Rose enjoys win-win situation with newest development

Real Estate Weekly, Nov 26, 2008 by Daniel Geiger

New residential construction projects have become increasingly challenging to undertake in the city because of the difficulty in arranging financing amid the credit crunch and uncertainty whether there will be demand for the units once they're complete given the ailing economy.

Yet last week, as problems in the economy and the debt markets continue, the green real estate development firm, Jonathan Rose Companies, broke ground on a new 185-unit rental apartment building in Harlem.

The firm says that the 12-story building, located at 124th Street and 1st Avenue, will be environmentally friendly and feature a mix of low income, middle class and market rate rental apartments.

Company executives call the project Tapestry for the way they say it weaves together affordability, social awareness and sustainable features. In light of the tough times, that mix of attributes might also be called a security blanket.

Paul Freitag, director of real estate development for Jonathan Rose Companies, said that the project qualified for low interest rate bond financing that would be issued through the Housing Development Corporation because Tapestry was participating in the city's 50/30/20 program, wherein half the apartments are market rate and the other half is a mix of units priced for low and middle income tenants.

Tapestry, which Freitag said will cost roughly $66 million to build, also received another $9.75 million with a 1% interest rate from the city.

Both loans are long term, with a 35-year pay down period. Over $4 million will be made available to the project via tax credits that affordable housing projects receive and are then able to sell off to raise cash.

Although the project's cost of borrowing was attractive, just receiving financing to develop a building from the ground up could be considered a feat given the severity of the credit crunch. Freitag said that the government-arranged financing allowed the project to tap into one of the few pools of capital that appears to be currently available.

"We were nervous about the bonds, but they sold just fine, that was not a problem," Freitag said." I'm not an expert on bond financing, but it seemed as though the bond market returned to a state of normalcy within a brief period of time when the rest of the market is still going through convulsions."

The project also qualified for state funds available to buildings that incorporate energy efficient systems and other environmentally friendly features. The building will have what the company said will be a high performance envelop, including efficient mechanicals and Energy Star rated roof that will be covered in places by heat dissipating plantings. The building will also use recycled materials in its countertops and insulation.

For environmental stewardship, the project will receive about $500,000 from the New York State Energy Research and Development Authority to help fund the cost of the various green components. When the project is finished, it aims to achieve a LEED Silver certification from the U.S. Green Building Council.

Another way that the project's attributes have helped stabilize its financing was that the city agreed to sell the company five of the land parcels that are part of the development site where Tapestry will rise for a total of $5.00. The city parted with the land for the token sums because it wanted to facilitate the project.

"Hopefully we'll see more projects like this," said Freitag, adding that he felt 50/30/20 development would become more popular among builders because it catered to a diverse tenant base and therefore was suited to attracting a wider pool of renters in the event of a market downturn--a scenario that appears to already be afoot.

"These developments present a real win-win situation, creating a healthy mix of development for neighborhoods."

Freitag said that Jonathan Rose Companies is planning another affordable, environmentally friendly residential project in the Bronx to break ground next spring, a time when many economic experts have been predicting that the country will be in perhaps the darkest depths of the current recession. That project will cost about $90 million, he said.