Arch buys $58M loan from Madison Realty secured by Hello Living East Flatbush rental project

Jeffrey Simpson’s Arch Companies through the entity Nostrand Senior Lender LLC bought a loan valued at about $58 million from Madison Realty Capital secured by Hello Living’s midblock 88-unit residential elevator building at 1580 Nostrand Avenue in East Flatbush, Brooklyn. The building is not yet open and is not yet cash-flowing, according to a recent bankruptcy filing.
The deal closed on March 8, 2022 and was recorded on May 6, 2022. The prior lender was Madison Realty Capital which held debt that had an original loan principal of $71 million. The property has 109,000 square feet of built space and 22,750 square feet of additional air rights for a total buildable of 131,625 square feet according to PincusCo analysis of city data.
The owner bought the property on September 5, 2014, for $13.1 million.
According to a bankruptcy document filed on April 14, the senior loan was $58 million at that time. While Arch is now in the position of senior lender, it has borrowed an undisclosed amount from Madison through the entity 1580 Nostrand Ave 2 LLC to buy the notes, according to city filings.

The note sale was brokered by Greg Corbin and Aaron Jungreis of Rosewood Realty Group.

The property

The 1580 Nostrand Avenue parcel has frontage of 200 feet and is 295 feet deep with a total lot size of 54,167 square feet. The zoning is R6 which allows for up to 2.43 times floor area ratio (FAR) for residential. The city-designated market value for the property in 2022 is $18.6 million.The most recent loan totaled $8.3 million and was provided by Madison Realty Capital on August 28, 2020.

Violations and lawsuits

The property was one bankruptcy over the past two years. The bankruptcy was filed on December 21, 2021, by Eli Karp, Hello Living, and Hello Living Developer Nostrand LLC citing assets of $69.2 million. In addition, according to city public data, the property has received $5,000 in OATH penalties in the last year. Eli Karp has battled the prior lender, Madison Realty, in court for much of the past year, trying to hold off a UCC foreclosure auction. A looming UCC auction date in December 2021 precipitated the Hello Living property bankruptcy filing.

Development

On these lots, there are two active new building construction projects and major alteration projects with initial costs more than $5 million, totaling 318,058 square feet. The largest is a new building project for a 182-unit, 159,029-square-foot R-2 building developed by Eli Karp with plans filed July 17, 2014 and permitted February 18, 2020. The second largest is a new building project for a 88-unit, 159,029-square-foot R-2 building developed by Eli Karp with plans filed July 17, 2014 and permitted August 9, 2018.

The neighborhood

In East Flatbush, the bulk, or 42 percent of the 78.9 million square feet of commercial built space are 1-4 family buildings, with residential elevator buildings next occupying 20 percent of the space. In sales, East Flatbush has had very little sales volume relative to other neighborhoods with $177.2 million in sales volume in the last two years. For development, East Flatbush has 2.3 times the average amount of major developments relative to other neighborhoods and is the 10th highest in Brooklyn. It had 2.1 million square feet of commercial and multi-family construction under development in the last two years, which represents 3 percent of the neighborhood’s built space. There was one pre-foreclosure suit filed among other residential elevator buildings in the past 12 months.

The block

On this tax block, PincusCo has identified the owners of three of the four commercial properties representing 153,085 square feet of the 162,085 square feet. The largest owner is Hello Living, followed by Spencer Equity Group and then Vladislav Marom. There are two active new building construction projects totaling 318,058 square feet. The largest is a 182-unit, 159,029-square-foot R-2 building developed by Eli Karp with plans filed July 17, 2014 and permitted February 18, 2020. The second largest is a 88-unit, 159,029-square-foot R-2 building developed by Eli Karp with plans filed July 17, 2014 and permitted August 9, 2018.

The majority, or 91 percent of the 167,665 square feet of built space are residential elevator buildings, with residential walkup buildings next occupying 5 percent of the space.

The borrower

The PincusCo database currently indicates that Hello Living owned at least four commercial properties with 253,008 square feet and a city-determined market value of $46.4 million. (Market value is typically about 50% of actual value.) The top three lenders as Greystone & Co., Cantor Commercial Real Estate Lending, and Madison Realty Capital respectively. Within the portfolio, all identified are residential elevator properties. They are all located in Brooklyn.

Surrounding

Within a 400-foot radius of 1580 Nostrand Avenue, PincusCo identified five commercial real estate items of interests occurred over the past 24 months.
Of those five items, one was in new building development. It was a new building permit application filed on February 11, 2022 for a 14,645-square-foot R-2 building with 17 residential units at 2915 Albemarle Road.
Of those five items, four were loans above $5 million totaling $40.1 million. The most recent of the four was Eric Miller which borrowed $20.8 million from New York Community Bank secured by the 37,646-square-foot, 54-unit rental (C1) on 1567 Nostrand Avenue and two other properties on December 30, 2021.

Correction: A prior version of the post included the incorrect LLC for Arch.

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