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Blackstone’s Schwarzman Sees Opportunities in Europe Real Estate  Bloomberg



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Photo-Illustration: Curbed; Photo: Peter Kramer/Getty Images

When Bob and Suzanne Chute of Naples, Florida, bought a three-bedroom spread at the Plaza in 2008, they seemed a little awed by their own daring, dropping $14 million on an apartment they’d never even seen. (“We are psyched, we are so psyched,” Bob, an entrepreneur, told the New York Times then.) The couple was charmed by the computer renderings of the views and, like a lot of buyers at the time, so dazzled by the opportunity to buy in such a famed building that they proceeded without much, if any, caution. “There was huge hype. People were very excited by the stature of the building and the wonderful location,” says a broker who sold some of the sponsor units after El Ad converted the hotel into condos in the mid-aughts. Such was the sales mania in those early days that the marketing team at the time reported working 17-hour days. The Chutes’ apartment, which has pretty Versailles-like paneling and views of Central Park and Fifth Avenue, is now listed for $13.9 million.

Downstairs, a three-bedroom on the ninth floor with Central Park views, a slicker renovation by Schoos Design, and a stylish art collection sold to an LLC for $14.375 million in 2008. It’s now listed for $14.15 million. Meanwhile, a four-bedroom duplex on the 19th floor with “one of the largest living rooms” at the Plaza, per the listing (it’s 1,000 square feet) and a gas-burning fireplace is trying for $15.9 million, a little more than the $15.1 million the owners paid in 2008. But it’s been listed since May. In 2008, the average Plaza condo sold for $3,726 per square foot, according to Mansion Global. The average price per square foot now is $3,836, according to an analysis by Urban Digs.

The prevailing wisdom is that you pretty much can’t make a bad real-estate investment in Manhattan. Plaza buyers might disagree. For many, owning an apartment at the fabled hotel has meant losing money or at best breaking even on resale. Sure, the condos were wildly overpriced at the start, but it’s been 15 years since sponsor sales started closing — years in which billionaires and oligarchs and other assorted LLCs set ever-higher Manhattan records in neighboring buildings like 432 Park and 220 Central Park South. These days, many sellers aren’t even trying to get more than they paid in 2008. “Everyone thinks their home is a palace, but at the end of the day, the market is the market and they become more realistic,” says a broker who has sold extensively in the building. So how did owning a condo in an iconic building in arguably the best location in New York City become such a terrible bet?

The Plaza launched sales at almost the exact same time as 15 Central Park West, back in 2005, and at first, the brokerage community saw the two elegantly old-fashioned new-development condos on Central Park as being neck and neck, says Jonathan Miller of appraisal firm Miller Samuel. If anything, the Plaza was the more sought after. “I remember at the beginning everyone was saying, ‘It’s old Europe, all these Europeans are buying there.’”

But once closings started, 15 Central Park West pulled ahead — it was modern but also somehow unapologetically baronial with excellent layouts and enormous windows designed to perfectly frame its Central Park views. It was, in other words, what people thought an apartment in the Plaza would be like but wasn’t. Condos there quickly started flipping for twice what buyers paid.

It was another story at the Plaza. In January 2010, the Times reported that the last 11 resales had lost money, some of them nearly half their value. Hedge funder Oscar S. Schafer, for example, paid $14.6 million for a three-bedroom in May 2008 and sold it a little over a year later for $8.5 million.

And then there was Tommy Hilfiger’s penthouse, which famously took 11 years to sell, cost the fashion designer $25.5 million — he reportedly dropped another $20 million on the renovation — and went, in the end, for $31.5 million. (“He missed the market,” says one broker, who told me he thought Hilfiger could have got $55 million if his ridiculous $80 million asking price hadn’t doomed the listing.) Not even the Candy brothers, standard-bearers of the London trophy-condo craze, could flip a unit there. The penthouse they paid $26.2 million for and buffed to an oligarch-worthy sheen with custom finishes and furniture sold for $32 million. They’d listed it for $59 million. There were some exceptions. Apartment 1109, an unlisted unit sold this fall for $65.8 million in a deal between two limited-liability companies, $20 million more than the buyer paid in 2008. The apartments with Central Park and Fifth Avenue views and recent renovations usually do a lot better courtyard-facing apartments with original finishes.

The problem, brokers say, is that by the time the prices at the Plaza caught up to the market again, it was already seen as passé, a bum investment. “When you’re selling a new development for the first time, you have a very wide audience. Then the finishes get dated and you lose the new-development crowd,” says a broker. “There are buildings that maintain their value, like the Robert A.M. Stern buildings. But most other buildings have their day and that’s it.”

And the Plaza’s day, as a condo anyway, was the gaga presale era, back before buyers saw the actual apartments. (The Chutes weren’t the only ones buying off renderings — this was before riding up in construction elevators to scope out the view was common practice in new development sales and El Ad refused to let buyers see the under-construction spaces, which doubtless added to the project’s allure. And the subsequent disappointment.) It isn’t a has-been like some of the old-line co-ops with anemic sales or even a once-hip building that went out of vogue like Olympic Tower. It just missed the mark.

“Everything’s a little off; it’s not like you think it would be,” says Julie Satow, who wrote The Plaza: The Secret Life of America’s Most Famous Hotel. “When the original sales were going on, it was a crazy market and people paid ridiculous amounts of money without seeing their units, so there were a lot of lawsuits.”

The most famous was that filed by Russian hedge-funder Andrey Vavilov, whose wife reportedly burst into tears when she saw that the penthouse they’d purchased — the penthouse she’d expected would help her break into New York society and whip up the envy of her friends back home. Instead of a showpiece she found herself in an attic. “The narrow windows were small and oddly shaped, beginning partway up the wall and then sloping inward into the apartment, more like skylights than a wall of glass,” Satow writes in the book. “Outside, enormous drainage grates and large setbacks blocked what was supposed to be unimpeded views of Central Park.” Even worse, an enormous column housing the air conditioning system was right in the middle of the living room.

The ungainly renovation wasn’t all El Ad’s fault. The Plaza is landmarked, which tied the developer’s hands when it came to some design features — those weirdly placed columns, the little windows. And the tippy top of the building had been an attic of sorts — it was the servants’ quarters, typical of a building of that era. But Satow says buyers also complained about cheap finishes: oak veneer over plywood instead of solid oak, Chinese marble instead of Italian, hallway carpeting cut and pieced together using a cut-rate method known as “patch-’n’-match.”

Buildings do recover from bad finishes — by now, most residents would have ripped them out anyway. But overtime, it came to seem that there was a cloud hanging over the Plaza. Besides the lawsuits and the bad resales, there was the story of the woman who got accidentally trapped in the garbage room for seven hours, her screams unheard by her rich, absentee neighbors. Something was also just lost in the conversion, Satow says. The hotel, which was always the draw, got a downgrade when the building’s best real estate was given over to condos. The Palm Court, basically the only real restaurant at the hotel these days, is considered mid-tier (it has 3.4 stars on Yelp). And then there was the whole Todd English Food Hall debacle. “Maybe if the Oak Room were like the Polo Club it could help with the cachet,” she offered. “But the bad reputation it got initially, then the fact that many of the iconic spaces never reopened or became anything great. It’s hard to recover from all of that.”

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There is more pain to come in the office real estate market across the U.S., with maturing debt needing to be refinanced and a wave of expiring leases, but there is also what may seem at first brush to be a counter-intuitive message being sent to top tier companies by real estate intelligence company CoStar Group: prepare for an office space shortage.

You read that right: amid a commercial real estate market across U.S. downtowns being described in apocalyptic terms, CoStar sees a shortage on the horizon, with one key caveat for top companies to bear in mind.

The more office real estate that disappears – an estimate recently given to CNBC by the CEO of major bondholder TCW Group forecasts up to one-third of office real estate still to be wiped out – the more the major players in the market will be vying for the top tier of Class A commercial space. Add to that the fact that more companies are headed back to an in-office reality closer to pre-pandemic expectations, and competition may be hotter than the weaker end of the market suggests.

CoStar’s call of an upcoming office space shortage is predicated on a look at the current data on leasing and construction activity compared to recent market history. As office occupiers scrutinize their footprints more carefully, and in the months ahead leases that were executed before the pandemic continue to approach expiration, newly constructed buildings aged 0-3 years are proving to be the winners. They have attracted over 175 million square feet of net new occupancy since the beginning of 2020, an average of 12.7 million square feet per quarter. By comparison, the quarterly average from 2011-2019 for similar properties was 11.7 million square feet. From 2008-2010, during the Great Recession, the quarterly average was 13.6 million square feet.

“Modern, premium office space remains in demand, just as it has historically, even during difficult economic times,” said Phil Mobley, national director of office analytics at CoStar Group.

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