Carving a development niche. (Profile of the Week: Alchemy Properties, Inc.).

As this year of unhappy economic news draws towards its close, there's a medium-sized real estate developer in New York City doing what few others of any size can claim. Alchemy Properties Inc. and its subsidiaries are currently building four residential projects for immediate sale as high-end condominium loft-type units.

The company has just begun marketing a newly topped-out residential building at 57 Bond St. It will be the first newly constructed loft condominium built in the vibrant NoHo district in the last 50 years. The gorgeous design features a long, curved exterior wall that gives the building a distinctive street presence, and adds to the light and views in each residence.

The 57 Bond St. lofts will feature 11-foot ceilings, marble and stone bathrooms, high-grade maple floors, living rooms with oversized floor-to-ceiling glass window-walls, and Poggenpohl kitchens with stainless steel appliances by SubZero, Bosch and Viking. The two penthouse units will feature wood - burning fireplaces and private rooftop terraces, and private outdoor four-person hot tubs and outdoor showers. For information on these 10 exceptional lofts, priced from $1.335 million to $1.97 million and ranging in size from 1,470 to 2,512 SF, please call Wendy Triffon of Alchemy Properties, at 212.732.0372.

Alchemy is also completing both construction and sales at its successful Tribeca loft condominium conversion project, The Keystone, at 38-44 Warren St. The Keystone features 24 gorgeous loft residences, as large as 2,815 SF, and with ceiling heights of up to 11 feet. The building's prominent corner location gives each apartment tremendous light and air. Two penthouses have just come on the market in the Keystone, each with over 1,000 SF of exterior space. They are two of the three remaining units in the building, and are available for immediate occupancy.

A residential project is underway at 42-48 East 20th St., in the building that also houses Danny Meyer's world-famous Gramercy Tavern restaurant. The building will feature 23 high-end loft residences, available for sale starting in the middle of November 2002.

Finally, at 146 West 22nd St., Alchemy is building another new construction loft condominium building, with a classically inspired post-modern facade of elegant masonry and sheer glass. This building is scheduled for completion by the end of 2003 and will feature twelve full-floor private residences with tremendous light and lavish finishes.

All of the new projects will have state-of-the-art Poggenpohl kitchens, and stainless steel appliances by SubZero, Bosch and Viking -- including dual-zoned SubZero wine refrigerators. Unique to Alchemy's new projects will be custom-made Italian bathroom fixtures featuring modern minimalist designs with Satin Nickel hardware and handcrafted teaks and stone tables.

Alchemy, has become one of the city's most successful niche developers, even though a relatively youthful company without connections to one of New York's well-established real estate families.

Real estate attorney Kenneth S. Horn formed Alchemy and has remained its president. Horn has been actively involved in development and other aspects of real estate in the metro area for 18 years.

Other key executives include Joel Breitkopf, president of Alchemy Mortgage Finance and principal mover in arranging financing from partners such as AEW Capital Management CSFB, DLJ Capital Partners, ING Realty Partners and the Geometry Group.

Gerald R. Davis joined Alchemy in 2000, and is responsible for the construction management of Alchemy's development projects. In his career, Davis has also been director of acquisitions at Olmstead Properties, where his duties included managing the annual budget for more than two million square feet of commercial property.

Alchemy's senior personnel are expert developers. However, through most of the company's first decade, Alchemy also assisted lenders, developers and others work out portfolios of failed cooperative and condominium apartments.

The company acquired, restructured, refinanced, marketed and sold almost 800 cooperative units in the New York metro area during this period. It was the sponsor repeatedly for ten separate banks and savings institutions, on many failed cooperative conversions in the mid-1990s. It has also purchased over $40 million of defaulted cooperative mortgages and over 500 unsold units.

Its strategy allowed Alchemy to nimbly negotiate the acute depression that plagued New York's cooperative market through the mid-1990s. The operator returned as much as 100% -- and never less than 20% annual returns -- on the investments its principals and partners made on these transactions.

Alchemy's conservative strategy prevents the company from taking on a transaction unless thorough analysis shows substantial upside, even at projections discounted from the current market levels. When the co-op market improved in the late 1990s, that kind of return was no longer available in the trading of unsold share portfolios.

Working out sponsor units left Alchemy well positioned to take advantage of the soaring demand for loft apartments in many Manhattan neighborhoods. Alchemy's new development and conversion strategy hinges on an arbitrage play. On the one hand is the relatively modest increase in the wholesale cost of property, together with the price of its redevelopment. On the other, is the much more rapid rise in the retail prices that newly minted loft apartments fetch with homebuyers. In the middle is Alchemy's return on investment.

The company has exercised considerable discipline in the analysis of potential acquisitions. For example, it has acquired ten buildings or development sites, but did not purchase a single site between February, 1999 and August 2001 because the firm felt wholesale prices were too high. However, Alchemy did purchase new development assets in 2001, as wholesale prices were more appealing. Two additional assets were purchased in 2002.

One of Alchemy's first residential projects was 129 West 20th Converted in 1997, it is located in the heart of what was then the emerging Chelsea market. Alchemy went to considerable lengths and expense to purchase the right to convert 100 percent of the building to residential use, rather than the one-third then permitted by zoning law. As luck would have it the whole arrangement was made unnecessary when zoning laws were changed two months later! Alchemy has no regrets, as its ability to acquire the building prior to the zoning change allowed it to negotiate a discount from the property's final value.

In 1999, Alchemy put together a complex transaction that revealed its value-adding skills at their best. The property was 117-127 East 59th St., a 36,000-SF retail and office building whose cooperative structure was less flexible, and less attractive, than a condominium ownership structure.

Alchemy solved the largest problem by negotiating a restructuring of ownership, to mimic that of a condo. It then signed long-term leases with William-Sonoma and Pottery Barn for 30,000 SF, and with an office tenant for the remaining 6,000 SF. By the time Alchemy sold the property in 2001, it had created an attractive investment property with long-term credit tenants. Because Alchemy had signed its new tenants at below-market rates, its buyer would have substantial potential upside. This property was made still more attractive by the announcement of the creation of the mixed-use development at the former Alexander's site around the corner, which will be anchored by the new headquarters for Bloomberg L.P. Thus the cap rate on the sale was driven down.

Alchemy's current and past successes reveal a conservative underwriting approach, yet an aggressive hands-on strategy. The company has thrived in both up and down markets. It is this success that has allowed Alchemy to continue to ally itself with some of the industry's strongest equity partners, and beat larger players to excellent opportunities throughout the metropolitan area.