Rose Associates’ Unique Approach to Developing The Sheffield
- Jun 11, 2012
New York—The Sheffield, a New York luxury condominium building, runs a little differently than other condominiums. The building has two units that it reserves for rentals to generate income for the building. Additionally, Rose Associates and Fortress Investments planned the amenity space after the building was designed. MHN talks to Jack Levy, senior managing director of asset management, Rose Associates, about how this unusual situation came about.
MHN: What is the background of the building?
Levy: Rose Associates constructed and developed this building in 1979. It had 845 apartments, and during the conversion process many apartments were combined. Today there are 582 apartments—580, plus two more that are part of the amenity space. We were ahead of our time. We had the amenity space on the roof—most developers today put the amenity space on a low floor because the low floors are less valuable than the higher floors, so they put units on the higher floors.
MHN: Tell me about the amenity space at the Sheffield. How did that come about?
Levy: Rose Associates and Fortress Investments became the successor sponsor, so we didn’t write the original offering plan, which had the amenity space as a separate condominium. There was an asking price of $10 million, and common charges and real estate taxes were assigned to it. The offering plan was somewhat vague as to what was to be built. Some areas were specified as free to unit owners. The offering plan also spoke of a restaurant. We assumed the former spots were intended to sell all or part of the amenity space to a third-party operator. In order to do that they would have needed special permission from the planning board because it’s the interior of a residential building.
When we took over, we didn’t see that the amenity space had any value for a third-party to purchase it. Also it was unusual here because they made it a separate condominium unit, there was real estate tax and common interest portion to this unit. Normally the amenity space in a condominium is apportioned to all the owners, like a lobby. You don’t have separate state taxes or common charges for a lobby. So we had to figure out a way to have them own the amenity space, and also make it acceptable to them, because they would pay additional real estate taxes and common interest. On the other hand, if the amenity space was owned by a third party, they would have no control over how it was run, or who would run it, so it was in the condominium’s interest to obtain ownership of the space. When we took over, the build-out of the amenity space had not started, so we were working from a clean slate.
MHN: So what made you decide to put the amenity space on the higher floors then?
Levy: We had many apartments in the building. We thought that it would be a tool for renting to have residents be able to bring guests and be able to enjoy the space at the top of the building. There are incredible views of Central Park and the Hudson River. We thought it was in our interest to put it on the top of the building. I guess it was an innovation. We also had a gym in 1979—not many buildings had a gym [then]—and a pool and a lounge. I guess we were ahead of our time.
We became the successor sponsor with Fortress in 2009. When we took over, the sales had stopped for about nine months, although 272 units were sold at that point, so you had the operating condominium that was still totally controlled by the sponsor without any board representation from the residents. We voluntarily had an election of the unit owners, and we allowed them to elect three residents to the nine-member board. We also had to convince the unit owners that they should give authority to the resident board members to enter an agreement to turn over ownership of the amenity unit. We hired Centra Ruddy, the architects and design firm, to design a space. We presented it to the three resident members of the board, and they created a design committee to review the design. And then we worked with the residents to develop the amenity space.
MHN: So the design was a collaborative effort?
Levy: Yes it was a common effort to design this space to meet the residents’ needs. That was the unique feature here. Most of the time when a condominium developer builds a building, he designs a space. And by the time it’s designed there are no unit owners who have purchased yet. In this case, the way it worked, there was a collaborative effort between us and the unit owners to design something together.
MHN: Do you find that people are more likely to use the amenities if they have a say?
Levy: We built the sky lounge, which is floor-to-ceiling glass—it’s really spectacular. I think the unit owners find this amenity a “wow” factor. The amenity space has been an incredible success. It’s utilized extensively—they have Sunday brunches up there. It has created the environment for the building. People really love it. And I imagine part of it was that we had input from people who lived in the building. Some of the people on the design committee had backgrounds in design, so it worked very well. We were able to create this agreement between us and the unit owners.
MHN: Why are some units set aside for renters?
Levy: The condominium picked up real estate taxes and common charges when they took over ownership. We built two of the units that the condominium owned, and they are renting them out. So these are bringing in income to the condominium to help offset charges, to pay for common charges and to pay for the operation of the club. That doesn’t cover all the expenses, but it makes a significant contribution to the expenses. It’s a win-win for everybody.
MHN: Is this something you’d consider doing with future buildings?
Levy: It’s probably not likely. When you develop a building, it’s unusual that the amenity space was not developed prior to the conversion. When you build, you really have to know what you’re going to include, for the most part. And people want the amenity space—you can’t wait until they sell half the units before you start building out the amenity space. So this is a very unique situation. I think if this opportunity presented itself I would do it again because it worked so well, but I don’t know if that would occur in those situations in the future. It’s just kind of serendipity that this is how it worked out.