Beyond Walker Tower
The Real DealAugust 01, 2012Twenty-nine-year-old Michael Stern was riding the elevator in a Verizon-owned building at 212 West 18th Street when he found out that Lehman Brothers had filed for bankruptcy.
Stern’s company, JDS Development, wasn’t actively acquiring properties at the time, and he’d been dragged “kicking and screaming” by a broker to check out the prewar building, which Verizon was using as storage for copper wire. But once Stern saw the views from the upper floors of the Art Deco tower, he knew he wanted to turn it into residential condos.
Luckily for the up-and-coming developer, the Lehman Brothers collapse — and its subsequent devastation — discouraged others from bidding on the building, giving him the opportunity to buy it with partner Property Markets Group for just over $25 million. Other industry pros thought he was crazy, he said. It was risky, especially in the midst of a financial crisis, and the commercially zoned building did not look ripe for residential conversion.
“A lot of people couldn’t understand how I’d make this building work as a residential building,” Stern recalled, “but I knew the bones were great.”
Four years later, it looks like Stern made the right move. The conversion of what is now known as Walker Tower (after its architect, Ralph Walker) is complete, and it’s one of the only new development condos currently on the market. Stern, now 33, is working with residential brokerage Core to sell the building’s 50 units, some of which have already traded for up to $3,400 per square foot, he said. Despite having just hit the market in June, the building is already more than 25 percent sold.
“That deal is a total grand slam,” said Robert Knakal of Massey Knakal Realty Services, who has done deals with Stern but was not involved in the Walker Tower deal.
The soon-to-be-converted Verizon building at 435 West 50th Street Walker Tower has, to some extent, propelled JDS into the spotlight, particularly in New York City, where Stern previously focused mostly on lower-profile, outer-borough projects. And Walker Tower isn’t the only project JDS is doing with PMG, the Manhattan-based real estate acquisition and development firm where Extell’s Gary Barnett cut his teeth. JDS and PMG now have plans to develop a 70-unit condo at 435 West 50th Street, another Verizon building and a 100,000-square-foot retail and residential project at 105 West 57th Street.
John Cetra of architecture firm Cetra/Ruddy, which oversaw the conversion of Walker Tower, said Stern may be able to build on his current momentum.
If Stern “is able to keep that going, with the right properties, the right location, the right timing,” Cetra said, “he could be a real player.”
JDS, working alongside PMG, is currently one of the city’s most active development firms, brokers said.
Last year, JDS and PMG paid just over $20 million for 101,000 square feet of the West 50th Street Verizon building, including the penthouse, lobby and the 10th through 17th floors. The 70-unit condo, also designed by Cetra/Ruddy, is slated to hit the market in the spring of 2013.
Perhaps JDS’s highest-profile project with PMG, however, is at 105 West 57th Street, where the partners in May paid Starwood Capital Group $40 million for a majority interest in a development site.
In conjunction with Starwood, which retained a stake in the property, JDS broke ground on a 50-story condo and retail tower last month. Completion is slated for 2014. Meanwhile, JDS is planning two other developments in Soho and on the Far West Side, but Stern said he couldn’t yet disclose details about them.
JDS also has a number of projects in the outer boroughs. The company is finishing up construction of a 51-unit rental building at 202 Eighth Street in Park Slope, a site it bought for $5.8 million in early 2008. Leasing of the one-, two- and three-bedroom apartments, where asking rents will be $53 to $54 per square foot, is set to start in October.
In addition, JDS and PMG are planning a 50-unit rental building at 50 North First Street in Williamsburg. Brooklyn developer Israel Gold had previously owned the property, where a construction mishap in 2009 caused a roof to collapse. Last year, JDS paid $8.75 million for the defaulted note on the property and another $1 million to take control of the deed. Construction is slated to be completed by the end of the year, with the units set to come online in January 2013.
As if that weren’t enough, JDS is also ramping up its activities in Florida. With PMG, JDS recently launched a seven-residence development in Bal Harbour called 95th on the Ocean. The company also has plans for projects in nearby Aventura and Hollywood, Fla.
Getting all these projects in the ground has kept Stern busy. “I don’t sleep very much,” said Stern, whose youth makes him a rarity in the world of New York City development.
“If you look at the developers who have the most notoriety in town, they tend to have been in the market for a longer period of time than Michael,” Knakal noted.
A builder’s builder
Still, it’s been a long road for Stern, who does not have a college degree and said his parents are “very much the opposite of wealthy.”
He grew up in the village of Hewlett Harbor on the south shore of Long Island. His father owned an auto body shop and his mother was a nursing executive.
“Being a kid on Long Island, I just fell in love with the New York City skyline,” Stern recalled. “Heading into the city, I’d see the buildings rising in the distance, getting bigger as I got closer. I thought that if I could one day have an impact on that skyline, actually contribute to it, then I could look back and say I had a pretty good run.”
He started out in real estate in Miami, volunteering his services as an assistant project manager with a residential development firm. Eventually, he was hired as a project manager. After only two years, he formed JDS and began building single-family homes and, later, multifamily projects in and around Miami.
Those who work with Stern say he is unusually intense and focused.
“He’s like a freight train: He just does, does, does,” said Kemper Hyers, the head of design at Starwood Capital Group, who worked closely with Stern on the interiors of Walker Tower.
“Getting midnight e-mails from Michael is part of the experience,” Cetra added.
In 2004, Stern turned his focus to New York, building low-rise apartment buildings in the boroughs. With funding from bank loans and institutional partners, Stern said, the firm grew quickly, and has since developed several hundred units in Brooklyn and Queens, mostly two-family houses in Rockaway and East New York, though he also bought and sold a few office properties in the Financial District.
“It was very profitable at that time, before the market fell out,” said Stern. “The lending spigots were definitely open. Back then, I was a little too naïve to realize it was risky.”
Still, by the end of 2007, Stern was concerned about high prices for New York properties, and the company had slowed down its activities.
“Prices were too frothy for us,” he said. “We kind of bowed out of the market.”
Instead of acquiring new properties, JDS focused on completing construction on projects it had already begun and sold off some of its land in Brooklyn.
Walker Tower was one of the first buildings JDS purchased after this hiatus. And it wasn’t easy: After going into contract on the building, Stern lost his financial partner (a large institution he declined to name), and was still looking for an investor four days before the deal was set to close.
That’s where PMG came in. Now a national firm, PMG was founded in New York City in the 1990s by Kevin Maloney, along with Barnett and Ziel Feldman, who went on to form HFZ Capital Group.
Maloney recalled the first time he’d ever heard of Stern. “A friend of mine called me and said, ‘There’s a guy who has a contract on [the Verizon building]. I know you’ve never met him, but his financial partner fell out of bed and he’s looking for a new one. We’re recommending you guys at PMG.’ ”
In fact, PMG had already looked at the building, but decided against buying it after concluding that the square footage was smaller than advertised. But Stern, who had remeasured the space himself, convinced them otherwise.
It was a risk to partner with a relative unknown, acknowledged PMG executive director Elliott Joseph. But, he said, “We were willing to take a chance, because we liked the property and we liked him.”
Their bet seems to have paid off, with some help along the way from Starwood, which recapitalized Walker Tower in 2010, providing an equity injection. (Stern said Starwood “open[ed] up better financing options at a time when construction lenders were not very active.”)
Walker Tower is “one of the best new conversions I’ve ever seen,” said Robby Browne, a residential broker at the Corcoran Group who has shown units in the building to clients, but has no affiliation with Stern.
Stern’s background as a builder has been evident at Walker Tower, associates said.
Indeed, Stern insisted on moving every staircase andevery elevator in the building, and punching new windows to bring more light in.
This hands-on approach helped him wring the most possible value out of the building, Knakal said.
“The things that he did to make that development successful are things that a lot of other people didn’t see,” Knakal said.
“Re-measuring the space, figuring out ways to create additional FAR — he did a brilliant job of maximizing every square inch.”
Of course, the project has also benefitted from the current lack of high-end condo inventory downtown, brokers said.
JDS also has something of a unique approach among development firms in that it has an in-house construction division. That helps reduce tension between the construction manager, design team and owner, Cetra said.
“There’s always a certain level of adversity between the three,” he said. “With that eliminated, the team feels much more cohesive. Everybody’s on the same page.”