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CMA
May 20, 2016  

Starwood to Take Down Spitzer Project Loan

Starwood Property is stepping up to provide more than $300 million of debt for the development of a Brooklyn apartment complex by Spitzer Enterprises.

The deal, which is still being hammered out, would take the place of a similar-sized financing package that Bank of America began assembling early this year. That effort fell apart after a woman alleged that Eliot Spitzer, the former New York governor who heads the development firm, had assaulted her in a hotel.

The pricing on the loan from Starwood, a Greenwich, Conn., REIT, is described as significantly higher than what the borrower likely would have obtained on bank financing. But the transaction is expected to close quickly, whereas another attempt to put together a bank deal might take months. Preliminary construction is already underway on the planned 857-unit complex, at 420 Kent Avenue in the Williamsburg neighborhood.

Market pros noted that banks currently have the luxury to decline deals with any whiff of complications, because there’s so much business waiting in the wings. In this case, the allegations against a key sponsor and the resulting police investigation were splashed across the front pages of New York tabloids for days.

Spitzer Enterprises began looking for construction financing around the beginning of the year, advised by Meridian Capital. By February, BofA had agreed to lead the loan and was well along in talks with other lenders that would take down pieces in syndication.

Then, on Feb. 13, a 26-year-old woman told police Spitzer had assaulted her in a room at the Plaza Hotel in Manhattan. Spitzer’s attorney shortly afterward produced an email statement from the woman in which she apologized and said she’d made up the claim. The woman declined to press charges and returned to her home in Russia. The incident brought back memories of 2008, when Spitzer resigned as governor after evidence emerged that he’d been a client of a prostitution ring.

In the wake of the assault allegation, support for BofA’s financing deal faded, with multiple potential lenders declining to proceed. Spitzer and Meridian hit the market again to seek debt, and other lenders predicted that the project would obtain financing after some time passed.

The property will encompass three glass-sheathed buildings, in a distinctive cubic-block style, along the East River just south of the Williamsburg Bridge. Twenty percent of the apartments would be reserved as affordable units. Completion is projected for sometime in 2018.

Spitzer runs the real estate business founded by his father, Bernard Spitzer, who died in 2014.