Developer Default Leaves Brooklyn, New York's Tallest Building On Foreclosure List

The big-time real estate developers who put luxury skyscrapers on the New York City skyline have a carefully crafted image as the ultimate winners, but when they lose, they lose big. 

That is the situation for Michael Stern and JDS Development Group, whose 93-story luxury tower in Brooklyn is now on the foreclosure list.  At 1,000 feet tall, the Brooklyn Tower at 9 Dekalb Ave. is the tallest building in Brooklyn.

The Brooklyn Tower features the mixed-use format popular with today's developers. In addition to 138 luxury condominiums, the building has 398 rental units with a luxurious pool, 50,000 square feet of retail space and views of the New York City skyline. As recently as last month, a less than 500-square-foot unit sold for over $900,000.

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Not long ago, those prices could only be attained in Manhattan, but a tidal wave of redevelopment in Brooklyn has pushed the borough’s real estate prices into the stratosphere. And today's high interest rates are slowing sales on the larger, more expensive luxury units at The Brooklyn Tower.

The retail real estate sector is experiencing well-publicized problems, so it's likely that leasing the Brooklyn Tower's 50,000 square feet of space is not keeping pace with the developer's projections. When mixed-use developers encounter a situation where the leasing and sales revenue streams are restricted, the chances of a foreclosure go up rapidly.

The earliest signs of trouble at the Brooklyn Tower may have been in early 2023 when the Stern tried to sell its 398 rental units, the retail space and the building's amenities for $500 million, but a deal never materialized. Whether that's because interest rates had already started creeping up, prospective buyers could sense the developer was in trouble or both, Stern couldn't raise the funds.

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Now the reason for the attempted sale may be coming into focus. The Brooklyn Tower was partially financed with $240 million in mezzanine loans. At the start of the loan, he may have figured he would be able to refinance the debt before it matured. However, the Federal Reserve's interest rate policy has made refinancing large loans difficult.

Silverstein Capital Partners' announcement of a June 10 foreclosure auction for the Brooklyn Tower means Stern is out of time. 

"9 DeKalb's junior mezzanine, senior mezzanine and mortgage loans are in maturity default, and the junior mezzanine lender is enforcing its junior mezzanine loan remedies through a Uniform Commercial Code (UCC) sale process," a Silverstein spokesperson told the New York Post.

No developer wins all the time, and whenever you try to build a 1,000-foot-high skyscraper, there is no middle ground between success and failure. Stern and his development company came out on the wrong side of the equation with this effort. 

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