All eyes were on Midtown East last week after steel columns buckled inside the Pfizer building conversion project, forcing evacuations at the site and nearby buildings on Tuesday.
The structural failures at 235 East 42nd Street — where Nathan Berman’s MetroLoft Management and investor David Werner are converting the pharmaceutical firm’s former headquarters into 1,600 apartments — captured national headlines and sparked surprise among industry players, as well as a probe by the city’s Department of Investigation into their cause.
Though the building has since been stabilized, its near-collapse — and the spotlight it attracted — also raises questions about whether the negative press and concerns over the building’s safety will affect the success of the project, regarded by some developers and owners as a testing ground for asking rents and demand in a neighborhood undergoing a residential transformation.
Brokers who work on similar projects in the city told The Real Deal the issues were unlikely to impact tenants’ attitudes toward the building in the long term. Andrew Heiberger, who’s developing a conversion project in Midtown South with Marty Burger, said he expected the developers would still be able to collect top rents at the property, especially given demand driven by the city’s severe housing shortage.
“Once this is resolved… it’s going to be a non-issue,” Heiberger said. “Renters will move in and see a beautiful building built by Nathan Berman with all the amenities, and I think they’ll still pay full price.”
Berman, for his part, appears to agree. He told TRD, speaking hours after emergency authorities responded to the scene, that the incident was a “freak accident” that affected a limited area of the project.
Robert Rahmanian and Louis Adler, whose brokerage firm, Real New York, has worked with developers on several conversion projects throughout the city, including one located a block from the Pfizer conversion, pointed to Berman and Werner’s leasing timeline, which, even before the structural problems, wasn’t slated to begin until next year.
“The renter has a very short memory in New York,” Adler said. “Rob and I have worked on projects that were old funeral homes, old hospitals, and I can count on one hand the amount of times the tenant actually brought it up.”
Instead, Rahmanian and Adler said they expect other developers and landlords in the neighborhood to monitor whether the incident will delay Berman and Werner’s delivery of the units, as their original timeline aligned with a significant infusion of supply in the area. Berman said last week that he expected the efforts to resolve the issue to delay the project by only a few weeks.
“There is a concern that once MetroLoft comes to market, there’s going to be somewhat of an oversupply,” Adler said. “There are some landlords and developers who are interested, not that anyone wishes ill will on anyone else, in that project being pushed back a little. We haven’t heard that from them, but we imagine that’s what some of them are thinking.”
That could spell an uphill battle for the Compass Development Marketing team assigned to lease the project, which previously handled leasing launches at sizable conversions by Berman’s firm in the Financial District, including the 571-unit 55 Broad Street and the 1,320-unit property at 25 Water Street.
The demand for rentals is likely high enough to offset a flood of apartments into the neighborhood, according to Bond New York’s Douglas Wagner, and it’s unlikely the developers would put all 1,600 units on the market at once.
While he acknowledged he didn’t know of any updated plans, Wagner said it was likely the developers were aiming to list apartments on a rolling basis, which he said is common at large projects and a tool he’s relied on over the years when marketing conversion projects in the Financial District.
He said the developers would likely release sets of floors over about a year, continuing work on others while the first waves of tenants moved in.
“They’ll probably open them up on a strategic release basis, which gradually takes the pressure off,” Wagner said. “If you maintain a strategic level of available apartments at one time, you can command better rents.”
However, Heiberger said that or similar plans could pose a challenge for Berman and Werner, given the press about the structural failure.
“I don’t think people are going to feel comfortable being the first one to move in,” Heiberger said. Even if the developers create separate entrances for residents to avoid seeing the construction, “they’re going to say, ‘you know, let’s wait until all the sides are figured out before I move in.’”
But keeping the units off the market until construction is complete could also place significant strain on the project’s finances, especially if the Department of Buildings and other regulators impose new bureaucratic hurdles to ensure the building’s safety, Heiberger said. Those delays could lead to issues with the project’s lender.
“It’s anybody’s guess how the DOB is going to handle this, and all the other exterior extrinsic things that could hold this up,” Heiberger said. “That’s a big, big building. They need to start collecting cash flow.”
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