Queens-based developer Chris Xu has led a venture that secured a $502 million construction loan for an 802-aparmtent project, in Long Island City, Queens, The Wall Street Journal reports.
The news is according to the Meridian Capital Group, the firm that brokered the deal. JPMorgan Case & Co led a group of banks that loaned the funds to the venture at the end of June. The group started foundation work on the 67-story tower at 23-14 44th Drive at the end of 2017.
Long Island City has experienced an increase in residential development during the last decade. Towers have lined up along the East River near the famous Pepsi-Cola sign, but before now, a lot of those apartment buildings were rentals.
New condo buildings in the area had averaged approximately eight stories and 60 apartments, according to residential brokerage firm Stribling & Associates.
“There has never been a project like this before in Long Island City,” Stribling broker Patrick W. Smith told The Wall Street Journal.
Xu and his partners have been actively developing condos and hotels in Queens, but this latest construction loan is a major milestone for the group. The 44th Drive project is the biggest one they have worked on thus far.
The amount of the construction loan is significant because usually, bank lenders like JP Morgan Chase do not venture into that field despite the U.S. economy having rebounded. This is especially true in the New York City condo market during the last two years after surge of luxury condo development.
“Non-bank lenders” like debt funds raised by private equity firms have financed a lot of the construction.
“This was a syndicated bank deal,” Morris Betesh, the Meridian senior managing director who brokered the transaction said. “We did not have to go to a debt fund to get this deal done.”
JPMorgan Chase has not commented on the loan.
The project will cost $700 in total. The remainder of the money will come from equity. Henry Yeung, Brian Pun of FSA Capital and Hong Kong-based developer Risland U.S. Holdings, LLC are among Xu’s partners. The group hopes apartment presales will begin at the end of this year or the beginning of 2019, according to Eric Benaim, chief executive of Modern Firm, which is marketing the 778-foot tower. Apartments will range form studios to four-bedroom units and will be completed in phases between 2021 and 2022.
Sales have recently slowed down in the New York City condo market. A lot of that has to do with the high price tag of $5 million or more. The Long Island City project developers hope to offer a more affordable price range of $500,000 to $4 million in order to raise demand.
“We were building too much of the same subset of the market, which was luxury and super luxury,” Jonathan Miller, chief executive of real-estate appraisal and consulting firm Miller Samuel Inc. told The Wall Street Journal. “So you saw a lot of construction pivot to more modest priced developments, apartments around $1 million to $3 million.”
According to brokers, Long Island City’s rental apartment construction boom has set the market up for condos by creating potential buyers out of renters who are already living in the area. Apartment sales have increased from 150 in 2015 to 248 in 2017, according to Stribling’s data. The median price has also gone up in that timeframe from $880,500 to $1,016, 500.
Challenges the developer could face include increased interest rates that could make it more expensive to buy an apartment. Plus there are more rental apartments available, which could be more attractive to potential buyers as some landlords offer concessions to lease instead of purchase.
“The biggest concern would be if there is in fact an oversupply of rental units,” said Michael Lefkowitz, an attorney specializing in commercial real estate. “I could foresee sales getting slower because people are saying, I can rent a lot cheaper than I could buy on a monthly basis.”