Michael Stern changed the city's skyline. Can he weather the impact of coronavirus on luxury property?
Michael Stern was talking — he talks a lot — but I was not really listening. He may have been going on about the white onyx bathroom floors. Or perhaps it was the copper roof that was restored with materials from the original 1925 supplier. "I geek out on that stuff. I think it's supercool," Stern had confessed to me. Or maybe it was the mind-boggling complexity of building an impossibly slender, 1,421ft (433m) tower in the middle of Manhattan, threaded like a needle through a historic landmark?
I could not hear him because I was in a trance, mesmerised by a singular view of Central Park. It hit me just as I turned right after stepping from the elevator on the 43rd floor: through floor-to-ceiling glass windows was an uninterrupted and perfectly centred vista of Frederick Law Olmsted's grand creation.
It was thrilling. I felt as though I had transcended the maw of the city and the park had been rolled out like a fine tapestry before me. Eventually, my dominion over it felt a bit obscene. From my perch, it seemed I might plunge like a high diver and splash down in the Onassis Reservoir as if it were my backyard pool.
It was early March and I had joined Stern for a tour of 111 West 57th, arguably the most dazzling of a new clique of spiny residential towers at the edge of the park that reshape the city's skyline. Known as "supertalls", they are engineering marvels that could not have even been built a decade ago.
They are also monuments to an era when billionaires ruled the earth, and Russian oligarchs, Chinese princelings, Middle East sheikhs and western hedge fund managers poured money into Manhattan and central London in search of lavish apartments that doubled as safe-deposit boxes.
When Stern and his partners broke ground on their tower in 2014, the market for "luxury apartments" in New York City had become so overheated that the term had ceased to have much meaning for units that ranged in price from a few million dollars to tens of millions. Demand was such that Stern would sell out a building based on a plan and a showroom.
That is no longer the case — even before the coronavirus pandemic. For the past few years, buyers have taken their time, with the confidence that merchandise would not vanish if they waited, and that suddenly pliable brokers would only sweeten the deal.
That would seem ominous for 111 West 57th, which is now close to completion after years of delays and legal bloodletting among its backers. Its units are priced from US$17m ($28.5m) to more than US$50m ($84m) apiece. Sales have been slow.
Still, when I got around to peppering Stern with questions about the weak market, he swatted them away. His tower, with just 46 full-floor apartments — each with its own claim on that extraordinary view — was not really subject to the usual market forces, he explained.
Nor, supposedly, were his buyers. "I don't know that the barometers you use for the general market really apply here. This isn't that," he told me in a living room made to look like a billionaire's model residence. A bottle of champagne was resting in a silver ice bucket on an end table — presumably because billionaires come home each evening and toast the good life.
Neither of us then realised a novel virus that had originated in central China was swirling through the city outside. A market slide that was under way would accelerate in the coming days into a full-blown calamity. We were hurtling into another era — one with its own dangers and assumptions — and we did not even know it.
Michael Stern is currently the most intriguing of that unique tribe of brash, visionary — and occasionally disreputable — men who have built the skyscrapers of New York. We call them developers. Stern is just 40. But over the past decade he has taken his place alongside the heavyweights by putting up a series of buildings that have been both commercial and critical successes. New York developers possess diverse talents.
Some are brutally economical, à la Fred Trump. Some are showmen, like his son, the president. There are buccaneers who conjure beauty at the edge of bankruptcy, like the legendary Harry Macklowe. Some excel at the dark arts of securing zoning permits. Others can game tax benefits. Many are talented liars and seasoned litigants.
Stern, who never attended university, prides himself on his "nuts and bolts" knowledge of construction. Yet he also has a taste and sensibility that can make an architect's pulse quicken. "He's commissioned some very good architecture," says Daniel Kaplan, the senior partner at FXCollaborative, the New York architecture firm. "The thing that's really interesting about him is that all the things people say you can't do — or you can't do for the money — he says, 'Forget it!'"
Part of the thrill of following Stern is not only watching to see what he will build next but whether he will fall flat. "He's one of those people who could crash and burn," says another architect.
One person who has worked with Stern suspects that the young developer is willing to risk everything for glory. "He wants to be great. He wants to be Harry Macklowe, and he's willing to go bankrupt a few times along the way."
Stern has piled up lawsuits. Two years ago, 111 West 57th was briefly pushed into foreclosure by one of its investors. A one-time partner has accused him of forging his signature on loan documents. The young developer denies this and cheerfully waves it all away. "Litigation is inevitable in this business," he told me. "If you're not being sued by people, you're not doing enough work."
Stern grew up in an Orthodox Jewish enclave on Long Island, the son of an auto-shop owner and nurse, and was a middling student. Instead of university, he went to Florida. "I think everyone who grew up in Long Island wants to get out of Long Island," he told me.
Although he is sparing with the details, he says he went to work on building sites for a developer, eventually managing construction crews. It was the late 1990s, and Florida's roller-coaster housing market was on a sharp upswing. So, when the work day ended at 3pm, Stern began to build his own single-family houses on the side and flip them. "I'd buy a house, knock it down, build another," he recalled. "The timing was good."
In 2002, he returned to New York and began putting up single-family homes and small, unremarkable apartment buildings in the outer boroughs. It is the same way that Fred Trump made his fortune. Part of the secret to that particular trade is absolute economy: using features and fixtures that can be repeated again and again, and minimising at all cost the need for skilled labour.
Stern was actually shy — almost meek — in those days, according to someone who encountered him then. The New York property market was booming and he eventually linked up with David Juracich, an easy-going Australian expat who yearned to leave his job as a derivatives trader to join the developer trade. They made an odd couple: one tall and athletic, with reddish hair, who goes by the nickname "Wavey Dave"; the other shorter, dark and slightly awkward.
Their first venture was not a blazing success. After months of scouting properties, Stern zeroed in on a part of Brooklyn near the Gowanus Canal — a body of water so befouled that city engineers call its oily sludge "black mayonnaise". Nearby neighbourhoods were gentrifying.
Stern reckoned they could buy one small plot of land that had been approved for development and then scoop up two contiguous ones. The zoning rights would then flow through the whole assemblage. That, in turn, would allow them to build a 14-storey tower.
"He's an amazing talker and he talked me into it," says Juracich. In early 2008, the partners poured $1.6m in concrete into the ground. Global financial markets soon began to teeter and credit became scarce. Without a construction loan, they were forced to leave the site fallow until the city eventually buried it — concrete and all — for safety reasons. Rather than give up, Stern decided they should build in Manhattan. "He just pushes forward," says Juracich.
It happened to be the day that Lehman Brothers failed when Stern visited the Verizon building, a charmless wedding cake of a structure on West 18th Street in Chelsea that was crammed full of engineers and telecoms gear. "I got a Google alert on my phone that the world was ending," he recalled.
What intrigued him was the roof that we were then standing on. The building towers above everything else in the neighbourhood — like an awkward teenager — and so offered unobstructed views in all directions: to nearby Midtown, and then over the rooftops of Greenwich Village to the fortress of Downtown, and even across to Brooklyn.
"Anytime I look at a building I always go to the roof first," he told me as I swivelled to take in the panorama. Stern was clambering around excitedly in a knit shirt that was casual but may — or may not — have cost a fortune, and Prada trainers.
They negotiated to buy the building for US$25m ($42m). But it was hardly straightforward: Verizon was not keen to sell to a 29-year-old no one had ever heard of. Money was tight. Stern was stretched by the Gowanus debacle and going through a divorce. To cobble together a US$3m ($5m) deposit, Juracich mortgaged a rental apartment he'd considered his nest egg. "We would walk investors through day and night to try and bring them in and nobody saw it," he recalls.
Perhaps that is because converting a forbidding industrial building with few windows into luxury condominiums was a Rubik's Cube sort of puzzle. The stairways at the corners of the structure would have to be removed to open up the views. An industrial smoke stack would have to be dismantled. Windows had to be punched through the brick. Verizon, meanwhile, would continue to occupy the first eight floors, and could not be disturbed.
But there were some things in Stern's and Juracich's favour: because of the financial crisis, top-flight architects and craftsmen who might not otherwise have returned their calls were willing to work with them. They saved money by cutting out New York's powerful construction unions, who make it famously expensive to build in the city by insisting on rules that mandate, for example, how many workers must be on hand to operate a single lift.
Stern and Juracich, now going by the name JDS Development, also won zoning permission for an additional four floors. That meant more square footage, more views and more premium units to sell.
The finished building features a heavy dose of what Stern winkingly calls "curated history". The lobby, for example, is brand new but made to look as though it was a lovingly restored art-deco original. In a move somewhere between shameless and brilliant, they commissioned a historian to write an admiring book about Ralph Walker, the building's long-forgotten architect. (Its title: Ralph Walker: Architect of the Century.)
They even created a Ralph Walker exhibit in the lobby of what was now known as Walker Tower. "Believe it or not, tourists would come in and out of the building to see the Ralph Walker Museum and buy the book," said Kevin Maloney, a veteran New York developer now based in Miami, who partnered with JDS on the project.
In Maloney's telling, the outlines of the story are roughly the same, except Stern is not the sole hero of Walker Tower that he often makes himself out to be. Rather, he is an influential member of a large cast — from the architects to the lawyers to the construction team. "Building a building is not a one-man show," observed Maloney, expressing a wisdom sure to disappoint fans of Ayn Rand.
One thing upon which everyone agrees: the timing was fortuitous. By the time Walker Tower's 51 units went on sale in 2013, the property market was turning and there was little inventory available. They ended up selling out — not for the US$1,800 per-sq-ft the developers had budgeted but for more like US$4,000 per-sq-ft. The penthouse sold for what was then a downtown Manhattan record of US$51.5m. "It was a bet that paid off," said Stern in a rare case of understatement.
There was another windfall: they also forged ties with Barry Sternlicht, chairman of Starwood Capital Group, the real estate private equity firm, which became an investor in Walker Tower. In the same way that architects were looking for jobs coming out of the crisis, private equity funds were thirsting to put their money to work. ("He went up to the roof, walked around for 15 minutes, then said to his guy, 'Get this done!'" Juracich recalls).
Stern, who is a divorced dad, lives in Walker Tower in the sort of New York flat one encounters in glossy design magazines. It has French-cut herringbone floors, an outdoor terrace and exposed steel beams. (They are originals but have been treated with intumescent paint at a cost of about US$20,000 apiece). With its architecture and photography books arranged just so on the shelves, I thought it was the sales unit before I discovered it was Stern's.
For Stern, everything flowed from Walker Tower. Verizon had a similar property uptown that they sold to JDS, Maloney's Property Markets Group and Starwood for another conversion. It is called Stella Tower. He and Juracich went back and finished what they had started in Gowanus, now bringing fancy Manhattan architects along with them. They launched another condo project near the High Line elevated park in Manhattan: The Fitzroy.
Stern also tried his hand at a moderately priced rental building on an unloved plot overlooking the East river. He and Juracich figured the Murray Hill area was ripe for development with the growth of the United Nations and the nearby Langone medical centre. They collaborated with Gregg Pasquarelli of SHoP architects.
The result is the American Copper Building, twin 48-floor towers clad in copper that will gradually turn green over time. They lean apart but are joined by an umbilical, three-storey skyway that includes a pool, a lounge and more stunning views. The skyway is not just whimsy: it also houses shared mechanicals for the towers to improve efficiency. "That's an amazing piece of architecture," says Daniel Kaplan.
Walker Tower also led them to 111 West 57th. Barry Sternlicht had a narrow lot on the street. It was perfectly centred on Central Park and just a few blocks south. But it was only 43ft (13m) wide. He was not sure what to do with it. He wondered if Stern and his partners might be interested.
They took him up on the offer and set about designing a 700ft (213m) tower. Then the building next door came on the market. It was the Steinway & Sons piano showroom, built in 1925 and just across from Carnegie Hall. Rachmaninoff once played there. A historic landmark, the building was protected from development. But they bought it anyway and, with Gregg Pasquarelli, went back to the drawing board.
Down the street, New York's first supertall had topped out at just over 1,000ft (304m). Known as One57, the building was a huge hit for the developer Gary Barnett, the head of the Extell Development Company, who had spent more than a decade assembling the air rights. Many of the units sold before the building was even completed in 2014. The penthouse alone fetched US$100m.
Barnett would soon break ground on a sequel on the same street: the 1,550ft (472m) Central Park Tower. New York's skyline was redrawn and 57th Street became known as Billionaires Row.
The supertalls inspire a range of feelings. Their creators tout them as natural heirs to the Empire State Building and Chrysler Building, a next generation of the skyscrapers that gave form to New York's singular ambition. They wouldn't be possible without the development of high-tech dampers, which slow the speed at which the towers sway. They are also the result of stronger concrete and much research into wind tunnels to understand how gusts at such heights can be tamed. (It turns out that wind actually speeds up after it strikes a building.)
Others tend to view them as obnoxious newcomers out of step with the rest of the city. In 2015, protesters toting black umbrellas marched along 57th Street to draw attention to the shadows they complained the towers were spreading over the beloved public park. In our unequal age, they reflect the vertiginous distance between those at the top of the global economy and those below.
The towers were a response to a commercial imperative. The growing ranks of the world's billionaires wanted property along Central Park. It was both a place to stay while in the city and, more importantly, a way to move wealth out of their own countries and store it in the world's most liquid property market.
New York's existing buildings tended to be old money co-operatives, famously choosy about who can take up residence and demanding detailed information about a potential buyer's finances and lifestyle. The supertalls did not care, as long as you could write a cheque. "There was a lot of pent-up demand from foreigners wanting pieds-à-terre on Central Park. That's why One57 did so well. It was the first," Juracich explains.
If Walker Tower was complicated, 111 West 57th was another order of magnitude. Buying Steinway and then the air rights from a neighbouring building allowed the team to go higher — exceeding 1,400ft (426m). But they would have to leave the landmarked piano hall largely intact and build around it — without disturbing the existing tenants. That meant boring 70ft into the rock below with hand drills instead of heavy demolition equipment.
"They were selling and tuning pianos while we were working underneath them," Stern explained. Because they were building in one of the busiest places on earth, the staging area for the construction would have to be inside the building itself. For safety reasons, the crane could not operate when the wind speed topped 56km/h.
"It's hard enough to build that in the desert with nothing around you — but to build that in the urban context, through a landmark, without disturbing existing occupants," Stern said. "This was a war."
Pasquarelli drew on the tapered, "step-back" style that shaped New York skyscrapers after a 1916 zoning resolution that was intended to limit their shadows on the streets below — but 111 steps back, not in blocky chunks but tiny increments, like the blades of a feather. An interlocking web of terracotta — not glass — was used for the facade. Each pilaster is sculpted to create, from a distance, a swirling texture, like a snake's skin.
"It's a New York building. That building — if you put it down anywhere else it would be inappropriate," Stern declared. He had also restored the adjoining Steinway building, as part of the agreement to win approval from the city's historical preservation commission. How does it feel to look up at your own skyscraper, I asked? We were standing on 57th Street, our heads tilted upwards. "F**king crazy," he replied.
The tower's beauty had taken time, which came at a price. When the partners broke ground in early 2014, the plan was to complete it in 2017. That deadline came and went. More money was needed, and a tangle of lawsuits among the investors ensued. Although the details of the litigation are baroque, a person familiar with the situation boils it down to a simple fact: "The issue is, we're three years behind schedule."
Delays are lethal for developers. They still have the carrying costs each month of interest payments, salaries and real estate taxes, but without any revenue coming in. For 111 West 57th, the greatest cost of the delays was that, in the intervening years, the market changed. It became inundated by an oversupply of luxury properties while political tensions took Chinese and Russian buyers out of the New York market. "Americans are the rich people now!" Juracich quips.
In the first quarter of 2018, prices for New York luxury apartments fell a staggering 15 per cent from the same period a year earlier, according to research from broker Douglas Elliman. The number of sales dropped 24 per cent. Extell and other developers have begun waiving fees for wine lockers and other amenities, and even allowing prospective buyers to rent-to-own — all in a frantic attempt to move inventory.
After recruiting new investors, Stern and his partners pulled out all the stops to try to sell 111 West 57th. They built a lavish showroom that featured a full-scale mock-up of one of the units. I visited it last June to hear a public conversation with Pasquarelli and Bill Sofield, who had designed the building's interiors, including brass door handles specially cast to mimic the tower's feathered stepback.
The room was full of architects and publicists and brokers and others whose job was, in some way or another, to enthuse the world's billionaires about a particular condominium.
Selling a $45m apartment is not quite like selling a US$3m apartment. It is not just a matter of reducing the price until a nibble becomes a bite. It is as much an emotional experience as a financial one. All the legal wrangling surrounding 111 West 57th was not helping, said one New York broker, who explained to me that a luxury building sale should be as orderly and tightly orchestrated as an initial public offering. Anything that detracts from the aura of success must be avoided.
It did not help that in May 2018, the Manhattan district attorney's office charged one of the construction companies working on the building with stealing wages from its immigrant employees. Stern notes that it was a subcontractor, and prosecutors said there was no evidence that JDS was aware of the matter. But Gary LaBarbera, the politically astute head of New York's builders' union, delighted in portraying Stern as a sort of unscrupulous developer, exploiting non-union workers.
As the new year dawned, Stern and his partners had sold fewer than a quarter of the tower's 46 units. But with potential buyers now able to see the completed building, sales began to tick up. While not the score of a lifetime, 111 West 57th would still be lucrative. Then came coronavirus.
When I spoke to Maloney in mid-March, New York City had not yet been shut down but those with means were already fleeing to second homes in the Hamptons or boarding private jets for Florida or Aspen. Maloney himself had cancelled a trip to New York. The market was tanking. Margin calls were being made and fortunes being lost. JDS was no longer showing 111 West 57th to prospective buyers.
The New York governor would soon shut down all but essential construction work. Was it possible, I asked, that the tower — for all its wonder — might not yield a profit? Maloney repeated the question and thought it over. "Who knows?" he said finally, sounding more intrigued than upset. "It's all going to unfold."
Two weeks later, it seemed to be unfolding for the worse. "The sky has fallen," Frances Katzen, a luxury property broker in New York, told me. Her clients were in quarantine.
There is what is known as an "outside date" in standard property sales contracts. If a building is not completed by that date, then buyers can reclaim their deposits and walk away. That then threatens a cascade of misery, with financial targets being missed and lenders potentially calling in their loans.
At 111 West 57th, the outside date is looming. And so, coronavirus be damned, the developers raced this week to complete their first "virtual" closing on Wednesday, "by the hair of our chin," as one put it, even though a fidgety, $20m crown that is beloved of architects — and the bane of engineers — has not yet been fixed atop the tower and the external hoist is still attached.
Doing so should assuage Apollo Global Management, the colossal New York hedge fund that holds much of 111 West 57th's debt. If they falter, then Apollo, which declined to comment for this article, could show mercy. Or it might conclude that there is more money to be made by wiping out the equity holders and taking the spoils for itself. "It's all touch-and-go," a person involved in the project says. "It's the same with a thousand buildings in the city now."
Ultimately, the success of 111 West 57th, and so much New York real estate, may depend on how long the city remains shuttered, and what sort of world is there to greet it when it eventually reopens. After surviving a pandemic, will the world's billionaires still desire impossibly slender trophy flats in the Manhattan sky? Will they still be billionaires?
Stern sounds as chipper as ever. Through his publicist, he insisted his tower would still come good. I thought back to our conversation in early March, in what now seems like a different era. I had been boring the visionary developer with narrow and repetitive questions about the state of the luxury property market until eventually he shrugged me off. "Money isn't everything," he said.
Written by: Joshua Chaffin
© Financial Times
