The victims of the market crash were stone and steel, as well as flesh and bone. Distressed properties litter the country, starving for financing, rebranding or intervention.
For some, these relics of the faded boom are an opportunity. So-called "condo doctors" are taking up distressed residential properties and reviving them with new financing, and even closing deals as the housing market recovers, and their innovative strategies are lessons in any type of economy.
Billy Procida, who earned a reputation as a development whiz kid in the 1990s, recapitalized two condos north of Central Park: the Lore, at 261 West 112th Street, and the Gateway, at 2100-2102 Frederick Douglas Boulevard.
"98 out of 100 of these deals end up going to into a complete tailspin," said Procida, who is the president of William Procida Incorporated. "My business is fixing troubled assets."
The Lore, a 35-unit building, was 90% completed and 60% sold in October 2009. Procida convinced JPMorgan Chase to increase and extend the loan, finishing construction on the project and closing units.
At the Gateway, which was also financed by JPMorgan Chase, construction stopped when only an eight-story steel frame was built. Procida convinced the bank to resume funding and protect the project from the weather until a buyer for the loan was found. On June 18, a new lender closed on the building, and construction has begun.
"Chase did a spectacular job," said Procida. "We had smart bankers. If we had a stupid banker, these both would have ended up in bankruptcy."
Across the country, a similar scenario unfolded at the Mark, a 32-story, 244-unit condo just north of the San Diego Padres’ Petco Field. The project was initiated during the pre-Lehman collapse, but came to market in late 2007. The building began to fail, with no units sold in almost two years.
RADCO Development Solutions took over as acting developer, and in less than a year, it sold 79 units and paid off the $35 million primary construction loan.
"When we got into the building, we realized it was not just a function of pricing, it was a function of identity," said Kevin Price, a senior vice president at RADCO.
Price attributes the company’s success to targeting a specific demographic, in this case first-time homebuyers who were willing to take advantage of a down market. RADCO offered extensive incentives for buyers, including installation of hardwood floors and custom windows, as well extra parking spaces and pre-paid closing costs.
Asking prices range from mid-$300,000 to $2 million for a penthouse, and currently 211 of the 244 homes are sold.
It was critical that RADCO brand the Mark condo as an appealing buy for first-time owners, said Price. RADCO emphasized the advantages of buying over renting, and rebranded the property from a distressed building to a confident, safe buy. Since RADCO entered the development as a new entity, it was able to successfully relaunch the building.
"It requires a change agent. It requires someone who is coming in with a fresh perspective," said Price. "The worst thing that can happen now is inaction."
New firms have even been born out of the recession in order to take advantage of distressed opportunities.
Developer Cary Tamarkin created a new consultancy firm, Tamarkin Anderson, along with Eric Anderson. Both have architecture and planning backgrounds, and used their expertise to mediate at an eight-story development at 215 East 81st Street, a building with 34 residential units and 2 commercial units.
The 30,000 s/f building, branded as Duplex Condos, was a conversion project that was supposedly completed. However, the board of managers sued the developer, and said there were millions of dollars of work yet to be done. Developer East 81st LLC and managing principal Ben Suky argued that the cost was much less.
The court hired Tamarkind and Anderson, who eventually ruled that the amount of work would cost hundreds of thousands of dollars instead.
In another case, a development had been designed with very large apartment units. Because of the down market, Tamarkin and Anderson recommended that the units be smaller, and an interior courtyard be added. By using their architectural background, they’re able to advise a variety of real estate players.
"We can be a great help for lenders, banks and funds," said Tamarkind.
Even when a property isn’t distressed in the traditional sense, bringing in the equivalent of a "condo doctor" can be beneficial.
In Downtown Brooklyn, the Oro condo at 306 Gold Street was in a good financial shape, but the market was in a lull. The building was less than 30% sold in the pre-construction phase, and activity was decreasing, so the sponsor decided it was a time to restructure pricing.
Rose Associates was hired in 2008 as property manager of the 330-unit building, and it aggressively analyzed the building and determined that prices should be reduced some rental units created. Rose also took over marketing from Prudential Douglas Eliman in September of 2009, and launched a new marketing campaign.
By reducing prices and rebranding the building, Rose drummed up new interest in the project, with 15 offers being accepted within the first month. It is now over 60 % sold.
Edward Azria of Rose Associates, manager of sales at the Oro, believes that the key to the building’s success was reacting appropriately during the downturn, especially with the glut of recent residential development in downtown Brooklyn.
"A lot of buildings were victims of the market," said Azria. "The majority of the buildings were not responding."
Rose Associates is also involved with The Brooklyner, the borough’s tallest building at 111 Lawrence Street in Downtown, as well as 184 Kent and 34 Berry in Williamsburg. Azria said that all three buildings are doing well.
But the Oro represents an unusual success, as a property that defied a lower profile and horrible economic timing to move units.
It, along with the other revitalized distressed properties, are a bright spot in what has been a miserable few years in the residential market. And as buyers move again towards bidding wars and extravagant amenities, the resourcefulness and flexibility of those that take on distressed properties will no doubt translate well in a bull market.
PHOTO: The recession has spelled opportunity for experts like Billy Procida (left) who turned things around at The Lore.