Take a walk on 91st St. and First Ave. A 34-story tower catches your eye. Costing $165 million, the Azure towers over the neighborhood offering some of the best views on the upper East Side. From either of the two $5.7 million penthouses, you can see Central Park, the East River, and midtown skyline.
It’s what you don’t see that’s most important here. Next door at Middle School 114, more than 530 students were accepted into the public school for strong academic performance. Every day, the students walk into the newly-constructed school. They learn from smart boards in a fully air-conditioned facility equipped with computer labs.
Not a single taxpayer dollar was used to build the school. The $46 million facility was built by the Azure developers, the Mattone Group and DeMatteis Organizations, in conjunction with the New York City Education Construction Fund, a novel program created in the 1960s and resurrected under Mayor Bloomberg after a 20-year hiatus.
In essence, developers vie to build residential buildings on the site of older, often out-of-date schools that hold significant amount of air rights that would allow for substantial construction of new schools and residential development.
Azure on E. 91st St. is 70 percent sold.
“This is a win-win-win for everyone involved,” said Education Construction Fund (ECF) executive director Jamie Smarr. “The students get a brand new school, the city doesn’t have to pay for it, and developers get to build much needed residential units.”
In some cases, such as the World-Wide Groups project on E. 56th and 57th Sts. between Second and Third Aves, a Whole Foods was part of the retail mix. Two schools, PS 59 and the High School of Art and Design, were designed by world-class architect SOM. A residential tower is currently under construction designed by the same architect. Schools, food retail, and new buildings all weigh heavily in increasing real estate value.
“These type of projects favorably change a neighborhood,” says Paul Leibowitz, executive vice president of CBRE, the commercial real estate entity consulting on the program with the ECF. “This is a very special program.”
Azure is a perfect example of how the program works. Long-time partners, the Mattone Group, led by Douglas MacLaury, and DeMatteis Organization, spearheaded by John Caiazzo, applied and were awarded the ECF’s Request For Proposal marketed by the team at CBRE. They agreed to build the school and residential building leasing the land and acquiring the air rights for the Azure tower for a period of 75 years with an option to purchase the land or renew the lease for an additional 50 years. The school was built with an entrance on 92nd St.; the residential entrance is on 91st St.
For the period of 75 years, approximately 59 percent of the maintenance fees will be paid to ECF, which uses the funds to build schools and pay student services. At Azure, that annual fee comes to approximately $2.4 million across the 128-total residences.
Whole Foods is at the base of PS 59 and the High School of Art and Design on E. 56th and 57th Sts.
More than 59 affordable units were built by the developers at two off-site locations — one in the Bronx and the other near the Tram to Roosevelt Island on 59th
St. Azure buyers receive a 20-year 421-A tax break. One-bedrooms in the building start at $849,000 with four-bedrooms priced at $3.579 million. Savvy buyers point to value, not the condo/co-op style of their purchase agreement.
“At the end of the day, you live in your apartment, not your legal structure,” said John Andrews, a banker who lived in London where almost all residential purchases are based on land leases.
“I bought here because of value. I live in a 3,000 square-foot four-bedroom combo-unit with a layout that works well for a family. The structure might require a little more homework, but the value payoff is far greater than what is offered in comparative new construction buildings anywhere near here.”
Developers at Mattone and DeMatteis, long-time New York City builders and developers, point to the relationship between building schools and residential developments. They say the owner of the penthouse will be helping a public school.
Architectural firm SOM designed auditorium at PS 59, hardly your average performance arts center.
“Where else can you say that your home helped pay for a New York kid to go to a brand new school in a direct manner,” said Mattone executive vice president Doug MacLaury, who headed up real estate for the city’s Economic Development Corporation under Mayor Giuliani. “The school is right next door. Residents can send their children there. They can play in the playground. This really is about giving back. Yes, we make a profit from the sale of the residential units, and they are luxury, but this is a public private partnership that allows for wealthy individuals to give directly back to the city. I don’t see how you can knock it.”
Recently, three sites came under ECF Request For Proposal. According to CBRE, 10 proposals are due for each location. Likely candidates are the Mattone/DeMatteis partnership, Forest City Ratner, Extell Development, World-Wide, and Related Companies, all giant development organizations with experience completing large public-private partnerships.
“This only works with existing schools in areas with zoning characteristics allowing large-scale residential development,” said Smarr. “New York has the most robust real estate needs in the Western Hemisphere. What we’re doing is putting to use fallow public assets with private real estate expertise. The value hopefully gets transferred to everyone involved. Either way, we get more schools and we get better places to live, two things New York City sorely needs.”
YOU SHOULD KNOW
What: The Educational Construction Fund. A program by which the city gets new schools built and paid for by residential developers who buy air rights from the old school on the same property.
Why: The model was invented and perfected in New York.
Where it worked: Azure on E. 91st St. is a 70 percent-sold residential project marketed by Douglas Elliman where buyers maintenance fees go directly to new schools. Go to azureny.com for more.