Condo Plans Replace Hotel

By
• JOSEPH DE AVILA

A failed hotel project near Madison Square Park in Manhattan is getting a second shot as condominiums.

New Jersey developer Victor Homes recently acquired the debt on a four-story commercial building at 241 Fifth Ave. that was slated to become a 100-room hotel. The company aims to take control of the property using a so-called loan-to-own strategy.

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Nicholas Fevelo for the Wall Street Journal

Condo plans for 241 Fifth Ave.

Victor Homes, a unit of Israeli-based real-estate company Eclogue Management, expects to obtain title to the property at a foreclosure auction on Wednesday.

Assuming the company wins control, the developers plan to erect a 20-story building with about 48 condo units.

"We feel the market is good," said Ran Korolik of Victor Homes. "Now is the time to get back in. We were on the sideline for a couple years."

The plan to turn the property into condos is the latest example of a dormant project moving forward as New York's economy begins to bounce back.

Victor Homes is also one of the many developers capitalizing on New York's nascent recovery using the loan-to-own strategy where investors buy the debt on distressed properties to gain control of stalled projects. This strategy has become increasingly popular as banks become more open to selling underperforming loans.

Lenders holding mortgages on developments sold about $6 billion to $7 billion in loans in 2010, according to estimates from real-estate service firm Massey Knakal Realty Services. In 2009, only about $1 billion in loans were sold.

The building's current owners, 241 Fifth Ave. Hotel LLC, bought the property for $26.5 million in 2007, according to property records. The owners are made up of a group of investors including Daniel Shavolian, Al Cohen and Jack Hazen.

Messrs. Shavolian, Cohen and Hazen weren't available to comment, said Claude Castro, an attorney representing the investors in foreclosure proceedings.

The investors had planned to demolish the building at 241 Fifth Ave. and put up a boutique hotel. It was one of several projects taking place in the area near Madison Square Park during the real-estate boom.

However, construction on the proposed hotel never started on the building and the investors defaulted on a $22.75 million loan from Inland Mortgage Capital Corp.

"The timing wasn't right," Mr. Korolik said.

Inland Mortgage began foreclosure proceedings on the hotel project in 2009. As of September 2010, the investors owed the lender $31.94 million, according to court documents.

Victor Homes ended up buying that debt at a discounted price of $20 million, Mr. Korolik said. Victor Homes expects to begin work on the condo project in July, he said.

The condo units will range from one-bedrooms to four-bedrooms, Mr. Korolik said. Exact pricing for the units are still being determined, but the asking price for three-bedrooms will be in the range of $2 million to $2.5 million, he said.

This would be the latest acquisition for the New Jersey developer, which is focusing primarily on Manhattan real estate these days.

Earlier this year, the company bought a couple of art galleries in Chelsea on 29th Street for $12 million and plans to build a 100-unit condo building there.

Write to Joseph De Avila at [email protected]