HAP Investments lands $55M loan for East Harlem building with rent-stabilized units

UPDATE Monday, June 24, 2019, 7:25 p.m.: Eran Polack’s HAP Investments closed on a $55 million refinancing of a rental building in East Harlem less than a week after sweeping rent regulation reform was passed by the state legislature.

Asia Capital Real Estate, a private investment firm that claims on its website to manage “discretionary capital” for family offices and institutional investors, issued the two-year loan at a variable rate of LIBOR plus 3.25 percent, with two one-year extensions, Polack told The Real Deal. ACRE did not respond to request for comment.

Polack said he started working on the refinancing deal about two months ago and the specter of rent regulation reform didn’t affect the process. Miami-based Primrose Capital arranged the financing.

“Everything went smoothly,” said Polack, explaining that the building was completed in fall 2017 so everything is brand new and he doesn’t expect a “massive renovation” will be needed for at least a decade.

“We don’t see an issue with the new buildings. [We’re] not trying to be very high on the LTV,” he added. “[The deal] still works for the lenders.”

HAP built the 108-unit rental building at 2211 Third Avenue after the company bought the undeveloped land from Tahl Propp Equities for $13 million in 2014. HAP developed the building as five condos comprising of one condo entity that contains 22 rent-controlled apartments in exchange for a 25-year tax abatement under 421a, another that contains 86 market-rate units, and the final condos hold retail, parking and a community space.

The new financing covers four of those condos and replaces a $50.25 million loan that W Financial provided the developer in 2017.

The East Harlem refinancing comes days after a significant overhaul to New York State’s rent regulation laws, which has shaken some lenders’ confidence for projects with rent-stabilized components. Even before changes became law on June 14, building owners’ biggest lenders, such as New York Community Bank, Signature Bank and Dime Community Bank, lost a combined $2.5 billion in market capitalization.

“The feeling is that you could see less refi activity and less loan demand just because the ability to increase the rent rolls of these buildings really has been hampered,” said Peter Winter, a stock analyst who covers NYCB and Signature for Wedbush Securities, in a previous interview with TRD.

Joshua Emory, a principal at Primrose, wrote in an email that “the challenge [in the deal] was getting lenders educated on the growing demand for luxury rentals in East Harlem. ACRE was very experienced in the market and was [able] to stretch on proceeds.”

According to him, Primrose had multiple offers for HAP, ranging from $47 million to ACRE’s $55 million. Emory attributed the different offers to the lenders’ “belief in the property’s ability to support luxury rents in East Harlem.” According to StreetEasy, the average rent at 2211 Third Avenue, based on the 70 units from the building which have been listed on the site, was $2,972.

Clarification: The interest rate of the loan and the attribution of ACRE’s description of its assets under management was clarified. Comment from Primrose Capital was added. 

HAP Investments secures $94M construction loan for Tribeca condo project

HAP Investments’ first project in Tribeca is moving forward with more than $107 million in financing.

The $94 million construction loan for the 41-unit condominium was provided by G4 Capital Partners, the same private lender that provided HAP with a $32 million loan to acquire the site back in February 2018. The three-year loan was paired with a $13.5 million mezzanine loan from New York City developer and lender Quinlan Development Group.

HAP’s co-founder and CEO Eran Polack expects demolition of the existing five-story building at 65 Franklin Street to begin within weeks.

HAP’s new condo project is breaking ground amid a soft high-end new development market, but Polack is confident “the market will be there” when he takes units out to buyers. He estimated the project will launch sales in 18 to 24 months with the building being completed in three years.

“I’m a big believer in the New York condo market,” he said. “I’m sure in a year or two the market will be very strong.”

He also noted that “we don’t see many new projects starting” in the last couple years. Residential construction in Manhattan has dropped off, and a September analysis by the Marketing Group, shows that the number of new condo units expected to be delivered in Manhattan drops sharply in 2022 with an average price per unit of $2.7 million.

Polack declined to disclose pricing at 65 Franklin and plans have yet to be filed with the Attorney General’s office. However, a source estimated prices would be set around $2,500 per square foot, with most units ranging from 1,000 to 2,500 square feet and the largest spanning 3,500 square feet.

Plans for demolition and the new 19-story building were filed last July with the Department of Buildings. The plans show five duplex units and two full-floor units in addition to two floors of retail at the base of the building. Amenities, according to the plans, will include a children’s playroom, a swimming pool, bike parking and a rooftop terrace. CetraRuddy is the architect.

Both lenders noted the unit layout was an important factor behind capitalizing the project.

One of G4’s founding partners, Robyn Sorid, said the lender was a “huge champion of this deal” because of its “unique layouts and price points that provide optionality for various types of buyers.”

The $94 million loan is the fourth G4 has issued to HAP and the largest loan originated to date, according to the lender’s website. (Sorid first mentioned the forthcoming deal in an interview with The Real Deal last fall.)

Quinlan partner Tyler Wilkins also noted that by not having “large and elaborate” units, the building was “much more attainable.” He also said that Tribeca “will always be desirable.”

This is Quinlan’s first project with HAP. They were brought to the deal by HFF’s Chris Peck, Peter Rotchford, Rob Hinckley and Steven Rutman.

Though Polack rejects the notion that he’s waiting on the market to change — “I think the market will stabilize,” he said — he also noted that he’s not in a rush to launch sales.


HAP lines up $53M construction loan for Washington Heights project

Eran Polack’s HAP Investments secured a $52.5 million construction loan for a mixed-use development site at 4452 Broadway in Washington Heights.

Madison Realty Capital provided the financing package, which will replace existing debt and cover construction costs, the firm said. Property records show that Gamma Real Estate provided HAP with $11.5 million in financing in 2017.

The developer bought the land in 2013 for $7.3 million, and the firm plans to build a seven-story mixed-use project spanning 134,475 square feet. The project will include 11,000 square feet of retail space and 129 apartments, 30 percent of which will be set aside as affordable.

HAP plans to start construction in April and finish during the third quarter of 2020. Polack said in a statement that the company looks forward “to bringing new, high-quality apartments to the Fort George neighborhood to meet the strong local demand.”

HAP is also planning to build a 41-unit, 19-story condo project in Tribeca at 65 Franklin Street, which it is financing with $32 million from G4 Capital Partners.

Josh Zegen, co-founder of Madison Realty Capital, said in a statement that investment interest was increasing in Washington Heights “due to its strong fundamentals as well as a recent rezoning of its neighboring area, which is increasing the overall density of the region.”