The shrinking credit market could be more of a boon to established commercial developers rather than a bust for their projects, according to top officials at some of the major development companies in the region.
Robert P. Weisz, head of RPW Group Inc. in Rye Brook, N.Y., one of the largest commercial developers in Fairfield County and Westchester County, focused in 2007 on repositioning his properties at 1133 Westchester Ave. in White Plains, the 625,000-square-foot former headquarters of IBM Corp. for which he paid $76 million in 2006, and 440 Mamaroneck Ave.
in Harrison. Weisz”™s plan to build a 160-room extended-stay hotel on his 74-acre property at 1133 Westchester has been approved by White Plains city officials and the developer said he hopes to start construction late this year after securing a hotel operator.
The developer recently estimated the hotel”™s cost at $25 million to $30 million. Construction should not be affected by the current credit crunch, he said.
“It does not affect any current projects but it will affect the market in general for future acquisitions,” he said last week. “Acquisitions become a little more cumbersome because the credit is tighter.”
Still, he noted, interest rates remain low in the credit squeeze brought on by the subprime mortgage market collapse. “At the end of the day, interest rates have not changed dramatically.”
Weisz saw a silver lining in the prevailing credit-market gloom. “For good projects, I find financing for developers to be more available,” he said, because lenders are looking more carefully for sound projects to finance.
Weisz recalled a lender”™s observation: “”™Until March or April of 2007, every deal was do-able then.”™”
“Now not every deal can be done,” Weisz added. “When you have a good deal, you get a lot of attention” from potential lenders. “You have a large audience.
“We deliberately did not buy anything new in 2007.” At the start of 2008, that strategy will continue. “We are on the sidelines right now, waiting to see,” he said. ”We want to see how the year evolves.”
The strong will thrive
At Cappelli Enterprises Inc. in Valhalla, N.Y., senior vice president Joseph V. Apicella saw a silver lining too for the company that developer Louis R. Cappelli built. The current credit market, Apicella said, should not impede two major projects the Cappelli company and partners plan to begin this year: LeCount Square, an estimated $550 million mixed-use development in downtown New Rochelle, and the estimated $1.5 billion mixed-use redevelopment in downtown Yonkers proposed by Struever Fidelco Cappelli L.L.C. Both projects still need approval from the respective city councils.
“In a market like this, those strong companies with proven track records become more valuable and more financeable than ever before,” Apicella said. “Frankly, our appetite grows in times like this. The cream does rise to the top in difficult times.
“The interest rates are as competitive as they”™ve ever been in the last 10 years. The rates are fine ”“ 5 ¾, 6 percent, 6 ¼. The rates are not a problem, and the access to financing is not an issue.”
In Stamford, CorePlus Properties L.L.C., a private real estate investment and management firm with office properties in Greenwich and Westchester County, partner Richard Saunders said the uncertain credit market will “absolutely not” affect its joint-venture commercial development proposed in White Plains. CorePlus is seeking city approval of The Venue on Bloomingdale Road, a 48,000-square-foot upscale retail and restaurant development at 120 Bloomingdale Road.
“We”™re very excited” to go ahead with it, he said.
Track records count
Like Weisz and Apicella, Saunders said lenders in today”™s market favor real estate players with proven track records. The CorePlus partners, he noted, have more than 100 years of real estate experience in the metropolitan New York and Washington, D.C., markets. “All three of us are strong operators,” he said. “That track record as a strong operator of assets is going to help us in the capital market.”
For lenders considering a project at the start of 2008, “The key component is the quality of sponsorship. They”™re looking through to the sponsorship of the project ”“ what”™s the quality of the partnership and what”™s the quality of the project,” Saunders said.
With new property acquisitions, “Loan to value has reduced, so more equity is required,” he noted. “For certain properties” with higher value, “that will reduce the number of players. The buyer has to put more equity in when he buys the property, but the total cost of your loan is not very different than what it was 12 or 24 months ago.”
CorePlus partners do not expect to see much first-quarter activity in the commercial real estate market in Westchester and Fairfield. “As the capital market becomes more certain, we would expect to see more sales as the year progresses, more investments to come to the market,” Saunders said.
