Trump SoHo Debt on Block

By CRAIG KARMIN for Wall St Journal

A Los Angeles investment firm is in advanced talks to buy the debt for the Trump SoHo, the soaring 46-story condo-hotel, setting the stage for a possible battle for control of the high-profile project.

CIM Group is close to a deal with the project’s lender, iStar Financial, to buy debt with a face value of about $275 million, say people familiar with the matter.

It’s not clear what price CIM is willing to pay, but it would likely be at a discount to the loan’s face value because of the challenges the project is facing in selling condo units.

The talks have been going on for about a month and the two sides are hoping to reach an agreement in the next few days, according to people familiar with the matter. Even so, a deal could still falter, they said.

The negotiations to buy the loan come less than a year after the Trump SoHo opened in April. The project was developed by a venture between the Sapir Organization and Bayrock Group, both based in New York, and has a licensing and management agreement with the Trump Organization. Despite strong occupancy rates and cash flow at the hotel, condo sales have to hit a certain level for the project to succeed financially.

Trump SoHo, at Spring and Varick Streets, had closed on the sales of about 20 of its 391 units as of midsummer. To boost business, Trump SoHo in September brought in CalCon Mutual Mortgage, a San Diego lender to offer loans to potential buyers able to put down deposits of 40% to 50%. The developer also agreed around the same time to cut prices by as much as 25% for buyers who were in contract but had not yet closed.

Representatives of the developer didn’t respond to requests for comment. An iStar spokesman and a CIM spokesman declined to comment.

Numerous investors have been buying debt in challenged real-estate developments with an eye towards taking them over in foreclosure actions if the owners default. The status of the debt on the Trump SoHo that CIM is negotiating to buy isn’t clear. Under a typical condo construction agreement, a condo developer has to sell a certain percentage of units by an agreed-upon date or risk being in default on loans.

If CIM buys the debt, the deal would mark that second high-profile Manhattan acquisition by the firm in 2010. In the first deal, it took control of one of the most prominent development sites in Manhattan, which had been the location of the Drake Hotel.

CIM formed a partnership with Harry Macklowe, the financially troubled developer who had controlled the site. That partnership, in turn, paid off the debt holders who were threatening to foreclose.

Condo-hotel projects were popular during the boom years because they offered buyers the opportunity to own a property and also collect a portion of the hotel revenue from it when they’re rented out.

Donald Trump, head of the Trump Organization, has a history with condo hotels and helped reinvigorate the business in the U.S. when he opened the Trump International Hotel & Tower in Manhattan in 1997.

But many condo hotels have been hard hit by the downturn, partly because lenders are more reluctant to extend credit to buyers of the units than they are regular condos. Trump SoHo also has faced some unusual issues. Under zoning rules, condo owners are permitted to stay in their units no more than 120 days a year. On other days, the units can be rented to hotel guests.

Trump SoHo took on national prominence in 2006, when Mr. Trump unveiled the project on his TV show, “The Apprentice.” His children, Ivanka, Eric and Donald, got involved in the building’s design decisions and marketing.

Under their marketing and licensing deal, the Trumps were also given an equity stake in the project.

Initial interest looked promising. About 1,000 investors submitted “reservations,” or non-binding expressions of interest to buy, say people familiar with the matter. Prices were set around $3,000 a square foot, with studios starting around $1.2 million.

But after a flurry of early buying activity, interest stalled during the economic downturn. Many of those who made reservations never moved forward with deals.


Be Sociable, Share!
Leave a Reply