Alchemy, ING acquire commercial co-op on East 59th in complex deal.

In one of the largest acquisitions of commercial cooperative shares in New York City history, Alchemy Properties, Inc., in partnership with ING Realty Advisors, purchased 32,000 square feet of retail and office space located at 117-127 East 59th Street between Lexington and Park avenues.

Alchemy principals Kenneth S. Horn and Joel Breitkopf, and ING's Eric Bergwall spearheaded the acquisition, which was negotiated over nine months in a highly complex transaction.

Most cooperative corporations who take over large commercial spaces or garages typically create "cond-ops," essentially splitting off such space into separate entities to avoid "80-20" tax problems. The cooperative corporation in this transaction took the opposite approach, applying to the Internal Revenue Service to allow the recapture of the space as cooperative shares in the corporation when the sponsor's "sweetheart" lease expired at the end of 1998. By taking this approach, the cooperative was allowed to sell the space to a third party as treasury shares without jeopardizing the tax status of the cooperative.

The cooperative, represented by Richard Siegler, Esq. of Stroock, Stroock and Lavan, obtained the Internal Revenue Service ruling which allowed the cooperative to allocate and sell the shares.

The commercial space was originally held by the sponsor of the building for a period of 30 years after the conversion. As of December 31, 1998, the ownership reverted back to the cooperative corporation, with all of the sub-tenants' leases expiring on that date as well. The previous retail tenants included Pottery Barn, Urban Outfitters and a Japanese restaurant, along with Burberry's as the prime office tenant.

"Recognizing the tremendous frontage on East 59th Street, it was logical to market the space as retail use from the basement to the second floor," said Horn.

Because of its frontage on East 59th Street, proximity to Bloomingdales, and potential for a flagship location, a number of tenants and bidders were aggressively vying for the space. Williams-Sonoma, because of its previous Pottery Barn store experience, was able to put a deal together with the new purchasers. Williams-Sonoma is expected to perform a multi-milliondollar renovation, turning the building into their flagship location in New York City.

The entire transaction entailed enormous coordination among Alchemy, ING Realty, the cooperative corporation, the lender for the cooperative, National Cooperative Bank, and Williams-Sonoma. The cooperative was able to benefit from an enormous financial windfall without jeopardizing its tax status, and secured a financially stable owner and tenant over the long-term.

Cushman & Wakefield represented the cooperative on the sale of the asset. Siegler and Penny Levine, Esq. of Stroock, Stroock & Lavan represented the cooperative. Terri Adler, Esq. and Bruce Stachenfeld, Esq. of Duval and Stachenfeld, with Jeffrey Schwartz, Esq. of Wolf Haldenstein Adler Freeman & Herz LLP, represented the purchasing entity in the purchase of the property, as well as the lease negotiation. Matthew Adams Properties Inc. is the managing agent for the cooperative. Sandy Green, Esq. of Robinson Silverman represented National Cooperative Bank. Jeffrey Moross, Esq. of Davis & Gilbert represented Williams-Sonoma in the lease negotiation. Alchemy Mortgage Finance, Inc. represented the purchasing entity in obtaining the acquisition financing.

ING Realty Partners is an entrepreneurial real estate investor primarily focused on the United States and Canada. The group is the successor to ING Barings' entrepreneurial real estate investment business, which was formed in February of 1993. Since 1993, the group has acquired approximately $3 billion of real estate in more than 100 transactions and liquidated approximately $1.5 billion of real estate investments. ING Realty Partners, L.P., a real estate opportunity fund, completed its offering period in 1998 with $540 million in total capital commitments from 25 investors. ING Realty Partners has been investing capital on behalf of ING Group and its affiliates since its inception. ING Group is a global financial institution of Dutch origin, which is active in the fields of banking, insurance and asset management in more than 60 countries, with more than 82,000 employees.

Alchemy Properties Inc. is an active purchaser of commercial real estate for the purpose of value-added opportunities. Alchemy's main focus has been the purchase and conversion of commercial buildings to condominium ownership, as well as the purchase of blocks of co-ops and units, and defaulted mortgage debt. Alchemy has purchased over a dozen properties over the last few years all over the New York City metropolitan area.

Alchemy Mortgage Finance specializes in providing debt and equity to developers and owners, as well as cooperative corporations, closing over $500 million loans over the last few years. Alchemy Mortgage Finance has also provided third party equity to developers for a number of large Manhattan acquisitions.

According to Breitkopf, "We have recently financed between 95 and 99 percent of the total acquisition and development costs for a number of development deals in Manhattan. So long as the numbers make sense, no matter how complicated the transaction, we feel confident that we can get it financed for our customers."