For Developers, Southtown Is Now
a Stunning Success Story
by Jami Bernard

If they’d known then what they know now, David Kramer and Bruce Beal might never have come to Southtown. But now, at an optimistic juncture in the Southtown construction timeline, they’re glad they did.

Ten years after their respective companies partnered to develop those 19.3 acres of Roosevelt Island – encountering community resistance, bureaucratic snares and a difficult lawsuit – buildings 1 and 2 are established, building 3 is bustling with move-ins and evolving landscaping, building 4 is rising seemingly faster than time-lapse photography, and buildings 5 through 9 have just been given the green light under a newly tweaked deal with RIOC.

Kramer and Beal are finally, gingerly, learning to relax.

"For us to walk into Starbucks this morning and see the people there ordering, and see someone hanging out on a bench – that, in our minds, that’s what the dream was," says Beal.

Kramer, a principal of The Hudson Companies Inc., and Beal, Executive VP at The Related Companies LP, represent the venture known as Hudson-Related, which is developing and building the emerging Southtown where a community soccer field, an abandoned nurses’ dorm, and the community gardens once stood. The nurses’ building was demolished, the soccer field (now Firefighters’ Field) spruced up and moved closer to the Tram, and Southtown now has the trappings of an actual town.

By most accounts – certainly by the standards of Hudson-Related – the mammoth project, particularly the first clutch of Riverwalk buildings, has been a success. It has lured die-hard Manhattanites across half of that tidal estuary known as the East River. It has raised the profile of the Island in general, even if just by offering a new Island skyline from the vantage of the FDR Drive or the Queensboro Bridge. Southtown’s increase in property values – a few who bought early at Riverwalk Place have already profited by flipping their units upon closing – is expected to be the proverbial tide that lifts all boats.

And the new, richer deal with RIOC that grants Hudson-Related the right to proceed with buildings 5-9 will bring more money to the Island, along with an increase in population over the next few years, that will help fuel the Island economy.

Kramer and Beal met with The WIRE last week in the Riverwalk Place sales office – known as "the trailer" – to put the whole project in context. Framed by the picture window behind them was a panorama of the fruits of their labors – buildings 1, 2, and 3, the last of which represents the Island’s first luxury, market-rate condos. Building 1 was sold to Sloan-Kettering, building 2 to Cornell-Weill, and 88 units in building 3 also to Cornell-Weill. Of the remaining market-rate condos in the 230-unit building 3, only three remain available; around 80% of the apartments were sold back when there wasn’t much more than bare girders to see.

The last of the building 3 apartments that were sold before the completion of construction are set to close by the end of June.

There are still problems, of course, some of them caused by the project’s very success. With the Tram temporarily down and the sudden influx of residents – Southtown will add 2,000 apartments, all told, to the Island – rush-hour subway commutes have been nightmarish, with passengers reporting occasional waits of up to three or even four trains before being able to board.

"We really haven’t been involved with the TA [Transportation Authority] on the issue of the frequency of the F train," says Kramer. "As developers, we can only control or try to impact so much of the world."

It’s a conundrum. "From the first environmental studies done in 1989, everybody believed Southtown needed to be developed, that Roosevelt Island needed more bodies," says Kramer. "Now we have an issue with people not being able to get on the F to go to work, and we have to deal with that."

There’s also a heightened need for security; population increases generally go hand in hand with more crime, an issue that was discussed at a May meeting attended by representatives of RIOC, Riverwalk stakeholders, buildings 1 and 2, and Hudson-Related. "The public-safety payments coming from [our] buildings are substantial," notes Beal, so it’s in the developers’ interests to make sure the funds are used appropriately.

Still, looking at the new buildings as a kind of organic work-in-progress, most of Kramer and Beal’s vision has been realized. Having Starbucks anchor building 3 was a move so calculated, the men claim, that they actually turned away commercial applicants who were willing to pay more.

"We had plenty of offers from restaurants that we’ve turned down because we didn’t have confidence that the operator was going to run a first-class operation," says Kramer. "If we just had one building and had sold the condos above it, and if we didn’t care about smells or how the storefront looked… then we’d rent it for $60 per square foot. But we have a $750 million investment in this area, and we’re not going to ruin it" by going for a tenant that doesn’t figure in the long-term health of the neighborhood.

"We had a tenant that was going to pay three times what Starbucks rents for," says Beal. He said it was an offer from a food operation – but not Wendy’s, as has been rumored. "It wasn’t Wendy’s. But it wasn’t Starbucks."

The coffee chain was important to the plan because its ambience of a place that’s like a living room, where you can relax and put your feet up, helps address another problem – getting Riverwalk and Main Street to stop acting like teens at their first mixer, boys lined up along one wall, girls on the other. "One thing that hasn’t happened is for Riverwalk to be incorporated into the community," says Kramer. "It’s a developing neighborhood and needs to be incorporated into the ongoing Roosevelt Island dialogue." Starbucks encourages mingling and traffic in the outdoor space around Riverwalk, an area that will be beaming free wi-fi signal within a few weeks, according to Kramer. ("Wi-fi coming to a commons near you!" he joked.)

Kramer and Beal arrived at the sales trailer for this interview both wearing blue shirts. Kramer’s tie was burnt orange, Beal’s was red, but somehow the colors didn’t clash. Both men are on the same page – both of them against the idea of a Wendy’s, both of them unquestionably delighted that sales at Riverwalk Place have gone so well, with approximately a dozen increases from initial price-points, from around $500 per square foot to a high of around $850 or $900 per square foot. (The "blended" figure for the building as a whole is estimated at $700 per square foot.) Although the whole Southtown project has required meticulous long-term planning, condo pricing was always an open question.

"What we were trying to figure out when first came on the market was, what was the market in a neighborhood with no history of private investment?" says Beal. There were no "comps" to look at, no recent sales to provide a point of comparison. "We spent a lot of time trying to figure out who will come."

Among those who came were Islanders, who quickly bought up 30 percent of the available building 3 units – and not just for investment purposes, or for the 13 studios, which went fast. "I don’t think any of us expected it would be that high," admits Kramer of the local appetite for real estate.

They not only had to gauge price points, they had to "create a market," according to Beal. "We really believe in Roosevelt Island. We think it’s a wonderful place to live, where you can have peace and open space, walk downstairs and immediately be on grass… but it was a risk. Our lenders actually required us to underwrite the project as a rental."

"We thought there was a compelling story line for selling a condominium with a steep discount to Manhattan, with all the amenities and views and access," says Kramer. "But you had to extrapolate, anticipate," because nothing had yet been built, and because the Island was off the radar for so many New Yorkers.

"The [first] Southtown economic deal has been bashed for years by The Wire and by the Residents Association," says Kramer, "and it’s easy to look back and criticize. But the fact is that the initial buildings needed to be a loss-leader, if you will, to serve as a catalyst" for creating a market for the rest of the site.

That’s why Starbucks was so important as the first commercial tenant. "The commons, the outdoor seating at Starbucks, you need to give people a reason to sit there and enjoy the view," says Kramer. "One of the lessons of Riverwalk is that when you’re walking through Northtown, there’s no visual access to the water, no view corridors. There’s a canyonesque Main Street. How can we really get people to appreciate the Island and give them a few things to do and enjoy? Our biggest challenge is to have people come here. People to this day still don’t know there’s a subway line that services the Island. But it should get easier. Our job only gets easier as the neighborhood evolves… You don’t have to use your imagination anymore to understand what Riverwalk will be."