McBurney YMCA: A case study in development options.

To illuminate the options which face New York City developers and investors at this economic juncture, let's examine one property in particular: The McBurney YMCA building, on 23rd Street in the Chelsea neighborhood of Manhattan. The 1905 building has a beautiful historic facade, with a stoic portico of large dimensions.

The neighborhood around the McBurney YMCA has an exciting past. Directly across the street is the famous Chelsea Hotel. The 1885 building was converted to a hotel in 1905, the same year as the YMCA was completed. Through the years the Chelsea Hotel's residents have included such luminaries as Thomas Wolfe, Dylan Thomas, Brendan Behan, Mark Twain, O. Henry, Tennessee Williams, Arthur Miller, Sarah Bernhardt, Virgil Thompson, Jackson Pollack, Bob Dylan and many, many others. Andy Warhol made the building the setting of his 1966 movie "The Chelsea Girls."

At times the area has been a center for the theater, cinema and bohemian life. Today, it is in hot demand, having received more luxury rental and condominium construction and conversion projects than any other New York neighborhood over the last several years. Literally thousands of units have been added to the submarket since 1997. It has also seen the blossoming of the progressive and alternative arts scenes, with several hundred new galleries opening in West Chelsea since 1995.

We purchased the McBurney YMCA building in a complex transaction in the year 2000. Key to the deal was our willingness to defer possession of the building until late 2002 or early 2003. That will give the YMCA of Greater New York the time it needs to build new facilities nine blocks away, on 14th Street.

Our original intention in acquiring the building was to convert it to unique, luxurious condominiums, of the sort that we have created in so many other distinctive, historic buildings. However, we certainly have the time to evaluate all of our options. And, in this uncertain economic and real estate environment, forecasting as far ahead as 2003 is difficult. Letis examine the YMCA buildingis possibilities as a rental, condominium and even institutional or commercial development, using the alternatives to probe the state of the market in New York City.

The elements that give this building its greatest potential could also represent the greatest difficulties in its redevelopment. I believe this is the first time in New York, if not in the entire country, that residential conversion has been contemplated for a city building that includes a full-scale gymnasium, a full-court basketball court with 30-foot ceilings, a mezzanine running track, high-ceilinged paddleball and handball courts, and a complete swimming pool.

Chelsea has been a very hot multi-housing market for the last couple of years. This building certainly provides the opportunity for us to provide a unique and desirable product. Not only does it offer beautiful turn-of-the-century architecture, but it would also permit a buyer to create an apartment that includes a private basketball court. Another buyer, or perhaps the same one, could come home to an indoor pool on the sixth floor, no less.

We have not submitted or received legal approval on a condominium plan, so we are not in a position to make any specific offers.

However, clearly, homes such as we discussed above would be for persons for whom money is not an issue. Such a buyer would have a vision and the desire to live at the heart of a culturally rich neighborhood and have unprecedented amenities literally at their feet.

If we were to develop the building while retaining all of its spectacular amenities, we would choose to do a loft-style conversion. In this scenario, Time Equities would renovate the building and upgrade its shared equipment and systems to the latest standards.

Then the building would be divided into spaces suitable for individual apartments on a half floor, full floor or even a pair of floors. Buyers would acquire these apartments relatively raw. That would give them the opportunity to build out and decorate according to their own wishes.

One challenge that faces the conversion of the YMCA building into residential apartments is the fact that it is located mid-block, with the resulting limited views and natural light.

Luckily, its neighbor to one side is a public library that is only four stories high. The lower floors still suffer, however, from being relatively deep when the lack of side windows is taken into account.

The McBurney YMCA would be very appropriate to house an institution such as a private school, for example, Most likely, such an organization could take advantage of the authoritative architecture, preexisting athletic facilities, and rooms for classes and meetings.

The building would also be easily converted into a theater, museum or other public facility. Its size makes it appropriate for a medium-sized non-profit or cultural organization. If one of these alternatives were to be explored, most likely Time Equities would avoid taking any of the construction or development risk.

Ultimately, whether we develop and convert the McBurney YMCA building or sell it to a user will be decided by the market, and by how much we are willing to invest in renovation and construction. Converting it to a rental use offers by far the most risk, but also the greatest possible payoff over time. A loft condominium use would offer less risk, and fewer rewards. Finally, selling to a user would be the safest, and potentially least remunerative option.