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The Billyburg Bust

More recently, Toll Brothers announced a summer special, offering to cover mortgage payments, common charges, and real-estate taxes for twelve months after closing— essentially allowing residents to live free for a year. Tower One’s first buyers (the $900-a-square-foot ones) are now sharing elevators with neighbors who have paid hundreds of thousands of dollars less for identical units. Meanwhile, no one talks much about Tower Three.

Northside’s aggressive sales tactics have helped move inventory, but they have also had huge ripple effects on the market throughout the neighborhood, putting pressure on smaller developers to make similar concessions. Unfortunately, many are not in the position to compromise so radically, either because their lending banks won’t allow it or, in the case of buildings in the last stage of construction, developers don’t want to upset those already in contract.

Later that afternoon, I made my way to a building called Warehouse 11, on the corner of Roebling and North 11th Streets. Marketed by David Maundrell, the building has 120 total units (plus the requisite yoga center, playroom, parking garage, 24-hour concierge, gym, and communal sundeck). While the model apartment seemed an appealing enough place to live, there was something generally off about the building as a whole: Despite having been on the market since early 2008, only 30 percent of the units were in contract, and it was clear that construction wasn’t complete. The list prices, too, were significantly higher than comparable products, as if the developer had not been informed about the current state of the economy. A few weeks later, I noticed the front doors of the lobby had been padlocked shut. The process of foreclosure had begun.

I called Maundrell to ask what, exactly, had gone wrong. He explained that the developer had found himself caught up in a number of unfortunate tangles. “When we opened the building, the first units in contract were priced at $760 a square foot,” Maundrell explained. “Realistically, if you want to sell right now, I think you’ve got to be at somewhere around $650. But since we sold 30 percent at the initial rate, lowering the prices across the board would have been a huge risk: Maybe we’d get new buyers, but we’d also likely lose the ones we already had. It’s a tough call.” Massey Knakal, the brokerage firm handling the sale of the building, looked into converting it into a rental and projected that it could bring in $4.1 million annually, which, with monthly returns of $340,000, would not be nearly enough for the developer to pay off his current loans—$50 million from Capital One and another $12 million from private equity.

In a situation like this, Capital One knows that going into foreclosure will significantly devalue the property and likely involve years of legal wrangling. But foreclosure also offers a lender two options, each of which would generate at least some returns. They could sell the condos in a fire sale—at $500 a square foot, for instance, the revenues would still be more than $50 million—or simply arrange the sale of the building at a discount, which is the route Capital One is taking. But even this isn’t pretty. According to a number of people familiar with the situation, bids coming in are closer to $30 million than the $50 million owed.

In the world of real estate, one developer’s misfortune tends to be another’s opportunity. Among those closely following the status of buildings like Warehouse 11 is Jamie Wiseman, a laid-back 33-year-old who is not what most people think of when they think about real-estate developers. A self-described “recovering lawyer” who favors stenciled T-shirts, Wiseman lives with a roommate in a small apartment in Bushwick, where over the past few years he has made a modest living buying up nondescript buildings and turning them into rentals and condos.

In November 2007, he made his first foray into Williamsburg, when, along with his business partner, Jacob Sacks, he purchased an abandoned factory at 44 Berry Street for $12.7 million. During the height of the market, the building would have been far out of his price range; in fact, it was in the process of being sold for $15 million to a California-based conglomerate called Atherton-Newport Investments, which planned a luxury-condo conversion. That deal fell apart last January, when Atherton filed for bankruptcy.

“They’d already put down a nonrefundable deposit of a million dollars, so the owner was willing to cut us a deal,” Wiseman told me on a recent afternoon, as we stood outside the building along with the project’s development manager, a 25-year-old named Ari Heckman. “The biggest difference between us and most of the developers out there is we’re not building apartments based on the fantasy that Williamsburg is where bankers want to live. Basically, what we’re doing is creating places for the people who live here now.”

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