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Old Posted Jan 3, 2009, 9:27 PM
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http://ny.therealdeal.com/articles/extell-plows-ahead

Extell plows ahead
Will Gary Barnett be the last man standing in New York real estate?




By David Jones
January 2009


Three years ago, an up-and-coming real estate firm called Extell Development Company was denied the right to develop the controversial Atlantic Yards site, despite outbidding rival Forest City Ratner by $100 million.

Now, the world has completely changed for both companies, with fortunes rising for one and falling for the other. The credit crisis has halted the $6 billion Atlantic Yards project in Brooklyn for Forest City Ratner, while Extell has emerged as the most active developer in the rehabilitation of Manhattan's West Side.

If Extell's chief executive Gary Barnett is accurate, when the market finally reaches bottom in the near future, he might emerge as one of the last men standing in New York City real estate.

"In most of our completed projects, we don't owe the banks a dollar," said Barnett. "We are not under pressure to sell, and have a lot more flexibility to [ride out] today's market."

On Jan. 8, the New York City Department of Planning is scheduled to begin public debate over the latest plans to expand Extell's Riverside South project. The so-called Riverside Center project, located on Riverside Boulevard between West 59th and 61st streets, would include five mixed-use high-rises; 617,000 square feet of commercial space (including a cinema, automobile showroom, hotel and retail); a public school; 1,800 parking spaces; and 3.8 acres of privately owned park space that would be accessible to the public.

The plan has run into fierce opposition on the Upper West Side, as political leaders and planning advocates argue the site would overwhelm the area's infrastructure. Barnett argues that he has strongly considered the site's environmental impact.

"In terms of the density, we really have been very modest in our desires," Barnett told The Real Deal in an interview. "I think our project is very sensitive to urban development and will not put a strain on the infrastructure."


Given the realities of the economic environment and the lengthy Uniform Land Use Review Procedure (ULURP) process at the Department of Planning, Extell estimated the project would not be completed until 2018.

Still, that is not stopping the opposition from organizing now.

"Nobody should lay down arms on the presumption that the project isn't going to get built because of the economy," said Micah Lasher, an aide to Congressman Jerrold Nadler.

Jonathan Miller, president of Manhattan-based appraisal firm Miller Samuel, said that Extell's vision for the West Side would likely be realized only after a deep and lasting economic downturn, which has yet to fully play out.

"I would assume this is a long-term view because of the lack of financing and the number of units that would need to be absorbed by a market that is constrained by tighter credit and a recession," said Miller.

However, other observers say that if anybody can pull this off, it will be Barnett.

"I think Gary gets to go ahead, first of all, because he's got a lot of unique locations," said attorney Carl Schwartz, chairman of the real estate department at Herrick Feinstein, who has represented Extell on several projects. "He also has great relationships with his lenders."

Based on the current state of the market, Barnett's relationships with his lenders are not just "great"; to some, they defy reality. He has some of the biggest names in the world backing his projects, and even small community banks that won't touch other projects are working with him.

In June, Extell, the Carlyle Group and RREFF, the alternative investment unit at Deutsche Bank, were able to secure a $613 million construction loan for two of Extell's luxury towers at Riverside South, marking it the largest construction loan in the country last year.

Deutsche Bank led a consortium of nine banks that syndicated the deal for the two buildings, which will be located at West 62nd and West 63rd streets, between Riverside Boulevard and Freedom Place South, a new street. The 38-story tower will have a mix of condo and rental apartments, while the 23-story building will have just rental units.

"We do have a very good reputation in the banking community for delivering what we say we are going to deliver," said Barnett. "They feel comfortable that when they give us money, we're going to put it to good use.

"If you don't deliver the product you promise, there's always the chance people can't close on the units," he continued. "The days of the easy money financing on Wall Street are over."

Last month, Barnett was able to secure financing for another one of his new condominium projects at 535 West End Avenue. Bank of America, Helaba Bank, Capital One and New York Community Bank agreed to finance a two-year, $135 million construction loan for the 27-unit condominium.

As The Real Deal previously reported, the developer is being asked to put up 40 percent in equity.

____________

Barnett is not without his detractors, which include community groups, building residents and fellow real estate moguls.

In a third attempt to derail the Riverside South project, rival developer Donald Trump filed suit in October, alleging that Extell and the Carlyle Group engineered an illegal purchase of his 77-acre site on the West Side.

The suit, filed in New York State Supreme Court, claims that $16.5 million was transferred to the Cheng Group, Trump's partner in the deal, in order to influence the $1.76 billion purchase of the property.

Barnett denied that there was anything illegal or improper about the deal and characterized the suit as Trump trying to revive a dead issue.

"If you've gotten anywhere near Donald Trump and you haven't been sued, you're doing something wrong," said Barnett.
"It's just Donald being Donald."
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