Barclays/Extell.. Rushmore next?

From a community perspective, this is bad news for the prospect of building much-needed schools in the area unless the city steps in somehow to take advantage of this. The DOE stupidly let Trump off the hook when he was obliged to build a new school (140 - 240 RSB).

This is what I have baying about. Who is watching this guy? He owns 10 million square feet of NYC RE. 10 Million SQ FT!!!! If he can't meet the debt on this parcel, what is next? How could the Rushmore not be in trouble. When was the last closing there? You would think the Mayor's Office would be poring over every transaction Extell makes because it could adversely affect NY RE. Oh wait, The Deputy Mayor now works for Barnett so certainly the Mayor must have this covered. I know there isn't any regulatory body and the city govt can't cover all those big cats but the Rudins and the LeFraks have generations in the business. Barnett hasn't even marked a decade in big time development. Mark my words.......soon to be seen on Front Page of NYT -- which has not covered Extell at all so far.

Apt 23, It sounds like you are suggesting capital adequacy standards for builders, similar to what is supposedly done for insurance companies and banks. Don't believe that makes sense. Buyers are supposedly protected by having their deposits held in escrow.

Buyers are not protected against depreciation. If, say, Extell can't service their debt -- and because there is no regulatory body, nobody knows if they are in trouble--and the Rushmore files for bankruptcy, then the fabulous plans for schools, improvement of parks, vast commercial space for restaurants and shops which will make the wasteland of RSB more liveable, is gone. Who is going to pay for all the promises that Extell made to the city and their buyers? If the Rushmore files for bankruptcy -- and that is a big if because for all we know they have more than enough cash flow to cover the troubles the building is experiencing-- the values on the entire UWS will be affected.

Barnett has been allowed to swallow up huge tracts of NYC RE because he has hubris and money. I think that is great actually because that is how all the American titans have been made. But at a certain point, say, a couple million sq ft of prime manhattan re, maybe half a million.... at some point if the company fails, all of us are affected and yes, just like we saw with Lehman, there must be some kind of governing of risk.

The fact that Extell can't service an $84,000 interest payment is alarming. Remember that when the Extell Brickell buildings went belly up in Miami, Extell sold the remaining apts for less than 50 cents on the dollar, screwing all the original buyers and adversely affecting the Miami market which was already reeling. Escrow cannot protect against that.

Walk me through this - if it's undeveloped land he's holding, what's the fallout? No buyers. As for his other developments, if they're finished, I don't see a problem.

I think to some extent, the obligation for community dev. plans (parks, schools) are inherited by the successor of interest to Extell (same went for the northern portion of RSB).

maybe half a million ..... sorry, meant to say 5 million sq ft - which is half of Barnett's stake in manhattan.

This is why buyers need to research the developer and look at their previous experience. I'm not saying that this would've raised red flags (to me at least) with regard to Extell, but it certainly raised red flags with many of the smaller developers that failed to deliver.

Someday, maybe, the politicians will learn not to bend to the will of greedy developers. Now we have ghost buildings and overcrowded schools.

presumably each of these buildings is a separate llc which absolutely can go bankrupt and not effect extell or its executives unless as noted there are personal or corporate guarantees in place. i think the debtholders are the ones that will get hurt the worst followed by the saps who bought into these buildings in the last year knowing what we all knew. going near any of these buildings from here on is foolhardy in the extreme.

nyc10023: there is no fallout from the undeveloped land except that Barnett is personally on the hook. It is however, a big red flag that a major NYC developer can't make a $84,000 payment. Not that developers like Trump don't walk away from obligations all the time --but they are usually covered by business entities. You would think that Barnett would make this loan payment just so investors wouldn't become concerned. It's kind of like finding out the IRS has liens out on your financial advisor.

As for finished developments, if you had your savings in your new $4mm apt, and the developer was in dire straits and sold the exact same apt next door for cents on the dollar, you would not be happy. Please see every other distressed city in America -- it is a domino effect. First the 140 apts for sale next door at Trump would go down. The the WEA apts --- and all the apts in 10023 (my zip code too)

Plus, depending how bad things get, if we go by Miami, Las Vegas, Phoenix, etc -- the successor of interest (the banks) are not going to care about Extell's dog and pony show to the city. Tenants in other cities had to sue banks to get them to pay carrying charges on foreclosed apts. If the buildings on RSB go into bankruptcy -- and I'm not saying that would happen, I just think we should all be concerned--- the banks are not going to be planting trees in the park.

you are correct: no trees are going to be planted.

but....we are a long, long way from WEA or the real RSD being effected in any way.

You know that we'll be seeing a story very soon about the $84K missed payment being an oversight or some similar snafu. I am sure Gary B has the money but more importantly, Extell knows what they are doing and they do it well. The market has changed dramatically and as a developer, there is a lot of maneuvering to get closings moving and loans repaid. Truly a delicate balancing act when serving the dueling concerns of buyer concern/future buyer interest/developer reputation/business moving forward and the market-side economics of construction finance as it stands today.
Don't count them out just yet...

reallystate: the 84K payment was missed in June. You don't think Barclays would have tried to straighten out a mere snafu before proceeding to foreclosure? Do you know personally that Extell can service all their debt? Do you think Extell's dealings in Miami is a good example of a developer knowing what they are doing and doing it well?

cc: i hope you are right.

Apt 23: history repeats itself. The original buyers of the railyards had stipulations written into their contract w.r.t. parks/community fac/schools. The people who ended up building 140(?) - 240RSB (after some wiggling) found that they were bound by the contract and did at least the minimum required. This too shall happen (if the city/whoever is awake) on the southern portion of the railyards (that is what we're talking about, right?) The banks won't build because they won't have to - I can't see them developing the land themselves. But at some point (if there isn't Armageddon), this too shall pass and whoever ends up building will inherit the stipulations.

10023: Let's hope it doesn't come to that - it wouldn't be good for anyone in manhattan. And btw, it is a pity that north end of rsb didn't live up to promises of development of commercial property in area - beyond the bare minimum. If there were more shops, more restaurants, a continuous trolley to and from the subway, that area would be great for families and the west side in general. The Trump buildings should have given all the commercial space away for pennies just to get business' in that area. But they were both penny and pound foolish.

I reread some of the old Hudson yard articles - didn't change hands - Trump bought and Trump stayed on, though he had to bring in outside investors so the entity that ended up developing was not the same as the one that bought the land.

how doe we know this story is true ? reliable source ?

Um, libel laws anyone?

wowzuh. the big commercial guys are screwed. big double whammy... lots of cheap rentals.. AND the guys who work for 'em won't have money to buy condos no more.

Please... This is not a stupid man. Has anyone heard the blasting from 57th Street? Extell delivers great product thus will continue to attract investors and will be a key player in the future of NYC!

It is a lot more than delivering "great product". It's about identifying and measuring demand, delivering it, watching costs, knowing how to best tranche up a building and maximizing returns to one's investors...and a bunch of stuff I invariably left out.

"Apt 23, It sounds like you are suggesting capital adequacy standards for builders, similar to what is supposedly done for insurance companies and banks. Don't believe that makes sense. Buyers are supposedly protected by having their deposits held in escrow."

GC's have had to undertake "surety bonds" in the past (I assume they still do). Might be a good requirement for the AG to institute before they will look at any new condo plan?

"I think to some extent, the obligation for community dev. plans (parks, schools) are inherited by the successor of interest to Extell (same went for the northern portion of RSB)."

I bet a Federal Bankruptcy Court Judge has the right to rip those up. If they can do cram downs........

Commercial real estate borrowers are defaulting on their loans left and right. The only thing noteworthy about Extell is that they happen to be the latest one.

Read Moody's, read Deutsche Bank reports, read any legit analyst who covers commercial real estate. The default rate is climbing and is projected to go much much higher.

I don't know the Extell situation specifically but Barnett probably can service the loan, and probably chose to stop paying, because it became clear that there was more debt on the land than it was going to be worth in the near-term.

This is just like a home owner who stops making his house payments at a certain point because he knows the real estate is not worth what he is laying out each month.

" This is not a stupid man, Extell delivers great product thus will continue to attract investors and will be a key player in the future of NYC!"

I am not denying Extell delivers great product. If I had the money, I would not only buy into Extell's 535 WEA, I would gladly overpay to live there. And then I would hate myself for putting myself at risk with a developer that no one knows anything about. I am saying Extell screwed buyers in Miami and I am wondering if they are doing the same thing at the Rushmore. This is not Steve Roth, this is not the Tisch family, nor any other number of established NY RE developers that we know about. Not that you can trust the ones you know about -- Trump sold his name to several huge buildings in Miami (Sunny Isles, Fl )that he absolutely had to know would go under. Not only are they empty. I mean they are EMPTY, In one mega building, not even one apt has sold- ever-- in over two years. Every buyer in the other buildings are living in a virtually empty buildings and cannot sell -- and will certainly be underwater for a lifetime.

Mr. gms1117. I'm sure Mr Barnett is not a stupid man. Bernie Maddoff was not a stupid man. I believe you are a new poster here. Please assure the posters here that Extell is solvent. Please tell the buyers at Rushmore that they should not be concerned that the head of the private company that controis their investment and btw, is not accountable to anyone --and has defaulted on a personal 84K loan --please assure them that their investments are safe and in good hands.

Except developer reputation is a valuable asset. If consumer doesn't believe developer stands behind product he/she will be less willing to purchase the next project.

"The fact that Extell can't service an $84,000 interest payment is alarming."

I would bet money that at least to some extent it's a 'strategic default" as opposed to not having $84,000.

But at least, as far as i know, Extell is only doing new construction? (please tell me if I'm incorrect) so in the end, things will shake out one way or the other. I'd be much more worried about buying into conversions like Devonshire House and others where there are still going to be a significant amount of RC/RS tenants and someone is going to have to carry monthlies which may be higher than cc/ret.

"This is not Steve Roth"

I'm not sure, but isn't Related the company that has the 32 story tower in Fort Myers with ONE resident in it?

NYC10023, I think you are incorrect about Trump. When he was faced with economic ruin, he was forced to sell to a group from Hong Kong. As part of this sale, he retained a profit particpation-I think 20%, which eventually paid off handsomely. But be assured, he lost control of the property.

Graffitti:I don't know the Extell situation specifically but Barnett probably can service the loan, and probably chose to stop paying, because it became clear that there was more debt on the land than it was going to be worth in the near-term.

30 yrs: I would bet money that at least to some extent it's a 'strategic default" as opposed to not having $84,000.

Are you both saying that It would be a GOOD thing that a major NY developer is a strategic defaulter.?

If the story is accurate that Barnett personally guaranteed monies, the strategic default doesn't add up.

30 yrs: "This is not Steve Roth"

I'm not sure, but isn't Related the company that has the 32 story tower in Fort Myers with ONE resident in it?

Stephen Ross is the CEO of Related and yes there are some convoluted deals with Related that are hard to figure out. Steve Roth is (was) head of Vornado. The difference is that in a publicly traded company, there is some transparency.

apt23: Ooops: should have looked more carefully.

"Are you both saying that It would be a GOOD thing that a major NY developer is a strategic defaulter.?"

No. The point was that the poster seemed to be amazed that they didn't have $84,000 and my point was that it probably wasn't the case *i.e. they DID have $84,000 but decided not to fork it over; big difference)

If the AG rules against Barnett and Extell has to make good on those recissions for those who filed against Barnett, can he wiggle out of paying back these people? Isn't there money in escrow?

It is called escrow for a reason. Deposits are safe.

If buyers in the neighborhood were counting on this development to succeed and beautifu the area...well, they were wrong. They obviously paid less to buy in that neighborhood and took a risk. It didnt pay off. Whats the problem?

Where is that guy who yesterday was like "RE isn't a good investment... tell that to the people who have build RE empires".

See, they go bust, too.

No default is ever strategic. Either they can't afford to pay it, or they have decided both a) it is worth the reputational risk not to pay AND b) they are not willing to sink further money into the property because they think it will drop in value (and therefore are going short land in NYC). Either way it's not a good sign from a major developer. If they won't/can't make payments here, what's to say they won't/can't keep other projects solvent.

"NYC10023, I think you are incorrect about Trump. When he was faced with economic ruin, he was forced to sell to a group from Hong Kong. As part of this sale, he retained a profit particpation-I think 20%, which eventually paid off handsomely. But be assured, he lost control of the property."

This is correct.

Trump LIED about having control. The Hong Kong guys owned it and paid him a free for the name. The book Trumpnation covered this, and trump sued for libel.

Then the Hong Kong guys sold it without even telling him, and he got pissed and sued (and lost, because, he didn't control it).

In court, he admitted he had only a small stake. His moronic logic was "because I didn't have to put any money down, its LIKE control".

Dude is almost as dumb as perfitz.

apt 23: I'm not making a judgement one way or the other. I'm saying many commercial borrowers are choosing to walk away from their properties, and give the keys back to the lender, even though they have the financial means to continue to pay the debt.

I'm not saying it's good or bad. It just is.

Sorry. I meant judgment. It's only spelled judgement in Britain.

I stand corrected. But I'm wondering if the legal entity holding the land ever changed.

Graffiti: So if he walks a way from a mere 84K loan, what is next. The Lucida where sales are stalled? The Avery- sales stalled. Rushmore - ditto. How about the fact that he can't get a construction loan for Gem Tower or the Medical Center at the Copacabana site. His plans have stalled at the site of the Flea Market on 26th. If Ty Warner can't get a loan extended for the Four Seasons in Manhattan, do you think Extell might have trouble getting a loan for their planned hotel on Charleton Street? And the landmark commission is holding up plans for the hotel/condominium project on W 57th street. Do you think in the face of a commercial real estate melt down that Extell might have trouble servicing their debt? Do you think that the 84K is just the tip of the iceberg?

My point is: At what point is it just another commercial developer that is in trouble and at what point does it affect manhattan real estate in general. Extell has 10 million sq ft. Wouldn't you like the city to be able to come out and say there is nothing to worry about with this developer -- and others. But that won't happen because there is no regulatory body no matter how much RE a private company buys. You would think that there would be specific instances where you could say certain properties are safe. Like the Carlyle participation in Rushmore should give you confidence because they have deep pockets but they had one of the biggest debacles in the sub prime meltdown and since they aren't regulated, you can't count on their judgement ( I went to school in Australia) either. It is going to interesting

"No default is ever strategic. Either they can't afford to pay it, or they have decided both a) it is worth the reputational risk not to pay AND b) they are not willing to sink further money into the property because they think it will drop in value (and therefore are going short land in NYC)."

I think you might need to look up the word "strategic". but you also left out c) they think that due to market conditions, their strength, the lender's strength, governmental attitudes and pressures, etc. that they will be able to cut themselves a better deal. For example, if you want to renegotiate your own personal home mortgage with most banks, you have to be in default or they wont negotiate. So many people stop paying in order to put themselves into the category of being able to get a principal or interest rate reduction, even though they really have NO problems whatsoever in making the payments. I don't think there is any argument that doing so is a strategic default.

30 yrs. Well said. You are absolutely right. Developers did that in Miami --just walked away and left the banks twisting in the wind. Then they came back and bought the apts back in blocks for pennies on the dollar. It is despicable and I hope that the banks do not allow it to happen here. Though in this case, it is significant that he is on the hook personally, not a business entity.

I think the previously mentioned "hubris" accounts for that: I think he honestly belies in his projects, but like a lot of RE people going back forever are always leveraging up and think the music will never stop. there is another thread about "Real Estate families". I'd be willing to bet if you look at the families which have been around for a while, very few ever took the risks that a lot of the new developers in the past 10 years have taken, even the "conservative' one's. I think one reason for this is that more and more Real Estate developers are finance guys rather than Real Estate guys (actually, that would be a great topic if someone wants to do a little research and start it).

Although I will say I don't think I've seen a lot of "the same guys buying back what they lost". I'm recognizing a lot of names lately which I haven't seen for a while, and they are the guys who bought up a lot of the bad paper last time around. I think that is what you will see: the guys who have been sitting around waiting because "what they do" is work bad paper and foreclosures will become players again, and the guys who buy stuff and "deal jockey" it up the ladder will shrink into the background for a while.

30, when I am less tired, i will get you the details of buying back the apts. in miami. it was incredible. It was a partner in Related though no longer connected with the stephen ross Related -- how they both ended up with the name is a mystery to me. it was the brickell apts - which extell invested in--he raised money in a separate company, bought back his own failed apts and then went to dubai and tried to pawn them off as rental investments. amazing hubris. I can't remember all the details but i will get them together with more accuracy and post them for you. just a hint of flavor of what we are in for here if the commercial shoe falls hard in manhattan. but you are right, the wise ones who were very conservative will be back to buy up our little island.

Thanks, I'd love to see the story. Although I have to say my guess is it won't happen in NY. But the guy should be sitting next to Madoff. Although I think it's another example of what I stated in another thread that today's "developers" are more finance guys than Real Estate guys, so what a shock that they would behave like the finance guys have.

"I think the previously mentioned "hubris" accounts for that: I think he honestly belies in his projects, but like a lot of RE people going back forever are always leveraging up and think the music will never stop. there is another thread about "Real Estate families". I'd be willing to bet if you look at the families which have been around for a while, very few ever took the risks that a lot of the new developers in the past 10 years have taken, even the "conservative' one's. I think one reason for this is that more and more Real Estate developers are finance guys rather than Real Estate guys (actually, that would be a great topic if someone wants to do a little research and start it). "

Agreed. The biggest names are always going bust (and I don't mean the busts make them big names). The big bettors - the Trumps, Reichmann's, Zeckendorfs - go big, and generally go too far, and then get crushed.

The longer term families don't use the leverage, and RE becomes more savings for them... you make the money, and then just get a return from it via RE.