Financing New York’s skinniest skyscraper

Cottonwood Group's CIO Mark Green discusses the mezzanine loan his firm provided to Five Points Development's luxury residential tower at 262 Fifth Avenue.

Five Points Development has broken ground on a skyline-changing project at 262 Fifth Avenue, a planned 54-story New York super-luxury residential tower that will hold a unique distinction as the city’s skinniest skyscraper.

Five Points, a New York real estate developer founded by Boris Kuzinez, is betting on what it believes are favorable supply-demand fundamentals in the city’s NoMad submarket. Located north of Madison Square Park, the property will have a footprint of just 5,000 square feet and will comprise only 26 luxury apartments.

“You have to understand the sponsorship group, developers, the basis and your last dollar exposure”

Mark Green
Cottonwood Group

Los Angeles-based manager Cottonwood Group originated a $50 million mezzanine loan on the property, with local private equity from Madison Realty Capital providing a $130 million senior mortgage.

“Dealing with [this project] especially in a mezzanine position, you have to understand the sponsorship group, developers, the basis and your last dollar exposure,” says Mark Green, chief investment officer at Cottonwood Group.

The firm’s underwriting included running stress scenarios and analyzing peak-to-trough data specific to the NoMad submarket. Additionally, Cottonwood structured the loan with a focus on downside protection, including low leverage, Green says.

Five Points Development assembles a development site at Fifth Avenue and 29th Street

The developer hires architect Meganom to design a tower on the 5,000-square-foot lot

Demolition of the existing properties begins

Excavation starts

Madison Realty Capital and Cottonwood Group fund roughly $180m of construction debt

Cottonwood sees opportunities to provide similar financings in the coming year as developers seek to fill out capital stacks for unique properties, with Green citing a particular opportunity for private lenders to offer liquidity to sponsors targeting a higher attachment point to complete the capital structure.

“You have to be cautious if you are doing mezzanine debt, preferred equity, [or] structured deals behind seniors,” Green says. “It prompts a necessary reflection on the comfort level with our loan basis, the adequacy of the structure in a downside scenario and alignment with the sponsor’s business plan.”