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The Shifting Sands of NY Real Estate: RFR’s Struggles and the Gowanus Project
Edited by: TJVNews.com
In the bustling neighborhood of Gowanus, Brooklyn, a significant real estate development has become the center of a high-stakes financial skirmish. According to a report on Monday on The Real Deal web site, at the heart of this contention is the sprawling 827-unit multifamily project located at 175 Third Street, directly across from the local Whole Foods. This project, spearheaded by Aby Rosen’s RFR, has fallen into precarious waters due to a default on an $80 million mortgage.
RFR’s financial woes began after acquiring the site in 2018. The property, a block-long development stretching over three acres, was purchased from SL Green and Kushner Companies for $115 million. As was reported by The Real Deal, to finance this acquisition, RFR secured a loan from Union Labor Life Insurance Company. However, the developer soon found itself unable to meet the terms of the loan, resulting in a default.
The fallout from this default quickly attracted attention from opportunistic investors. Josh Zegen’s Madison Realty Capital, a notable player in real estate investment, recognized an opportunity in RFR’s misfortune, as per the information in The Real Deal report. In a strategic move, Madison Realty Capital acquired the distressed debt from Union Labor, aiming to seize control over the site by initiating a foreclosure on RFR’s interests.
This development is a significant indicator of the current turbulence within New York City’s real estate sector, particularly in multifamily developments. Indicated in The Real Deal report was that while construction across the city has seen a general slowdown, Gowanus has remained a hive of activity, making any major shifts in property ownership particularly noteworthy.
Madison Realty Capital’s acquisition of the debt was not done in isolation. The firm collaborated with Marvin Azrak’s Maguire Capital Group, calling attention to the potential value seen in this troubled asset, as was detailed in The Real Deal report. The partnership has scheduled a UCC foreclosure, which if successful, could dramatically alter the landscape of ownership and development in Gowanus.
This situation also casts a spotlight on the broader challenges facing RFR. Already having lost several properties, and with more facing foreclosure, the firm’s struggles are symptomatic of larger issues within the sector, including rising costs and a cooling market.
RFR’s financial difficulties have been mounting, with several of its trophy properties slipping from its grasp. Notably, RFR has lost control of iconic sites such as the Lever House and the Gramercy Park Hotel, landmarks that once symbolized the company’s prowess in the high-stakes arena of New York real estate, as was noted in The Real Deal report. Adding to the company’s woes, in March, the $104.5 million mortgage on its office building at 90 Fifth Avenue was transferred to special servicing due to payment failures. Shortly thereafter, Rialto Capital Partners reported that RFR had defaulted on $39 million in promissory notes, which were part of a loan sale by Signature Bank last year, according to the information provided in The Real Deal report.
In this turbulent real estate climate, Madison Realty Capital, in partnership with Maguire Capital Group, has emerged as a keen player, capitalizing on distressed properties. The report on The Real Deal also said that this partnership had previously manifested in March when they acquired a distressed loan on the Fifth Avenue Hotel in Nomad, marking a continued strategy of seizing opportunities amid others’ financial distress.
One of RFR’s largest and most troubled ventures is the Gowanus multifamily project. Located next to the Gowanus Canal, this site was set to become one of Brooklyn’s largest apartment developments. Despite its potential, the site has remained inactive, as was indicated in The Real Deal report. RFR attempted to offload the property in 2019, pricing it over $200 million, but failed to attract buyers.
The neighborhood’s rezoning two years later sparked a flurry of multifamily building plans, spurred by developers racing to take advantage of the soon-to-expire 421a tax abatement program. Although the state recently extended the construction completion deadline for 421a by five years, to 2031, this extension offers a lifeline to projects like RFR’s that had a late start, according to the information contained in The Real Deal report. Yet, even with this extension, the development market remains daunting, stifled by high interest rates and a stringent lending environment.
The stalled Gowanus project remains a symbol of potential that is yet to be realized, emblematic of the uncertainties pervading New York City’s development landscape. As RFR struggles to stabilize its holdings and rethink its strategies, the real estate community watches closely, anticipating the next moves in a city that continues to evolve, albeit unpredictably.
