Gary Barnett Is Chasing Cash Flow Over Condos

Gary Barnett has already established his legacy as one of New York City’s top luxury condo developers. Now, with a plethora of discounted sites at his fingertips and a subdued condo market, the man who redefined building for the ultra-wealthy is entering a new era.

His firm, Extell Development, has been on a dealmaking blitz, unusual for a company that has historically moved slowly and silently. Its upcoming New York City projects range from hotels and offices to even healthcare, a departure from the for-sale residential towers — including two Billionaires’ Row supertalls — that Barnett has built his reputation on.

“Our intention is to move the company much more in the direction of build-to-cash flow or buy-to-cash flow,” Barnett said during a conference call with investors on Nov. 30. “That doesn't mean we won't do any more condos. We still probably will, if the right opportunity comes along, but that's not our focus.”

Extell isn’t public in the U.S., but it is among several real estate firms that raise money from Israeli bondholders. That process requires certain public disclosures on the Tel Aviv Stock Exchange, where the conference call was accessed by Bisnow. 

Through a spokesperson, Barnett declined to answer questions about the pivot from condos to cash-flowing properties.

Still, his comments on the call provide a window into his thought process around Extell’s myriad new developments in the works across Manhattan and recent purchases that have raised eyebrows.

He is building a medical office tower on the Upper East Side, an Ikea-anchored office building on Fifth Avenue and an eye-popping hotel and amusement ride attraction in Times Square. He also bought a loan tied to a struggling Midtown office tower and is in position to foreclose on its owners.

All this is coming after most of Extell’s recent projects have ridden the luxury sales boom that followed 2008, when investors looked to tangible assets to store their wealth. But an increase in supply, along with economic headwinds, started cooling the market around 2015. 

Another burst of activity came in 2021 as interest rates reached all-time lows. The market has since softened again. Sellers have had to mark down apartments from the soaring prices they once thought were achievable. 

At Central Park Tower — at 1,550 feet, the world's tallest primarily residential building — a duplex once asking $175M sold for $115M last year. Another penthouse in the building went from asking $250M in 2022 to $195M a year later.

In at least one of its condo projects, Extell has adjusted its strategy to bring in cash as it pays down debt. Barnett told investors that the company is renting certain units in One Manhattan Square.

As of Sept. 30, the 212 apartments in the 815-unit building were being rented, according to the company’s third-quarter report, filed on the Tel Aviv Stock Exchange. The building is more than 70% sold, Barnett said on the call.

“We’ve paid down over $50M of debt on our rental component in OMS as we sell,” Barnett said.

The developer sold the final unit at One57, his first supertall on Billionaires’ Row that looms 1,000 feet over Manhattan, Crain's New York Business reported this month. The project was delivered in 2013 but never achieved the sales momentum Barnett hoped.

“It was not a loss,” he told Crain's. “It was profitable, but not for 29 years of really hard work and nail-biting situations.”

Compared to those shiny supertalls, one of his most recent purchases looks vastly different. Barnett reportedly bought the mezzanine debt on Worldwide Plaza last month, effectively giving him control of the nearly 2M SF office tower. 

After the building at 825 Eighth Ave.'s occupancy fell from 91% in 2023 to 63% in March and an appraisal in April slashed the Midtown tower’s value by 80%, its owners defaulted on their obligations. Barnett, as the mezzanine lender, scheduled an auction for the property's ownership for Jan. 15, Bisnow first reported. 

At the same time, Barnett is continuing to build new. Among Extell's earliest projects in the pivot is 1520 First Ave., a 435K SF medical office tower anchored by the Hospital for Special Surgery that delivered this year.

It took a decade to piece together the site, Barnett said at a Bisnow event in June. 

“When we had the site fully assembled, we had to decide what to do with it. We had lots of condos, so I figured, ‘What the hell, let's build a medical center,’” Barnett said onstage. “The truth is that we did see an opportunity to diversify somewhat, and we saw a need in the marketplace.”

But Extell's most dramatic venture is 740 Eighth Ave., where Extell is building a supertall mixed-use hotel featuring a drop ride a thousand feet above Times Square. Roughly nine floors of the 52-story tower have risen so far, he said.

He said on the Nov. 30 call that Extell expects to close a construction loan for the project, known as The Torch, during the first quarter. Bisnow previously reported that the firm has lined up as much as $1.3B in financing for the development. 

“We're in a position where the hotel could open up in less than three years. The building should be finished in four years,” Barnett said. “We're expecting it to generate enormous cash flow for the company.”

The company already owns a handful of hotels in Times Square and resorts in other parts of the country, as well as operating third-party management firm Extell Hospitality Services.

The portfolio also includes a few rental properties and two offices: the Insurance Exchange Building in Chicago and the International Gem Tower, specifically designed for jewelers in New York City’s Diamond District.

Barnett is known for taking his time to piece together assemblages. Several of his projects have been decades in the making, such as 570 Fifth Ave., where he is planning a full-block office tower with Ikea occupying the retail space at its base.

The real estate downturn has sped up his ability to accumulate assets. Extell picked up 655 Madison Ave. for approximately $160M after Williams Equities was determining a new future for the building, having already filed a demolition permit at the site. There, Barnett is planning a mixed-use supertall with residential, office and retail, according to filings with the Department of City Planning. 

Extell’s project pipeline also includes the former Wellington Hotel at 871 Seventh Ave., where it is planning a 1,050-foot tower with 156 hotel rooms, 130 residential units, 55 parking spaces and ground-floor retail, according to city filings. 

The developer also acquired the multiproperty former Disney campus on Columbus Avenue and West 66th Street. The firm has filed permits to build a 25-story building at 37 W. 66th St., though Barnett has a habit of changing plans to dramatically add square footage later in the process.

It is also planning a 1,200-foot tower at 77 W. 66th St. that has faced pushback from the well-to-do neighborhood, with actor Tony Danza leading protests against Barnett.

Many of the coming projects are being supported by $1.2B of preferred equity from an unidentified hedge fund, Bisnow first reported. Barnett said the financing deal closed in early July and that “we have all the money we need” as a result. 

During the call, Barnett was questioned by Israeli bond investors about Mayor-elect Zohran Mamdani and the impact the democratic socialist would have on the city. In response, the developer said that “we worked very hard to defeat him” but that he was “cautiously optimistic” now that Mamdani has been elected.

Barnett was among the real estate executives who financially backed former Gov. Andrew Cuomo during the race. Following Mamdani’s victory in the primary, Barnett and his firm donated nearly $300K to political action committees supporting the former governor. 

“Of course, economically, we're concerned that he does stupid things in order to raise money to give away to his voters,” Barnett said. “That's a concern because one of the engines of creating taxes and revenue for the city [is] real estate.”

Mamdani will take office at the beginning of the year and has introduced a transition team to guide him as he settles into the role. Among those involved in the transition are Partnership for New York City President Kathryn Wylde, Open New York Executive Director Annemarie Gray and Two Trees Management CEO Jed Walentas, who serves as the chair of the Real Estate Board of New York. 

Barnett said that the appointments have been “pretty reasonable.”

“Most of them are not far-out lefties, stars in the eyes, ‘We can do anything,’” Barnett said. “On the other hand, most of them will take direction, and they're certainly still leaning left.”