craig Giammona at [email protected]
Rob Urban
© 2019 Bloomberg L.P.
