Fortress seizes control of Sheffield57 Condo project

Here is the Bloomberg story. Note it says the project is 47% sold.

Fortress Seizes Swig’s $640 Million NYC Condo Project (Update1)

By Hui-yong Yu

Aug. 6 (Bloomberg) -- Fortress Investment Group LLC won the bidding for a $640 million Manhattan condominium conversion project called Sheffield57, wresting control from New York developer Kent Swig after he defaulted on the loans.

Fortress made the only bid for the building at 322 West 57th St. and will invest additional money to finish remaking the 58-story apartment tower overlooking Central Park into luxury condos.

The auction, conducted at the New York office of law firm Allen & Overy LLP, was the third high-profile mezzanine foreclosure in the U.S. this year, following sales of Boston’s John Hancock Tower and 1330 Avenue of the Americas in New York. The credit crisis and recession have slowed condo sales, reducing income for developers to repay debt. Apartment sales in Manhattan dropped 48 percent in the first quarter, appraiser Miller Samuel Inc. said in an April report.

Swig defaulted on the project’s $400 million first mortgage when it matured in April and on the mezzanine debt when it matured in May, a person with knowledge of the situation said in June. Swig got the mortgage in 2006 from Column Financial Inc., a unit of Credit Suisse First Boston that has since stopped making loans. CSFB securitized the loan.

Swig borrowed an additional $240 million in mezzanine debt. Guggenheim Structured Real Estate Partners LLC had held the most senior mezzanine loan, as well as an unspecified piece of the first mortgage, before selling to Fortress Investment Group LLC in June, a person with knowledge of the sale said at the time.

Fortress later paid the $32 million outstanding principal on the mortgage, the person said. Mezzanine loans fill the gap between a borrower’s equity and the senior mortgage.

New York Developer

Swig has developed $3 billion worth of properties, including seven buildings in lower Manhattan. Earlier this year, his firm was fighting default proceedings on a suspended condo conversion project financed by Lehman Brothers Holdings Inc. at 25 Broad St. in Manhattan. Lehman claimed Swig and his partners owed $273.7 million of unpaid principal on that project, plus interest and fees.

Swig is an owner of Terra Holdings LLC, which owns brokerages Halstead Property and Brown Harris Stevens Co., according to the Halstead Web site. Swig also is on the board of Swig Co., the family owned real estate and hotel company based in San Francisco that oversees 9 million square feet of U.S. office space.

The Sheffield57 project has endured disputes with tenants and Swig has been named as a defendant in several lawsuits. Construction stopped in late 2008 after the contractor wasn’t paid on time.

Moody’s Downgrade

In May, Moody’s Investors Service downgraded ratings on about $13.4 million of bonds tied to the project.

The Sheffield57 building, which spans 316-328 West 57th St., is about 80 percent complete, a person with knowledge of the project said in June. It has sold 47 percent of the condo units, according to this person. In the first quarter, the median price of Manhattan condos climbed 5.8 percent to $1.23 million, according to the Miller Samuel report.

Concierge service, a pet spa, Sub-zero and Miele appliances and daily cocktails are among planned amenities, according to the project Web site. A map on the site shows chef Thomas Keller’s four-star restaurant Per Se a block to the north; Central Park one block further; and Lincoln Center, Carnegie Hall and Tiffany’s flagship Fifth Avenue store within walking distance.

The auction took place under New York state rules that govern foreclosures by mezzanine lenders, according to the mandatory notice of sale from broker Eastdil Secured LLC.

To contact the reporter on this story: Hui-yong Yu in Seattle at hyu@bloomberg.net

Last Updated: August 6, 2009 10:25 EDT

and it didnt even need government intervention...whos gonna be next ?

"In the first quarter, the median price of Manhattan condos climbed 5.8 percent to $1.23 million, according to the Miller Samuel report."

So Manhattan 'CONDOS' are up 5.8% in the first quarter.
WOHOO!

captain Kirk. We've found an error in data, Called! Time lag

$20 million!!!

http://www.crainsnewyork.com/article/20090806/FREE/908069975

no foreclosures here!

That's gotta hurt.

Yowzah....597 units divided by 20 million = $33,500 per unit.

{first time I'm not interested in "how many square feet" ;) }

Yes, but its not "prime" Manhattan.

truthskr10: They paid more than that. They had already purchased first liens on the property. This was the mezz piece I think. That's why it was so easy, They basically controlled all the pieces of debt.

short fortress today

gotta say. 'pet spa' and 'daily cocktails ' at the sheffield ranks right up there with Nero as end of empire indicators.

"truthskr10: They paid more than that. They had already purchased first liens on the property. This was the mezz piece I think. That's why it was so easy, They basically controlled all the pieces of debt."

This is what pisses me off so much. THEY DID NOT BUY THIS BUILDING FOR $20 MILLION. When a mezzanine loan gets foreclosed on, it only wipes out anything BEHIND IT. Everything IN FRONT OF IT stays in place. Shoddy, shoddy, shoddy reporting which will lead people to have ludicrous ideas as to what is actually going on in RE land.

Easy does it 30yrs. Just having a little fun.

But this appears to be one of the early ones of many to come.

Part of what fueled the last run up in the real estate market were all the amateur developers and moneylenders. I think most are staying out with the bad taste still in their mouth.
Until the commercial market bottoms and stabilizes, the individual residential units discussions are academic.

plus almost 1/2 of the units have already been sold - so they aren't buying 'the whole building'. and who knows how much they have to pump in to finish it. and if i recall, there were a lot of construction issues - so they may have to settle with some of those who already bought. as 30yrs said, there is a lot we don't know to get to the real price they paid, but its substantially more than $33k/unit

"plus almost 1/2 of the units have already been sold - so they aren't buying 'the whole building'"

Those units may be under contract but I'm not sure title has closed...wasn't the conversion plan suspended by NYS?

i see a whole bunch of closings/deed transfers.