January 5, 2023
The Real Deal

MAG Partners clinches 99-year Chelsea ground lease; MaryAnne Gilmartin’s firm to deliver 188 units with Penn South co-op

MAG Partners has closed on a 99-year ground lease for a Chelsea development site.

MaryAnne Gilmartin’s three-year-old firm inked a deal on the northwest corner of Eighth Avenue and West 26th Street with Mutual Redevelopment Houses.

The parties declined to discuss the financial terms for the deal. Sources told The Real Deal the lease starts with an annual rent of around $2 million and has yearly rent increases that are expected to bring in over $750 million during the life of the deal.

The Memorandum of Lease reviewed by TRD shows a consideration of just under $64 million. For transfer tax purposes, this number represents the estimated fair market value of the site if it were sold but does not reflect the expected rent over its term. The city received just under $415,000 in taxes.

Mutual, also known as Penn South, is a 10-building Mitchell-Lama housing cooperative in Chelsea that sprawls from West 23rd to West 29th streets, between Eighth and Ninth avenues.

MAG Partner’s new project at 335 Eighth Avenue will rise seven stories and host 188 units in the mixed-income apartment building, along with ground-floor commercial space.

The 200,000 square-foot building was designed by COOKFOX Architects.

To qualify for the previous Affordable NY Program and assure 30 percent of the units would be affordable to low-and-middle class households, the necessary footing was installed in early 2022 with the blessing of the co-op and prior to the expiration of the program.

The retail building previously included a Gristedes, the Midtown Tennis Club, the Asylum Comedy Club and McDonald’s, all of which had leases timed to expire at the end of 2022.

Demolition will begin in the first quarter of 2023 with construction during the third quarter.

This is the second deal for MAG Partners and its real estate private equity venture partner, Safanad, after developing almost 700 housing units in Manhattan, including the nearby 241 West 28th Street.

Penn South’s retail building had brought in nearly $2 million in lease revenue before taxes and repairs, enabling a reduction in maintenance fees for its resident shareholders. But when engineers said the structure needed almost $50 million in repairs to become marketable to modern tenants, it would have caused each of the 2,820 units to pay additional assessments averaging $500 per month for three years.

Penn South hired Paul Travis of Washington Square Partners to solicit proposals for the site. After culling the responses, cooperators voted in 2021 among three choices that included redeveloping the site; a taller, all-commercial project by another developer; and Mag Partners’ proposal, which offered nearly twice as much over the lease term including yearly bumps in rent.

Susi Yu and Jeff Rosen led the deal for the MAG Partners team while Joshua Stein of Joshua Stein PLLC represented Mag Partners in the legal work for the transaction.

Dena Cohen, a partner with Herrick Feinstein, represented Penn South in the lease negotiations.

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