The Bauhouse Group’s 900-foot condo project on Sutton Place is the latest luxury residential development to suffer from a lack of funding, as investors are increasingly wary of financing projects at the top end of the market due to a surplus in inventory and a tepid outlook on whether affluent buyers will materialize down the road.
News of the 80-story, 260,000 square foot proposal broke last April, and sent the comparatively squat and sleepy Sutton Place neighborhood into a panic. Community Board 6 voiced its objections, and Councilmember Ben Kallos came out strongly against the building’s height and social implications.
But it wasn’t just community opposition working against Bauhouse principal Joseph Beninati. Michael Stoler, a managing partner at the investment firm Madison Realty Capital, said Beninati’s background also played a role. Antares Investment Partners, the firm Beninati co-founded with a prep school classmate that at one point boasted $6 billion in assets, was accused of overleveraging investor capital. Beninati and his partner, James Cabrera, were sued for millions after the firm’s collapse, and Antares was stripped of most of its assets in the late-aughts.
A representative for Beninati and the Bauhouse Group did not return a request for comment by press time.
Stoler also spoke to the Real Deal newspaper last month about a noticeable decrease in high-end apartment sales, which highlighted market data that said the average number of days for-sale apartments in new developments spent on the market increased 47 percent between the end of 2014 and the end of last year.
“Everyone’s a little worried,” Stoler told TRD. “With anything at $2,500 [per square foot] or more, lenders are very cautious.”
Stoler told this newspaper that Beninati’s project – dubbed Three Sutton Place - was well above that $2,500 market threshold and that the developer set his expectations too high.
“In general high end luxury condo financing is currently only available [to] experienced, well capitalized borrowers,” he said. “In addition, the project on Sutton Place was for condos selling for more than $3,000 per square foot. The project might have taken place for another developer expecting lower prices per square foot.”
In January the Bauhouse entity overseeing the Sutton Place project, at 426-432 East 58th Street, defaulted on a $147 million loan from Gamma Real Estate, who as a result sought last month to foreclose on the site. To forestall that action, BH Sutton Mezz LLC filed for bankruptcy late last month, and the project remains in real estate purgatory pending further action from Gamma.
But Bauhouse isn’t the only developer in Manhattan struggling to finance a development. TRD pointed out others that have been put on hold pending an infusion of cash, including the condo conversion of the Park Lane Hotel on Central Park South, HFZ Capital Group’s need for $250 million in financing for a High Line condo project, and Michael Shvo and Howard Lorber’s $500 million ask for their New Valley project on Greenwich Street. Gary Barnett’s Extell Development has yet to announce financing for his Central Park Tower project at 217 West 57th Street.
“There is a stall in the luxury market with too much product already,” said Phillia Kim Downs, a luxury real estate broker with Brick and Mortar. “Real sellers are slashing prices across the board to compete with all the new developments out there.”
Downs said there was low inventory in the high-end market in 2013 and 2014, “but times have definitely changed.”
Kallos said Beninati’s failure to secure funding is evidence that a 64-story luxury condo tower on Sutton Place is a bad idea, and touted the community’s effort – crowned by a zoning amendment application - to stop the project.
“Our opposition was pivotal,” said Kallos. “If you look at superscrapers that didn’t face community opposition they’re moving forward and their moving quickly.”
He mentioned specifically 180 East 88th Street, a 521-foot residential tower currently underway at Third Avenue.
“If I was able to mobilize the community at 88th Street and Third Avenue, I’m hopeful that we could’ve seen a similar result,” said Kallos, who credits the zoning application with helping to pump the brakes on Three Sutton Place.
“There’s little hope they can move forward before we change the zoning,” he said.
The application, introduced in January with Councilmember Dan Garodnick and endorsed by other officials like Manhattan Borough President Gale Brewer, would cap buildings from East 52nd Street to East 59th Street, east of First Avenue, at 260 feet. The plan awaits certification by the City Planning Commission.
Kallos also acknowledged that market conditions play a part, and that the fight isn’t over. He’s focused now on getting the zoning change passed to preserve contextual zoning and affordable housing on Sutton Place, and rolling the tactic out to other parts of his district and the city.
“I’m glad investors throughout the city, state, country and world acknowledged that this is not a good investment and as a result they could not move forward with the project,” he added.
Still, Stoller said, the Sutton Place assemblage is an attractive enough site that a developer will eventually bite.
“Someone will take over the development,” he said. “It might not be as luxury but it’s a good development site.”