In April, four luxury condos housed in the gilded Parisian-style townhouse at 3 East 95th Street formerly owned by the Lycée Français de New York landed on the market for a combined $61.3 million.
The price is not so outlandish anymore along the leafy corridor of Fifth Avenue. But to some the news was a shock: The landmarked Carnegie Hill townhouse had sold for a mere $15 million back in October 2001. Now the building-spiffed up, albeit, with an extensive renovation-was back on the market at more than four times the sales price, with top-selling Corcoran broker Carrie Chiang.
The earlier sale was part of the school’s ambitious plan to sell its six Upper East Side townhouses to fund the building of a state-of-the-art contemporary school building on East 75th Street. But documents show that poor market conditions hampered those sales even as construction was well under way on the new building, leaving the school with considerably less money than had been hoped for to pay its $94.1 million debt.
Proceeds from the sale of the buildings would have mitigated the burden, but the school reaped a little more than half what the properties were asking for on the open market.
It’s common for a school to assume debt in order to improve services to students-especially the physical plant; the new building has won raves in its first year of operation, and French President Jacques Chirac toured the property back in September. Also that fall, Mr. Chirac awarded François Chateau, the vice chair of the Lycée board, the prestigious medal of the Chevalier de l’Ordre national du Mérite, presented in a ceremony by the consul general of France, Richard Duqué.
Whether tuition and enrollment increases, a likely part of the bargain, add a sour note to this happy Marseillaise remains to be seen.
The school is unique in the city: It follows a formal French educational curriculum and, since its founding in October 1935, has counted Philippe de Montebello, the director of the Metropolitan Museum of Art; Michel David-Weill, the chairman of Lazard Freres; the novelist Danielle Steel; the children of former Vivendi chief executive Jean-Marie Messier; and chef Daniel Boulud’s daughter as some of the school’s blue-blazer- and white-polo-shirt-clad students.
For Manhattan institutions like the Lycée and the many other schools that occupy formerly residential mansions on the Upper East Side, the money game is a survival matter-and much of the money is tied up in Manhattan real estate. Navigating those shark-filled waters is no game for amateurs, which is why the board of the Lycée enlisted top bankers to help them find a way to build a new building, escaping the outdated and fusty if beautiful and chic surroundings of their necklace of Beaux Arts school buildings dotted around the Upper East Side. The goal was to build a cutting-edge 158,000-square-foot metal-and-glass building-complete with a cafeteria designed by Mr. Boulud, two gyms and a 350-seat auditorium.
According to a copy of the bond prospectus filed with the city’s Industrial Development Agency and obtained by The Observer , in November 2002 the Lycée floated three bonds underwritten by J.P. Morgan totaling $94.1 million to pay for the estimated $112.8 million construction of its new Descartes-inspired building that now rises above a one-way block on the eastern reaches of 75th Street.
The bond sale was approved by the city’s Industrial Development Agency in February 2002 and also by Attorney General Eliot Spitzer, who has regulatory authority over nonprofits (the Lycée qualifies as one) and the disposition of assets by city charities.
When mature in 2032, the bond payments of principal and interest will total $195.7 million. Two bonds, Series A and C, totaling $64.1 million, have fixed interest rates, while the $30 million Series B issuance has a variable rate (the school estimated in the prospectus that interest rates will remain at 2.5 percent through 2006, and rise to 4 percent thereafter).
It was the year 2000 when the Lycée had originally sought to fund the construction of a new campus through the sale of its collection of six luxurious Upper East Side townhouses. When first listed in August 2000 with Massey Knakal Realty, the Lycée looked to fetch more than $100 million from the sales. The landmarked buildings languished on the market and endured the post-Sept. 11 real-estate downturn. By summer 2002, when the Emir of Qatar purchased the last of the Lycée’s buildings at 7-9 East 72nd Street for a combined $26 million, the sales totaled only $58.4 million.
“Of course we thought the price of the buildings would be higher,” said Serge Bellanger, an executive vice president and general manager at the French bank C.I.C., and the president of the French-American Chamber of Commerce, who serves as an advisory member of the Lycée’s board. “Clearly, there was a need to restore the Lycée Français in New York. The decision had been made to do it. Was it made in the best financial environment? Probably not. But the ball got rolling and now we’re here and the new building is complete. If this is well managed, the Lycée should be able to make the debt payments.”
Brokers involved in the marketing of the buildings attributed the weak sale prices to the bursting of the Internet bubble and Sept. 11.
“The school was asking a multiple of what they thought they were going to get,” said Paul Massey Jr., the founding partner of Massey Knakal Realty who was first enlisted to sell the Lycée properties before the sales were transferred to the Corcoran Group. “They got a lot less because of market conditions. The board was very diligent about the way they went about marketing the properties. I viewed the sale prices as a mild market correction.”
Other brokers indicated that the dour market in the months following Sept. 11 hampered the Lycée’s ability to reel in big-ticket buyers.
“At the time the Lycée wanted to sell, the market was low,” said Laurance Kaiser, the president of Key-Ventures Realty and a specialist in Upper East Side properties. “The market was hell two years ago. In today’s market, they would have been gobbled up. Everything comes down to timing.”
Indeed, with the $61.3 million listing at 3 East 95th Street, the price is now four times what the Lycée achieved in 2001 when they sold the building.
Real-estate experts say the terms of the Lycée’s sales-the school wanted cash up front and a year delay until the school would vacate the properties when the new building on 75th Street was completed-and adding in the fact that the townhouses required extensive renovations to restore them to private residences, forced the Lycée to sell below market price.
3-5 East 95th Street was purchased by an entity known as Ninety-Five LLC, and is being developed into four luxury condos designed by the noted British architect John Simpson, with such amenities as a private wine vault, 11-foot ceilings and butler’s pantries. The building sits on the corner of Fifth Avenue and 95th Street, and was originally built in 1916 for Marion Carhart, the wife of banking and railroad magnate Amory S. Carhart. The Lycée first listed the Parisian-styled residence for $29.8 million (with the adjoining three-story building at 5 East 95th Street), but only pulled in $15 million. The two buildings combined cover 33,955 square feet, which equals $441 dollars per square foot at the $15 million sales price.
At 7-9 East 72nd Street, where the Emir of Qatar will make his New York residence, the Lycée sold the two limestone buildings totaling 43,619 square feet for $26 million, or $596 per square foot. The building at 9 East 72nd Street was built in 1896 for the carpet upholsterer Henry T. Sloane, and the neighboring building at 7 East 72nd was erected in 1899 for Oliver Gould Jennings. Combined, the Lycée sought $51 million for the two mansions.
The Lycée was asking $17 million for 60 East 93rd Street when the 20,205-square-foot property-the former home of Virginia Graham Fair Vanderbilt-was sold in January 2002 to Carlton Hobbs, a London antiques dealer for $10.6 million, or $524 per square foot.
The Lycée’s 11,315-square-foot townhouse at 12 East 73rd Street, built in 1920 for Henry Allan Jacobs, was first priced at $8 million before Richard Steinberg, a managing director at Warburg Realty Partnership, sold the limestone residence in December 2001 to R.F.R real-estate developer Aby Rosen, who purchased the mansion under the name Chgaro Trust LLC for $6.8 million, or $600 per square foot. Mr. Rosen promptly flipped the property and sold it for $9 million to another developer, Dominion Financial Corporation, in August 2003. Dominion is in the process of converting the residence into a luxurious single-family home, and the company recently went to contract at close to the property’s $18.5 million asking price when a hedge-fund manager snapped up the mansion at nearly 300 percent above what the Lycée got for the limestone building only two years earlier.
Of course, the Lycée did sell off the townhouses only months following the Sept. 11 terrorist attacks, when the market was in a tailspin and the buildings sold at nearly a 50 percent discount off their original asking price of $105 million that the Lycée hoped to garner back in 2000. Even so, the sales per square foot show the Lycée sold the buildings for, in some cases, as little as nearly a third of what the average townhouses were selling for at the time. Combined, the Lycée properties totaled 109,094 square feet and sold for $58.4 million, which equals $535 per square foot. In 2002, the average price per square foot for an East Side townhouse was $1,016, according to the Douglas Elliman Manhattan Townhouse Report authored by Miller Samuel, a Manhattan real-estate appraisal firm. In 2001, factoring in the Sept 11 attacks, Upper East Side townhouses fetched an average of $927 per square foot. In building its new school for approximately $112 million, the Lycée spent $727 per square foot, 35 percent more than it pulled in from the sales of its former school buildings. According to the city’s Department of Education, the average price per square foot for new public-school construction is now $300 per square foot, a 31 percent decline in the average bid of $433 per square foot. The Lycée doled out more than double the price per square foot for the new facility compared to the city’s building expenditures on new school construction.
“They were schools; you were really paying for the façade and the size,” said Jonathan Miller, the president of Miller Samuel, who authored the Elliman townhouse report. “I think a big factor in these sales was the conversion to single-family use. Townhouse sales aren’t purely apples-to-apples. It depends on if you have to change the entire layout.”
According to the school’s audited financial statement for 2002, filed in the bond prospectus, the Lycée had $2.388 million in long-term debt, but now, to fund the construction of the new building at 505 East 75th Street, the school has increased its debt load 40-fold.
Why did the school, realizing that Sept. 11 had severely impacted their ability to sell the buildings at a premium price, go ahead with the financing plan that depended so heavily on revenues generated from the buildings’ sales? And in a flat market, why not wait to build till the prospect of realizing their full asking prices was more realistic?
Repeated efforts to contact Elsa Berry Bankier, chair of the school’s board of trustees, and Yves Thézé, the head of school, were unsuccessful. Calls to other board members were referred to Ms. Berry. Pierre Ciric, the outgoing president of the Lycée’s parents association, declined to comment on the school’s finances or the construction of the new school.
But some French political officials close to the school raised red flags about the financial structure of the plan to build a new campus through the townhouse sale. In October 2000, transcripts from the French senate floor show that Senator Xavier de Villepin-the father of French Foreign Minister Dominique de Villepin, who famously rankled George W. Bush in his opposition at the U.N. to the Iraq war-directed questions to the minister for foreign affairs, Hubert Vedrine, about the costs of the plan to construct the new Lycée building, as well as the decision to use a New York-based architecture firm rather than French architects for the project.
The minister responded that the cost to refurbish and modernize the six townhouses would exceed $85 million without offering an increase in square footage, and though the new building was estimated to cost $120 million, the plan would pose no additional costs to the school, or necessitate tuition increases.
Mr. de Villepin addressed the Lycée’s project again in February 2002, only five months following the Sept. 11 attacks, when he asked about the state of the Lycée’s finances and the decline in real-estate values impacting the school’s ability to fund the project. The minister responded that the French banks in New York had been enlisted to provide short-term loans to the Lycée so that construction could progress on schedule. The minister also said delaying the project was a viable option.
In the bond prospectus, the Lycée said that revenue growth, which includes tuition increases and enrollment increases, will grow at an annual rate of 8 percent from 2003 through 2011. The document states that “the Lycée believes it will be able to continue to increase tuition at this [8 percent] rate, especially in light of its improved facilities.” The document goes on to say “the Lycée’s tuition is significantly lower than the tuition of other top New York City private schools.”
In the document, the Lycée said it has room for 1,200 students in its new facilities. The school forecasts enrollment will grow by 1 percent for the 2003-2004 school year to 1,010, and an additional 4 percent to 1,050 students in 2004-2005 through 2009, with an eventual rise by 5 percent to 1,100 in subsequent years.
According to the Lycée’s own calculations in the bond prospectus, enrollment actually recorded a .9 percent decline in 2001-2002, but tuition revenues for that year rose by 6.6 percent. Sources said the trend shows that to meet the financial obligations of the bonds, the bulk of the revenue growth will come from tuition increases.
Even with tuition growth, the Lycée still costs less than the elite Upper East Side schools that it considers its peers. At the time of the bond issuance in 2002, 12th-grade tuition to the Lycée cost $15,750, compared to $19,100 for the Brearley School, $19,300 for Chapin, $22,280 for the Dalton School and $21,500 for the Dwight School.
Whether the new school building, with an attendant higher tuition, will be enough to reverse student attrition is the school’s next big challenge.