Like many New York City developers, K. Thomas Elghanayan, president of Rockrose Development Corp., didn't realize the magnitude of the destruction caused by the attacks of Sept. 11th until he went downtown and saw it for himself.
"I think 9/11 was a shocker for us," says Elghanayan. "It really knocked the wind out of our sails. I think that's true for all New York City developers. Everything was going great. There were some worrisome things on the radar screen, but, by and large, the office market was strong, the residential market was strong and the future seemed so bright for New York that you could be optimistic."
The day after the attacks, there was a layer of ash that covered the area from Ground Zero out across the entire width of lower Manhattan, explains Andy Singer, principal of The Singer & Bassak Organization, the company's mortgage broker. "No matter where you were, you were walking on a layer of ash and debris, [and] everything looked gray."
The entire area was devastated, agrees Kevin R. Williams, president of DJM Restoration Inc., one of Rockrose's exterior restoration contractors. "It looked like a war zone; there was everything from military personnel to a rescue triage right in front of one of Rockrose's buildings."
Now Elghanayan and his two brothers – H. Henry and Frederick, all equal partners – are much more cautious.
"I didn't realize that we had so many buildings downtown (2,500 units in eight buildings)," says T. Elghanayan. "I never thought that having an overconcentration of buildings in one location was part of the risk. It's hard to imagine that you could get hurt in this sort of very sudden way. Perhaps there's a risk of a neighborhood going down, but not a sudden cataclysmic event."
Rockrose was luckier than some – none of its buildings suffered any structural damage. However, because of the buildings' proximity to the World Trade Center (just a few blocks away), the company's buildings were all evacuated, and they became covered in dust and debris, says F. Elghanayan, president of Rockrose Construction Corp., a division of the company.
Crisis Management Adding to the chaos was the fact that Rockrose was in the midst of relocating its corporate office; everything was boxed and its files were in transit. Three-quarters of the company's equipment and files were in the old building – which was near the United Nations – and the rest was in the company's new office at 22nd Street and Park Avenue. In addition, the attacks caused the company's phone exchange to be knocked out, making communication very difficult.
"While everyone was evacuating, the supers stayed in the buildings," says T. Elghanayan. "They did things themselves, like take care of the pets [that were left behind]. They shut down the buildings. Initially, it was a real disaster."
The company put together a team of 10 people from the corporate office that met every morning to discuss the company's response to the crisis, and to communicate with each other and its residents.
Once the phone service was restored, the company was able to put a message on its voicemail that directed people to its web site for up-to-the-minute information about its properties. The cleanup was a coordinated endeavor among management, the on-site staff and vendors. The company's goals were to make sure the residents were safe, that the buildings were clean and that essential services were operational.
While T. Elghanayan's department was in charge of the cleanup efforts, F. Elghanayan lent his building and renovation expertise, as well as his contacts. His department was able to use its cleaning contacts to help the management team, says F. Elghanayan.
"We had to shut down a lot of the systems [clean them out] and start them up again," explains F. Elghanayan. "We steam cleaned the facades of all the buildings, cleaned and drained every water tank and cleaned the yards and garages; we cleaned everything." In addition, the company cleaned and tested every apartment to ensure that there were no environmental hazards. Every resident received a certificate stating that their apartment was safe for occupancy.
Deal with Residents Rockrose had more problems than just cleaning up the buildings. Because the buildings were evacuated, it gave residents a rent credit for the time that they were not allowed in their homes – which equaled a considerable amount of lost rent. On average, it took residents two weeks to a month to return to their units, says T. Elghanayan.
It also was hard to get residents back into their homes because the city and state were telling them that the air quality was OK, but news reports were saying the opposite. As a result, some residents didn't return.
"Some residents said they were not coming back, no matter what. Some residents came back, but they didn't come back when the government said it was OK to come back," explains T. Elghanayan.
Rockrose decided that if its residents didn't want to return, the company was not going to force them to do so or hold them to their leases. "We gave them back their security deposit and that was it," says. T. Elghanayan. Rockrose could have held its residents to their leases, but realized that it wouldn't be worth the cost or the bad press.
"We took a tremendous amount of financial beating and we have had to carry vacancies," says T. Elghanayan. "We have tremendous vacancies (12 percent to 20 percent) and on top of that, the residents are negotiating with us for rent reductions. We gave everyone a rent reduction between 15 percent and 25 percent."
While Rockrose never expected a terrorist attack, it has always viewed future projects with a doomsday scenario, explains T. Elghanayan. "We ask ourselves, 'If everything goes south, do we have the financial resources to see this project through to the end?'" he says.
Luckily, the owners have watched their pennies, he says. "We progressed in a very sensible way. We didn't bite off too much. We gradually moved up the ranks of doing deals, and we were always very hands on," says T. Elghanayan. Rockrose has grown carefully and put its profits back into the business, explains T. Elghanayan.
Knowing its business and watching its pennies enables Rockrose to build its new developments with cash. The transactional cost of getting construction financing is very expensive, explains T. Elghanayan. "You have to pay legal closing costs, points to the bank, brokerage fees and you only hold the money for a short period of time," he says.
So, the company analyzed the cost of doing construction loan financing vs. using its own funds. Now, when a building is finished, leased up and has an operating history, the company puts a permanent mortgage on the property, says Singer.
"We're very fortunate in a way that we've been conservative financially," says T. Elghanayan. "We've actually built up a large war chest of money so when things are bad we could feed [projects]."
And after the tragedy of Sept. 11th, having that built up reserve was never more important to the success of the company.
After Sept. 11th, cleaning up and offering rent reductions weren't always incentive enough to gets its residents back into their homes.
Teamwork The company joined forces with other owners and developers to help bring back conveniences to the neighborhood. For example, the company lobbied for stores to reopen, so residents would have access to goods and services.
Another program in which the company took part was providing a shuttle bus to transport residents in and out of the area. With part of West Side Highway still closed and the subway not running through downtown, access to Battery Park City was essentially cut off. "There were constant meetings with the Real Estate Board of New York, the Battery Park City Authority, The Alliance for Downtown New York and other owners," explains T. Elghanayan.
The group also decided to stop billing its residents for the Battery Park City Civic Facility, because they didn't have access to the park.
Forward Motion With vacancies up and rents down, Rockrose needed to find a way to get people to move into its apartments.
The company decided to have its leasing offices stay open until 7 p.m. during the week and to open on the weekends, says Sofia Estevez, vice president of marketing. The company also reduced rents for new residents, giving up to one month free as a concession. In addition, the company will pay the broker commission – up to one month's rent. The properties are slowly leasing their vacant units.
Rockrose also increased its level of customer service. "Residents have asked for more testing and cleaning to be done, and we did it," she explains. "If they call us and tell us 'we want you to sweep our floor,' we send somebody up to sweep the floor. Some of them have been pushing the limit, but we are trying to accommodate them in every possible way."
While the company is still trying to put the pieces together, it has taken the opportunity to learn from the tragedy. "One of the greatest lessons I learned is the importance of teamwork," says T. Elghanayan. "The other thing is the importance of becoming proactive: Contact the residents, speak with the residents, find out their concerns, and fix whatever is wrong."