Watermark Capital pays $66.5M to Cannon Hill for office-to-resi conversion in Downtown Brooklyn

Watermark Capital Group through the entity 175 Pearl Street LLC paid $66.5 million to Cannon Hill Capital Partners through the entity Maple 3p KRL 175 Pearl Owner, LLC for the office building (O6) at 175 Pearl Street in Downtown Brooklyn, Brooklyn.
The Commercial Observer reported the buyer intends to convert the office building to residential.
The deal closed on May 29, 2024 and was recorded on June 4, 2024. The property has 184,965 square feet of built space and 27,157 square feet of additional air rights for a total buildable of 212,170 square feet according to a PincusCo analysis of city data. The sale price per built square foot is $359 and the price per buildable square foot is $313 per the PincusCo analysis. (The price per square foot analysis is the transaction price divided by square feet as reported in public records and assumes no air rights have been sold.)
The seller bought the property on March 31, 2017, for $102.9 million. The signatory for Cannon Hill Capital Partners was Eric Rubin. The signatory for Watermark Capital Group was Wolfe Landau. The contract date was November 29, 2023.

Prior sales and revenue

Prior to this transaction, PincusCo has records that the buyer Watermark Capital Group purchased six properties in five transactions for a total of $101 million and sold one property in one transaction for a total of $4 million over the past 24 months.
The seller Cannon Hill Capital Partners had not purchased any other properties and had not sold any properties over the same time period. The 184,965-square-foot property generated revenue of $9.4 million or $51 per square foot, according to the most recent income and expense figures.

The property

The office building in Downtown Brooklyn has 184,965 square feet of built space and 27,157 square feet of additional air rights for a total buildable of 212,170 square feet according to a PincusCo analysis of city data. The parcel has frontage of 205 feet and is 103 feet deep with a total lot size of 21,217 square feet. The zoning is M1-6/R10 which allows for up to 10 times floor area ratio (FAR) for manufacturing and up to 10 times FAR for residential with inclusionary housing. The city-designated market value for the property in 2022 is $43.5 million.

Violations and lawsuits

There were no lawsuits or bankruptcies filed against the property for the past 24 months. In addition, according to city public data, the property has received three DOB violations and $5,000 in OATH penalties in the last year.

Development

For the tax lot building, it received its initial certificate of occupancy on August 22, 2013. On the lot, there are two active new building construction projects and major alteration projects with initial costs more than $5 million, totaling 2,465 square feet. The largest is a major alteration project for a 167,401 square-foot B building submitted by Jerry Adessa with plans filed July 19, 2018 and permitted December 10, 2018. The second largest is a major alteration project for a 48,958 square-foot B building submitted by David Bury with plans filed December 4, 2018 and permitted September 17, 2019.

The neighborhood

In Downtown Brooklyn, The bulk, or 40 percent of the 22.4 million square feet of commercial built space are office buildings, with elevator buildings next occupying 24 percent of the space. In sales, Downtown Brooklyn has 3.4 times the average sales volume among other neighborhoods with $920.3 million in sales volume in the last two years and is the 3rd highest in Brooklyn. For development, Downtown Brooklyn has 3.3 times the average amount of major developments relative to other neighborhoods and is the 3rd highest in Brooklyn. It had 3.7 million square feet of commercial and multi-family construction under development in the last two years, which represents 17 percent of the neighborhood’s built space.

The block

On this tax block, PincusCo has identified the owners of one of the two commercial properties representing 472,967 square feet of the 657,932 square feet. The identified owner is Breaking Ground.
There are no active new building construction projects on this tax block.

The majority, or 72 percent of the 657,932 square feet of built space are elevator buildings, with office buildings next occupying 28 percent of the space.

The buyer

The PincusCo database currently indicates that Watermark Capital Group owned at least 122 commercial properties with 1,448 residential units in New York City with 1,229,433 square feet and a city-determined market value of $230.8 million. (Market value is typically about 50% of actual value.) The portfolio has $82 million in debt, with top three lenders as Signature Bank, Bridge City Funding, and Crescent Edge respectively. Within the portfolio, the bulk, or 67 percent of the 1,229,433 square feet of built space are walkup properties, with elevator properties next occupying 25 percent of the space. The bulk, or 93 percent of the built space, is in Brooklyn, with Queens next at 7 percent of the space.

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