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Condos and Classrooms

Wall Street Journal
April 7, 2013
By Eliot Brown

A planned 715-foot Manhattan skyscraper sidelined by the real-estate bust is poised for a resurrection.

A group led by New York-based World-Wide Group is in advanced talks with a group of investors and lenders to finance construction of a glassy condo and rental-apartment tower that would be one of the tallest buildings on Manhattan’s East Side, according to multiple real-estate executives involved with discussions.

Under the deal being discussed, Starwood Property Trust Inc. would provide a roughly $450 million loan. There also would be an equity investment from the asset management arm of J.P. Morgan Chase & Co. and Rose Associates Inc., a firm controlled by members of New York’s Rose family, those people said. The total cost of the tower couldn’t be determined.

Should the deal for the tower at southwest corner of 57th Street and Second Avenue be completed, it would be the latest example of a project that’s been able to emerge from hibernation thanks to New York’s rebounding residential market.

In TriBeCa, an 830-foot condo tower announced in 2007 recently began rising, with asking prices for units in the building run as high as $32 million. And in the West Village, developer Steven Witkoff and his partners are moving ahead on 150 Charles St., a pricey 91-unit condo development site that they bought in 2004.

The World-Wide project came a result of a complex public-private partnership. The site actually is owned by the city’s Department of Education, which in 2006 agreed to lease it to World-Wide for 75 years. As part of the deal, World-Wide agreed to rebuild two aging schools now on the site: an elementary school and a 1,400-student high school.

The agreement was billed by the city as an innovative way to pay for new schools, given that the proceeds from the lease—which the city in 2006 said would be worth $325 million—would more than cover the price tag for the school construction.

After the downturn hit, the tower plans were put on ice. But World-Wide went ahead with construction of the schools, which were built on the same property in a way that also left space to build the tower. The schools, which were paid for by the city, opened in the fall, and the developer also built adjacent retail space that now holds a Whole Foods.

Details on the tower have yet to be announced, although the developers have said they plan to start construction later this year. A building permit application filed in November calls for 270 units, and people involved in the deal said the apartments would be a mix of rental and condominium units, which would be located at the top.

Such deals have historically been uncommon for the Department of Education, although more are brewing.

The city’s Educational Construction Fund last year began looking for developers interested in doing similar projects for three Manhattan sites—two on the Upper West Side and one on East 96th Street. In total, developers could build more than 1.5 million square feet between the three sites, according to materials sent to developers by the city’s advisor, CBRE Group Inc.

The potential for more construction comes as the apartment market has rebounded strongly since the downturn, particularly for high-end condos. Rents are nearly at all-time peak levels, and the average sales price for Manhattan condos was $1,280 per square foot in the first quarter of 2013, up from $1,154 in 2010, according to Miller Samuel Inc.