(Bloomberg) -- One of Manhattan’s most prolific condo developers is facing potential foreclosure on four properties, after years of laggard sales -- and a lender finally fed up waiting for returns.
An $89.5 million slice of junior mezzanine debt tied to projects by Ziel Feldman’s HFZ Capital Group will be sold at a public auction on Nov. 12, according to brokerage Newmark Knight Frank, which is promoting the offering. Public sales are typically ordered for loans that are in default.
The debt up for auction is backed by four Manhattan rental buildings that HFZ bought in 2013 and redeveloped into pricey condos: The Astor on the Upper West Side, 88 and 90 Lexington Ave. in NoMad and 301 W. 53rd St. in Hell’s Kitchen. Buyers of the junior debt on those properties would potentially be in a position to pay off senior lenders and assume full ownership.
HFZ’s condos piled onto the market in 2015, a time when high-dollar offerings in brand new towers were already in plentiful supply. Wealthy homebuyers saw no rush to commit to a purchase amid so many choices. Three years later, while HFZ was still working to offload those units, it listed $3 billion worth of condos in two additional projects, essentially competing against itself.
Sales of newly developed condos -- priced largely out of reach for most New Yorkers -- have been lagging in Manhattan for years, dragging marketing efforts on indefinitely. So far, there’s been little consequence to builders of those projects. They simply refinanced loans that ordinarily would have been paid off with sale proceeds.
But with the pandemic slowing purchases even further, defaults and foreclosures could become more commonplace, according to Brett Siegel, Newmark’s vice chairman for New York capital markets.
“With debt less readily available than in the recent past, I’d presume there may be more of these coming,” he said.
The four buildings cited in the auction carry a combined $258.6 million in debt, according to Newmark documents. CIM Group, a Los Angeles-based real estate firm, holds the junior and senior debt on the properties with a total face amount of more than $140 million, according to a securities filing.
CIM and HFZ had been negotiating a restructuring of the junior mezzanine loan. Talks were ongoing when CIM initiated the auction proceedings Monday, according to a person with knowledge of the matter.
Philip Ramirez, an outside spokesman for HFZ, said the firm wouldn’t comment. CIM declined to comment. The Real Deal on Tuesday reported plans for the auction.
HFZ, meanwhile, is still trying to find takers for condos in those buildings. Listings include a four-bedroom unit at The Astor on West 75th Street seeking $7.3 million, and a 3,213-square-foot penthouse at 88 Lexington Ave., priced at $9.75 million.
CIM has a history of stepping into New York projects that seemed hopeless in their time. In 2010, with the market still recovering from a global recession, it bought the site of the former Drake Hotel from Harry Macklowe’s lenders, ushering in construction of the cloud-grazing condo tower at 432 Park Ave. CIM also took control of the former Trump Soho, a condo and hotel building where unit sales struggled.
While mezzanine debt is always costlier than more-senior loans, the price of money for HFZ is a big burden at a time of slow sales. The interest on its $89.5 million junior debt is the benchmark Libor rate plus 13.85%, according to a CIM filing.
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