Behind the Deal: Waterline Square

Despite a tight lending environment, the $2.3 billion financing package awarded to Waterline Square confirmed that New York’s luxury residential market is still going strong.
James Linsley, President of GID Development Group

James Linsley, President of GID Development Group

New York—What does it take to close a $2.3 billion construction financing package for a large scale residential project in Manhattan’s Upper West Side when the debt market is still in cautious mode? James Linsley, president of GID Development Group, the real estate organization behind Waterline Square, discussed the premises of this deal and reveals why he is optimistic when it comes to the luxury market dynamics in 2017. Waterline Square includes three luxury condo towers: One Waterline Square, which is designed by Richard Meier and Partners Architects, Two Waterline Square by Kohn Pedersen Fox Associates and Three Waterline Square by Rafael Viñoly Architects.

MHN: Tell us more about the historic financing package involved in the Waterline Square deal. Was it challenging to close this deal in a tight lending market ?

James Linsley: GID Development Group announced in November that it closed on the largest residential construction financing of the year in 2016 for Waterline Square—a three-building luxury residential development now under construction on Manhattan’s Upper West Side along the Hudson River. The historic $2.3 billion total financing package is believed to be the largest for a residential construction project ever in New York City history—consisting of equity investments from the development’s ownership team of GID and the Henley Holding Co., a wholly-owned subsidiary of the Abu Dhabi Investment Authority, and a $1.24 billion construction financing provided by a bank syndicate led by Wells Fargo as administrative agent along with co-lead arrangers HSBC, National Bank of Abu Dhabi and J.P. Morgan. The New York and Boston teams of HFF had an advisory role in the financing arrangement.

The challenges of this large and sophisticated transaction were related to the scale of the three-building project, the sheer size of the financing dollar amount and the market trends which prevented other developers and projects from achieving a financing package at all, let alone one of this magnitude. The fact that Waterline Square was not only the largest residential construction loan of 2016, but its syndication was also oversubscribed with a collection of the world’s most prestigious banking institutions, without the need for additional financing mechanisms like EB-5 or mezzanine debt, is a testament to the quality and vision of this unique project, its development team and sponsorship.

MHN: What makes Waterline Square a particularly notable project?

Linsley: Waterline Square brings together three of the world’s most prominent and respected architects to create a world-class destination for residential living. Together, we are transforming one of the last remaining waterfront development sites on the Upper West Side of Manhattan. This design and development team has created the most innovative, comprehensive and cohesive residential experience in New York City.

Waterline Square plays a critical role in completing the Riverside Master Plan. When it began more than two decades ago, the Riverside Master Plan was designed to transform 77 acres of waterfront land along Manhattan’s Hudson River into a premier residential neighborhood. Waterline Square is a rare opportunity to complete the development of the last remaining parcels of this important waterfront masterplan, as we are constructing the three buildings simultaneously.

MHN: When is the development scheduled for completion?

Linsley: Closings are scheduled to begin in late 2018, with full construction anticipated to be complete in 2019.

MHN: How do you see the luxury residential market in 2017 in terms of supply and demand?

Linsley: There has been a perception among buyers, brokers and the media that a huge wave of new development would enter the market in 2016 and 2017. Instead, we saw the market make sensible self-corrections last year and expect the same this year as some openings are delayed. About 4,200 new units are now projected to launch in 2017, which is 30% less than originally expected. That’s a very positive shift for upcoming developments.

Supply and demand dynamics also vary significantly by neighborhood. The Upper West Side, in particular, is one of the most undersupplied submarkets in New York with just 3.2 months of supply, compared to 5.5 months across all of Manhattan. Buyers are eager for new product and our sales team fields multiple calls a day anticipating the opening of Waterline Square.

MHN: We seem to be entering a period of slow growth for home prices and rents. Do you think this is just a preface for a standstill?

Linsley: We are optimistic about 2017. In the first month and a half, condo sales are up 9% compared to the same time last year. The luxury market is doing even better, with deals above $5 million up 30%. While rises in sales or pricing aren’t as dramatic as they were a few years ago, market fundamentals certainly support the introduction of well-located, superior-quality new development.

MHN: “Prudence” seems to be the word of the moment in the current real estate market. Do you agree?

Linsley: Prudence is always appropriate in real estate development. Development teams that possess a deep understanding of market dynamics, the ability to create and execute iconic high quality projects and the passion to harness a unique development vision will continue to differentiate themselves and their development projects from the competition and achieve success.

MHN: Should we expect to see a tight lending market in 2017 as well? What are your expectations regarding the debt sector?

Linsley: Yes, construction lending will remain challenging in 2017 for all but the best developers and projects.

Image courtesy of GID Development Group