Sheffield Conversion
The End of The Fabled Insider Deal [NYTimes] 9/04/05
THE residents at the Sheffield, a 50-story apartment building near Central Park, believed their King Midas moment had finally arrived. Their building had just been sold for $418 million, and the new owners wanted to convert the rental building into a luxury condominium. They had heard the El Dorado tales of how renters sometimes got amazing deals when their buildings converted. Some insiders had bought their apartments at two-thirds or half the market price. And many tenants of the 845-unit Sheffield thought they were about to join those lucky few. But they soon learned a bitter new reality of Manhattan real estate: the insider deal is all but dead.
The building's new owner, Swig Equities, released a preliminary offering plan in July that spelled out the price of every unit. The average asking price would be $1,358 a square foot. That's $301 higher than the average price across Manhattan, according to data from the Corcoran Group. In the Sheffield, at 57th Street and Eighth Avenue, asking prices hinged on views and altitude. A one-bedroom on the 30th floor was listed at $877,100, according to the preliminary offering plan. A 550-square-foot studio on the 49th floor cost $1.3 million. A one-bedroom on the top floor now occupied by a rent-stabilized tenant was $1.9 million. "They were pretty much off the charts," said David Cohen, a 14-year resident. But it may be the tenants, not the prices, who are out of step with the Manhattan market.
In the heyday of rent regulation, stabilized tenants could use their low rents and lifetime occupancy rights to pressure landlords into offering discounted insider prices. Otherwise, tenants could simply refuse to go along with the conversion, sitting in an apartment that would fetch hundreds of thousands of dollars. But many buildings now converting, like the Sheffield, are dominated by market-rent tenants who enjoy none of those rights or leverage. And with the price of land and existing buildings continuing to climb, developers said they could not afford to offer those tenants 25 to 50 percent discounts off the market price. "In our buildings, if an insider wants to buy, we don't offer any discount," said the developer Izak Senbahar, who is president of the Alexico Management Group. "If they leave, they leave. The market is the market, and we feel the market is strong."
"Tenants in buildings that are predominantly rent-stabilized have far more say and power than in buildings like the Sheffield, where only 95 of 845 units are stabilized. Stabilized tenants have the right to remain in a building indefinitely and can prevent a landlord from realizing profits on their units. They can sometimes even act as a bloc to prevent a developer from selling the 15 percent of units necessary to get final approval for a conversion. But the tenants remaining in the 750 market-rate units at the Sheffield have little power to broker a deal. Their leases do not have to be renewed, and the landlords have no special incentive to try to woo them to buy. Greg S. Kirschenbaum, the director of residential operations for Swig Equities, said that offering insider prices was unnecessary in a building so dominated by free-market units, and would artificially depress the asking prices when they hit the open market. "If there was an insider price, I'd be competing against myself," he said. "
"At the current offering prices, Swig's $418 million purchase of the Sheffield would bring in $848 million after all the apartments and commercial units are sold. Kent Swig, the principal of the company, said the location would be a prime asset. "We have dramatic views of Central Park," Mr. Swig said. "We're situated right at the foot of Columbus Circle." Mr. Kirschenbaum said the company expects the attorney general's office to approve the Sheffield's preliminary offering plan within nine months. Mr. Swig would not discuss his plans to renovate or market the building, saying the company needed six months before announcing its vision for the building. But already, the conversion process has sown animosity throughout the building. Tenants say that Swig is not renewing leases and has neglected maintenance issues in the building. "A lot of people are discouraged and are just moving out in droves," said Nancy Rovelli, the president of the tenants' association. "We were all excited. We thought we'd be able to buy our homes. We had no idea."
THE residents at the Sheffield, a 50-story apartment building near Central Park, believed their King Midas moment had finally arrived. Their building had just been sold for $418 million, and the new owners wanted to convert the rental building into a luxury condominium. They had heard the El Dorado tales of how renters sometimes got amazing deals when their buildings converted. Some insiders had bought their apartments at two-thirds or half the market price. And many tenants of the 845-unit Sheffield thought they were about to join those lucky few. But they soon learned a bitter new reality of Manhattan real estate: the insider deal is all but dead.
The building's new owner, Swig Equities, released a preliminary offering plan in July that spelled out the price of every unit. The average asking price would be $1,358 a square foot. That's $301 higher than the average price across Manhattan, according to data from the Corcoran Group. In the Sheffield, at 57th Street and Eighth Avenue, asking prices hinged on views and altitude. A one-bedroom on the 30th floor was listed at $877,100, according to the preliminary offering plan. A 550-square-foot studio on the 49th floor cost $1.3 million. A one-bedroom on the top floor now occupied by a rent-stabilized tenant was $1.9 million. "They were pretty much off the charts," said David Cohen, a 14-year resident. But it may be the tenants, not the prices, who are out of step with the Manhattan market.
In the heyday of rent regulation, stabilized tenants could use their low rents and lifetime occupancy rights to pressure landlords into offering discounted insider prices. Otherwise, tenants could simply refuse to go along with the conversion, sitting in an apartment that would fetch hundreds of thousands of dollars. But many buildings now converting, like the Sheffield, are dominated by market-rent tenants who enjoy none of those rights or leverage. And with the price of land and existing buildings continuing to climb, developers said they could not afford to offer those tenants 25 to 50 percent discounts off the market price. "In our buildings, if an insider wants to buy, we don't offer any discount," said the developer Izak Senbahar, who is president of the Alexico Management Group. "If they leave, they leave. The market is the market, and we feel the market is strong."
"Tenants in buildings that are predominantly rent-stabilized have far more say and power than in buildings like the Sheffield, where only 95 of 845 units are stabilized. Stabilized tenants have the right to remain in a building indefinitely and can prevent a landlord from realizing profits on their units. They can sometimes even act as a bloc to prevent a developer from selling the 15 percent of units necessary to get final approval for a conversion. But the tenants remaining in the 750 market-rate units at the Sheffield have little power to broker a deal. Their leases do not have to be renewed, and the landlords have no special incentive to try to woo them to buy. Greg S. Kirschenbaum, the director of residential operations for Swig Equities, said that offering insider prices was unnecessary in a building so dominated by free-market units, and would artificially depress the asking prices when they hit the open market. "If there was an insider price, I'd be competing against myself," he said. "
"At the current offering prices, Swig's $418 million purchase of the Sheffield would bring in $848 million after all the apartments and commercial units are sold. Kent Swig, the principal of the company, said the location would be a prime asset. "We have dramatic views of Central Park," Mr. Swig said. "We're situated right at the foot of Columbus Circle." Mr. Kirschenbaum said the company expects the attorney general's office to approve the Sheffield's preliminary offering plan within nine months. Mr. Swig would not discuss his plans to renovate or market the building, saying the company needed six months before announcing its vision for the building. But already, the conversion process has sown animosity throughout the building. Tenants say that Swig is not renewing leases and has neglected maintenance issues in the building. "A lot of people are discouraged and are just moving out in droves," said Nancy Rovelli, the president of the tenants' association. "We were all excited. We thought we'd be able to buy our homes. We had no idea."
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