NY sky­scraper gets Chi­nese cash boost

China Daily (USA) - - BUSINESS - By BLOOMBERG in New York

Ina bid to keep its planned Cen­tral Park Tower afloat, Ex­tell De­vel­op­ment Co agreed to a deal that might one day force it to part with the lux­ury condo project.

A joint ven­ture with China’s SMI USA to build the $3 bil­lion sky­scraper on Man­hat­tan’s Bil­lion­aires’ Row comes with a deadline: If a con­struc­tion loan isn’t ob­tained byMay 24, SMI can re­quire Ex­tell to buy out its stake in the part­ner­ship — about $300 mil­lion — with in­ter­est. And if Ex­tell fails to do that, SMI can push the de­vel­oper to sell the en­tire project, ac­cord­ing to doc­u­ments filed on the Tel Aviv Stock Exchange, where Ex­tell sells debt to in­vestors.

“If I thought there was a more than 1 per­cent chance of that hap­pen­ing, I wouldn’t put that in there,” Ex­tell’s pres­i­dent, Gary Bar­nett, said in an in­ter­view. “We’re go­ing to get the con­struc­tion loan.”

In Man­hat­tan’s slow­ing lux­ury condo mar­ket, where lenders and in­vestors are shy­ing away from fi­nanc­ing pro­jects, the part­ner­ship with SMI of­fers a way for­ward for theWest 57th Street tower, in exchange for siz­able prom­ises up front. SMI, the US sub­sidiary of Shang­hai Mu­nic­i­pal In­vest­ment, will get 30 per­cent of the fees the de­vel­op­ers col­lect dur­ing con­struc­tion, ac­cord­ing to the fil­ings. The Chi­nese firm also will re­ceive monthly in­ter­est pay­ments on its in­vest­ment, based on a 4.5 per­cent an­nual re­turn.

While Ex­tell is in charge of all day-to-day mat­ters on the project, SMI’s ap­proval must

be sought for “sig­nif­i­cant de­ci­sions,” ac­cord­ing to the fil­ings, writ­ten in­He­brew.

“It tells you that to build high-end con­dos in New York to­day, you need to give more loan se­cu­rity to in­vestors,” said Ori Eisen­berg, a part­ner with New York-based One Ha’am, a real es­tate fi­nance ad­vi­sory firm fo­cused on US com­pa­nies rais­ing cap­i­tal in Is­rael. “It used to be that eq­uity in­vestors would take less con­trol and less guar­an­tees and share a big­ger part of the upside. Here, it’s the op­po­site.”

The agree­ment buys the part­ners more time to find fi­nanc­ing, af­ter the $285 mil­lion se­nior mort­gage on the project, held by Black­stone Group LP. The joint ven­ture will use some of its pro­ceeds to pay $50 mil­lion of the out­stand­ing debt and ex­tend the re­main­der of the loan to De­cem­ber, the fil­ings show.

Ex­tend­ing the loan un­til it can be re­fi­nanced, rather than pay­ing it off and tak­ing out a new one, means the de­vel­op­ers can avoid pay­ing a sec­ond mort­gage-record­ing tax of 3 per­cent, Bar­nett said.

“By hav­ing an­other year and more re­sources to con­tinue build­ing, it po­ten­tially will be eas­ier — if they’re 20 sto­ries out of the ground — to con­vince banks to give a con­struc­tion loan,” said Eisen­berg, who an­a­lyzed Ex­tell’s fil­ings but doesn’t ad­vise the firm.

The build­ing, at 225W. 57th St, is slated to be New York’s tallest res­i­den­tial prop­erty, at 1,550 feet (472 me­ters), and will house the city’s firstNord­strom store at its base. The tower has al­ready reached 300 feet, Bar­nett said in the in­ter­view.

Ex­tell ex­pects to start unit sales later this year and to com­plete con­struc­tion in 2019, ac­cord­ing to a statement last week an­nounc­ing the part­ner­ship with SMI.

The Chi­nese firm stands to col­lect an ad­di­tional 10.5 per­cent on its in­vest­ment af­ter a con­struc­tion loan is ob­tained and af­ter Ex­tell gets a 6 per­cent pre­ferred re­turn on its stake, ac­cord­ing to the fil­ings.

The deal’s terms are rea­son­able, given SMI’s siz­able eq­uity com­mit­ment to the project, Bar­nett said.

“They want to­knowthat the build­ing can ac­tu­ally get built,” he said in the in­ter­view. “They ne­go­ti­ated very hard and they did an ex­cep­tion­ally good deal for them. It also works well for us.”

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