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Mentioned in this Article:
Stephen G. Kliegerman

Stephen G. Kliegerman
President of Development Marketing

Wall Street Journal

Getting Up To Bat Is Tough For Newcomer Developers

By LAURA KUSISTO

A young developer who dreamed of launching his career by transforming his family's Williamsburg warehouse into luxury apartments has sold the project just as it was ready to start.

Ramon Maislen isn't alone in finding it more difficult to launch a career in boutique developments these days.

During the recent boom, newcomers flooded the New York City real-estate market, often beginning with one-off luxury condominium projects and then disappearing. Banks have since become loath to take risks on new developers.

The banks "have set the bar too high for small developers to participate this time in the market," said veteran developer Adam Gordon. "The opportunities for a fresh face without a large balance sheet are extremely limited without funding, which is the oxygen for these projects," he said.

For Mr. Maislen, the idea to launch a career in development started with a rundown warehouse that his grandfather purchased several decades ago.

When North Williamsburg and Greenpoint were rezoned to promote residential use in 2005, Mr. Maislen, then 24 years old, saw an opportunity to convert the 30,000-square-foot building with 12-foot ceilings and exposed brick walls to luxury condos or rentals.

"I could see that prices were just increasing and increasing," he said. "I got a couple of offers to sell the property, but decided to go about vacating the building and converting it myself to luxury condos."

He graduated from Columbia University's master's program in real-estate development in 2009, a brutal time for young people in the industry. He bounced between jobs as an analyst at Winthrop Realty Trust, investment banking for the Beige Group and doing private consulting.

But he continued to pursue the idea of striking out alone at 139 North 10th St. He lost a prolonged legal battle in New York State Supreme Court to force the tenants who occupied nine artists' lofts in the building to vacate. Instead he negotiated a buyout agreement with them.

The problem was that he didn't have the money for the nearly $1 million buyout.

He looked for a partner to get funding for the project, with help from Evan Haymes, a seasoned developer and co-founder of the Beige Group, a merchant bank that also provides advisory services.

Mr. Haymes ultimately advised him to sell it completely. "We were able to get four letters of intent, from real developers, but started to get the sense that an actual role would be substantially reduced from what he had intended," said Mr. Haymes.

During the last boom, financing flowed freely to new developers looking to make it big in the especially tough New York City market.

"Obviously with what the banks went through in 2008 and 2009 period, they're being a lot more conscious about who they're lending money to," said Steve Kliegerman, president of Halstead Property Development Marketing.

But that leaves today's newcomers struggling to get a break. It has always been relatively rare for young people to try small projects on their own, but it's become even more difficult.

"If they all define themselves linearly, as putting together an equity fund and building a boutique building…then you've created clones who only know how to think one way," said James Stuckey, dean of NYU's Schack Institute of Real Estate, of his students. He encourages them to look for alternatives to traditional development, such as disaster rebuilding.

As for Mr. Maislen, he ultimately got lucky and sold 139 N. 10th St. for $6.1 million just before the market turmoil following the downgrade of the U.S. credit rating. As part of the deal, he also sold the plans he developed with MNS Realty to convert the property into 29 luxury condominiums or rentals, with townhouses on the first floor.

The buyers are Brooklyn-based developers Fortis Property Group LLC and Simon Dushinsky. Neither could be reached for comment.

For Mr. Maislen, it still wasn't easy letting his family's longtime property go. "I spent a lot of years getting it ready to be developed. I spent a lot of blood, sweat and tears to get the tenant to vacate," he said. "It would have been my first large-scale development. But I'm a rational decision-maker."

Thursday, September 01, 2011