Harlem Developer Gets Creative to Pull Off Financing

The Jonathan Rose Companies had to worry a little in 2008, when a 10-parcel site it planned to develop as a rental with the City of New York in East Harlem sat idle because it couldn't find investors. Now, the site is busy with construction -- and looking like a solid performer in a neighborhood full of failed condos.

All it took was a little patience, and a willingness by the developer to find a way to finance it themselves.

The 12-story, 185-unit project in upper Manhattan, called Tapestry, is now coming together two blocks from a major subway and rail station with an airport link, a strategically useful site. And government money to serve a mix of market-rate and moderate-to-low-income working households would seem a surer premise than, say, a spec subdivision in Arizona. But sub-prime lending had scalded the economy so badly in 2008 that the Jonathan Rose Companies used its investment arm to raise $10 million of owner's equity -- roughly 15 percent of the $66 million project -- to move forward.
Now, the company's equity managers are expecting an upside from the project: Paul Freitag, the company's development director, says the building received 9,000 applications for 93 subsidized units. They will start leasing the other 92 next month, and say it should be occupied by May.

"At the time we were closing the deal, the bond market was absolutely frozen," said Freitag. Demand for the subsidized units was never in doubt, but financing was. The risk of shrinking tax revenues in public coffers may have worried other potential investors: New York City's Housing Development Corporation had provided the key capital, and it would have to get repaid before other lenders. In a down economy, government-sponsored loans look safer than private ones, which raised the risk that a private loan for the Tapestry would have gone unrecovered if the project never happened. So Rose Companies put owners' equity into the project. (Other public and nonprofit entities, including the developer Enterprise Community Partners, made smaller grants and low-income housing tax credits filled out the capital picture.)

Lettire Construction, the family-owned Harlem contracting business that managed the job, also evolved into an equity partner.

The project, like all Rose buildings, aims to prove that energy-efficiency and affordability play well together. The mixed-use, mixed-income apartment building at 124th Street and Second Avenue will be built to LEED Silver standards. Freitag said it will include a "green terrace" that leads to the gym and will recapture rainwater -- a crucial move in waterlogged Manhattan -- and send it to towers for cooling air to use in air conditioners. That means the rainwater will stay out of the city's crowded sewers.

The green credentials, plus the income mix, distinguish Tapestry from a somewhat crowded crop of upscale buildings arriving in traditionally low-income East Harlem. Freitag said some failed "luxury condo" projects nearby, now converting to rentals, will provide the company with comparables. (East Harlem came later to the property boom than central and west Harlem, which have a more solid middle-class base and a shinier reputation for historic brownstones.) But even if those buildings fill with tenants, as they probably will, Tapestry may offer a distinct upside to its investors. When you own the building and you're proud of the niche it fills, you get positive returns that last longer than any 30-year bond.

If you're interested in exploring opportunities in East Harlem, New York, see our real estate listings on AOL Real Estate.
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