August 27, 2012
SL Green, Naftali Group, and Harel Insurance and Finance bought the site at 33 Beekman St from Jiten Hotel Management last week and will break ground in April on a 30-story Pace University dorm. Pace is likely counting on a tax exemption to make the project work, and the viability of several other student housing proposals hinges on the City’s tax assessment once construction is complete. Until then, 33 Beekman is a gamble. (Someone at Pace Law School really should teach a class on this stuff.)
A source familiar with the deal tells us Pace will take a 30-year condo-interest in the ground lease from the developers when construction finishes in August 2015 (the project is rendered above). Only once before—for Cornell’s Upper East Side digs—has a college or non-profit worked ahead with the NYC Department of Finance on whether a tax exemption on a condo-interest in a ground lease would be a go; the City ruled that Cornell’s condo ownership of the property counted for enough to say a 501(c)(3) owned it. Other student housing developers have simply awaited the City’s post-construction tax assessment so as not to raise red flags about how many of these things are in the works and thus give the City an opportunity to quash them all at once.
If the City doesn’t grant the exemption, the developers and/or Pace would be stuck with the tax payments, a tough proposition on low-profit margin student housing. If the City labels the Pace dorms at SL Green’s 33 Beekman and its 180 Broadway (above, a 609-bed project that’ll get assessed after its January delivery) as tax exempt, it removes some of the risk for future student housing developments that are planning on the ground-lease condo interest (though it should be noted that education-supportive Mayor Mike’s term ends next year).
And there are plenty Manhattan student housing projects in the works, according to SNR Denton real estate head Gary Goodman(flanked by colleagues Sabrina Khabie and Antoine Khader, who repped 33 Beekman lender German bank Helaba Landesbank Hessen-Thüringen Girozentrale with him, as well as the lender on 180 Broadway; no doubt they’re catching up on their Bisnows). Gary is working on a similar deal for a not-for-profit’s office, and he says he’d set up the same structure for another lender client if it wins the competition for a deal to be finalized next month. More are in the talking stages.