What does it take to make a comeback?

www.TheRealDeal.com October 2010 35

Continued on page 92

Sources say developers can return from real estate purgatory — but only if they handled their troubled projects well

40 October 2010 www.TheRealDeal.com

N E W D E V E L O P M E N T, R E B O O T E D

PHOTOGRAPHS OF BRADFIELD AND GUBERMAN FOR THE REAL DEAL BY MAX DWORKIN

more focused on finding the perfect apart-ment than digging up information about a developer’s last project.

“The fact that someone was foreclosed on, or the bank took back the deed, is not necessarily a death sentence for the future,” said industry veteran Jack Levy, a senior

managing director of residen-tial management and market-ing at Rose Associates. “Many people have failed and come back.”

As real estate observers well know, the financial crisis arrived swiftly and spared few. Any de-veloper with a project on the market during that fateful time was forced to watch helplessly as prices plummeted and sales slowed to a trickle. Some have been able to renegotiate their loan terms or find addition-al sources of capital, but oth-ers lost their projects — or are about to lose them — after run-ning out of time and money.

But that doesn’t mean their real estate careers are neces-sarily over. The impact of those struggling projects “is going to depend on how they handled it,” explained Gregg Winter, a principal at Winter & Com-pany Commercial Real Estate Finance, which arranges com-mercial mortgages for multi-family apartment buildings, office buildings and other prop-erties.

For one, it doesn’t just come down to money. There is a sort of moral code in real estate fi-nance, industry veterans say.

Lending is based heavily on relationships that are built up over time, especially when huge sums of money are involved, explained Eric Anton, an executive managing director and principal at Eastern Consolidated.

“When one of the leading industry vet-erans, like a Larry Silverstein or Bill Rudin, calls a bank president, it’s not like a 22-year-old calling his credit card company asking for an extension,” Anton said.

Banks, of course, are most concerned with whether or not they get their money back, but they also pay attention to how borrowers behave when faced with finan-cial difficulty. Developers can dig in their heels and fight their lenders in court, or they can accept their share of the responsibility, do their best to repay the money owed, and turn over the keys if necessary.

The latter option may not be in the de-

BY CANDACE TAYLOR

Embattled developer Shaya Boymel-green recently announced that he’s looking for development opportuni-

ties in Manhattan.That may sound surprising, given that

the erstwhile developer of 20 Pine is facing

a bevy of lawsuits by creditors and disgrun-tled buyers, and his LibertyPointe bank was shut down by regulators in March. But a possible comeback by Boymelgreen — a high-profile casualty of the downturn — is not as outlandish as it seems, experts say.

As Donald Trump famously demon-strated with his dramatic comeback from his 1990s financial troubles, the real estate industry is surprisingly forgiving. The many developers whose projects crumbled during the downturn are likely unable to borrow money right now — especially if they went to war with their lenders. But with a little pluck and perseverance, most will be able to do projects again in the future, experts said. Those who will bounce back the fastest are the developers who established themselves before the downturn, but had a tough time during this cycle.

Many consumers, meanwhile, seem

Above: Developer Shaya Boymelgreen is trying to make a comeback. Below: Developer Andrew Bradfield has already moved on to another project after troubles at No. 22 Renwick.

A reinvention act Even builders who didn’t get burned during the downturn

turn to smaller projects, venture outside NYC

These days, many developers are being forced to find new ways to occupy their time. While

projects that were already in the pipeline are finally getting done, getting funding for large-

scale new development projects in the city is still a rarity. As a result, many developers are

downsizing their plans or looking outside the city for opportunities. Even developers who

weathered the downturn well — and are still viewed as attractive borrowers by banks — are

branching out.

Developer Matthew Blesso, the president of Blesso Properties, said his company avoided

losing money during the downturn because their projects were mostly completed when the

slump hit. As a result, the firm hasn’t had trouble getting financing. For a new project he’s de-

veloping in Chelsea — a nine-unit condo at 421 West 22nd Street — he said he’s received

four different quotes for construction financing.

Regardless, he said, he’s been frustrated looking for deals in New York over the past few

years, because he feels prices here are still inflated (see bubble story on page 36).

“We’re not seeing opportunities in New York, despite all the time we’re spending looking,”

he said. “We said, ‘Let’s look elsewhere.’”

Now he’s venturing into new territory (literally). He is building a boutique hotel in Panama,

and, along with partners, purchased a complex in the Fire Island Pines that includes residen-

tial, nightclub, restaurant, hotel and retail space. He also invested in Brooklyn-based design

center 3rd Ward, which is looking to expand its real estate footprint.

“We’ve sort of reinvented ourselves,” Blesso said. “We’ve found new ways to make

money.”

Some developers are turn-

ing to smaller-than-normal proj-

ects while they wait for condi-

tions to improve.

Halstead Property agent

Rex Gonsalves was recently

marketing a townhouse at 9

Commerce Street, and said he

was surprised to see a number

of developers looking at the

place. He eventually sold it to

one of them for $2.475 million.

He noticed a similar phenom-

enon with a townhouse he was

marketing on Horatio Street,

which is “attracting a lot of

builders,” he said.

For developers, converting

an aging townhouse into a sin-

gle-family mansion or several

residential apartments can be

a profitable, if small, project.

“It’s a smaller leverage of

capital, and it’s something to

keep them busy,” Gonsalves

said.

Some developers have found viable new business models in ventures that started as

side projects.

Josh Guberman, president and CEO of Core Development Group, is the developer of new

condo LUX 74 on the Upper East Side, which was finishing up sales when the downturn hit.

Since he escaped the worst of the recession, Guberman said, he’s had no trouble borrowing

money, and has been approached by several lenders looking to do projects with him.

But Guberman, who has a summer home in Southampton, recently started helping a friend

build and sell a Bridgehampton spec house “on a whim.” When the project sold at full ask just

a few weeks after it went on the market, he realized that the area had potential.

“I realized that there are some undervalued areas in the Hamptons that still have an up-

side,” he said, noting that he is now actively looking at several deals in the area. “There are

also some opportunities where risk is being rewarded.”

Plus, he said, he feels it’s a smart strategy to expand beyond Manhattan.

“Limiting yourself to one particular market right now might not be the smartest thing,” Gu-

berman said. By Candace Taylor

“The fact that someone was foreclosed on, or the bank

took back the deed, is not necessarily a death sentence for the future.” Jack Levy, Rose Associates

Top left: Developer Josh Guberman is looking for deals outside the city, in the Hamptons. Top right: Developer Matthew Blesso is build-ing a boutique hotel in Panama (above).