The Level Hotel project faced a number of financing hurdles, until it approached Madison Realty Capital, which employed its 360 degree perspective as both lender and developer.
Mordy Steinfeld, director of development and operations at Riverside Developers, the firm behind the project, adds that the commercial mortgage lenders that he was talking to were skittish about lending to a hotel property. “Construction for a hotel is tricky, traditional lenders love residential developments or proven commercial developments, so from the start we were limited in that sense.”
Madison initially provided an $18.35 million bridge loan for the developers to acquire the site, which cost them $30 million in June last year. The bridge facility was then rolled into an $81 million construction finance facility in December.
Madison Realty, which manages equity and debt funds, also owns and develops real estate around New York. The firm targets mid to high teen returns for its funds and has so far achieved that, Zegen says.
Zegen says he worked with his development team, as well as an outside engineer, to review the project and estimate build costs.
While some industry experts anticipate another downturn ahead, Zegen maintains that the project will retain its value over the two-year lifetime of the loan.
Zegen has also worked with developer Yoel Goldman on another project in the area, where Goldman converted a church and rectory into multi-family housing.
Steinfeld and Zegen say Madison Realty was more comfortable with providing the loan for the Level Hotel, partly because of its other aspects, including the commercial and retail areas.
Zegen is no stranger to the neighborhood. He recently lent $70 million for the construction of an office building across the street from the Level Hotel.
Looking at the project as a developer as well as from a traditional credit point of view, allowed Madison to get comfortable with the deal. The outcome of the project will decide whether that extra insight gave them an edge or blinded them to some risks.