Square Feet

As a Park Runs Above, Deals Stir Below

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When construction loans grew scarce two years ago, property development along Manhattan’s High Line, which had been fast and fierce, stumbled. One prominent project that still seemed to be moving along was a new branch of the Whitney Museum of American Art at the southern tip of the elevated park.

Richard Perry/The New York Times

A fence marks the current end of High Line Park, which will eventually be extended north to 34th Street.

While planning for that six-story museum at Washington and Gansevoort Streets is well under way, there are also signs that other development is picking up in this real estate submarket viewed as robust relative to some other Manhattan neighborhoods.

The first part of the High Line, a landscaped city park created on abandoned elevated rail tracks that eventually is to stretch from Gansevoort Street to 34th Street, opened in June 2009, running north from Gansevoort to 20th Street. The second of three segments is expected to open in spring of 2011 and extend the High Line to 30th Street.

Now, among the dozens of projects planned along the length of the High Line, some have changed hands and a few were sold by banks after developers defaulted, but most are still on track for development. Some developers are waiting for construction loans to become available, and other longtime property owners are just waiting for the right moment to move forward, but all agree that a submarket has been created, the strength of which could not have been envisioned just five years ago.

Real estate owners along the first High Line segment, a large chunk of which spans the meatpacking district, said they were already starting to feel the park’s positive effects on real estate values.

“For those who thought that area was a flash in the pan, something that already happened, they’re going to be pleasantly surprised with the next dimensions of the change in that neighborhood,” said Joseph J. Sitt, the chief executive of Thor Equities, a real estate development company that owns 446 West 14th Street, which connects directly to the High Line.

Mr. Sitt said Thor was rebuilding 446 West 14th Street and would install a women’s clothing boutique, called Kritzia, by the fall, as well as a restaurant and a club lounge with a possible rooftop space by the spring of 2011.

Hampshire Real Estate Companies of Morristown, N.J., has owned a warehouse at 259 10th Avenue between 25th and 26th Streets for many years. The company is prepared to overhaul the interior of the hulking structure, which was designed by the architect Cass Gilbert, but is waiting for the right tenant.

“It couldn’t be better located,” said A. Eugene Kohn, chairman of Kohn Pedersen Fox Associates, the architecture firm hired to retrofit the building.

Other longtime property owners were poised to develop when the recession hit. Edison Properties of Newark had planned two towers with 869 condominium apartments on a block west of the High Line between 17th and 18th Streets. The land is still a parking lot.

Now, Edison executives are biding their time as they prepare to clean up the soil on the property, which they have owned more than 20 years. Edison will also assist the city in creating a public park east of the High Line to 10th Avenue between 17th and 18th Streets, “like the Spanish Steps” in Rome, said Ken Miller, an Edison executive vice president.

Developers who have owned their properties for less time, perhaps even those that bought at the top of the boom, may not have the luxury of waiting out the market. Citibank has been trying to sell a slightly cantilevered shiny metal-skinned condominium building at 245 10th Avenue and 25th Street, said Erik Ekstein, the owner of Ekstein Development, who said he was asked if he wanted to take over the project. He declined.

Mr. Ekstein is developing a 91-unit condominium building at 540 West 28th Street and a 30-unit rental building at 537 West 27th Street, midway between the High Line and 11th Avenue, along with L&M Development Partners, a firm based in Westchester County that typically develops low- and moderate-priced housing.

The projects will not be built as affordable housing, because two years ago, L&M couldn’t buy enough development rights from landowners immediately beneath the High Line to make moderate-priced units feasible, said Ron Moelis, a principal with L&M.

“People were valuing those development rights so high, they priced themselves out of the market,” Mr. Moelis said. Since the economic downturn, “there are maybe some people who need some money or liquidity, so more development rights have come on the market the past year or so,” a boon to property developers.

Some developers have been able to exploit distressed situations. Equity Residential of Chicago announced at an earnings meeting earlier this year that it was leasing a parcel at 23rd Street and 10th Avenue, where the previous developer had poured a foundation before running into financial trouble. Equity plans to build 111 apartments and 9,400 square feet of retail space, and construction has already started.

Another parcel at 500 West 21st Street and 10th Avenue changed hands in May after its owners group, including the developers Charles Blaichman and André Balazs, defaulted on the loan.

Sherwood Equities, a real estate development and investment firm based in New York, picked up the property, which has a 19,000-square-foot garage on it, for a fraction of the $50 million the original owners paid in 2007, said Ryan Nelson, a Sherwood senior vice president.

This article has been revised to reflect the following correction:

Correction: August 17, 2010

An article in the Square Feet pages on Wednesday about new development along the High Line in Manhattan misstated the status of an apartment building at 23rd Street and 10th Avenue planned by Equity Residential. Construction has already started; it is not the case that it will begin this year.

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