When David Zwirner announced an expansion in Chelsea in 2018—plans for a $50-million, five-story gallery headquarters in a yet-to-be-built residential tower by Casco Development—the news was greeted with a barrage of press coverage. Located at 540 West 21st Street, the luxury condo building was expected to be completed in two years.
This was an important flex by the mega-dealer at a time when his key rivals—Gagosian, Pace, and Hauser & Wirth—were all in expansion mode. Owning an additional 50,000 square feet would help secure the gallery’s future in Chelsea, its home since 2002. Pritzker Prize winning architect Renzo Piano was tapped to design what would be his first commercial gallery.
The expansion was also important for Zwirner because the gallery was a renter on West 19th Street, its main campus. In 2018, galleries in Chelsea were suddenly competing for space with developers keen to capitalize on the success of the High Line and the rising Hudson Yards neighborhood. Prices were going through the roof. Many longtime owners were choosing to cash out. More galleries were leaving Chelsea for Tribeca.
But things didn’t work out as expected. COVID-19 hit, condo prices cratered, and eventually interest rates surged. Construction loans became much harder to obtain. Тhe building developer Uri Chaitchik couldn’t get additional financing, and the project stalled.
For the past couple of years, the West 21st Street site was just an empty lot behind a fence festooned with posters. Meanwhile, various creditors and stakeholders tried to figure out what to do next.
A restructuring was proposed but the idea was tossed aside in favor of a sale of the property. One entity, identified only as 550W21 Owner LLC, offered a satisfactory undisclosed bid, according to filings.
Then, on Aug. 2, the limited liability company that controls the property filed for Chapter 11 bankruptcy protection, citing $256.7 million in claims from creditors and $95.8 million in assets, according to court filings. The bankruptcy proceedings will facilitate the proposed sale, which has not yet closed, filings show.
At this point “it’s all about the priority of liens and who gets paid,” said Constantine Kalogiannis, founder of Kalo Real Estate Law in New York, who is not involved in the Chelsea condo development or the bankruptcy proceedings.
Secured creditors, who are prioritized, have about $225 million in claims. Then come the unsecured creditors. You do the math.
The entity affiliated with Zwirner, DZ 21st Street LLC, holds the biggest unsecured claim of $28.8 million for a “put option payment,” according to the bankruptcy petition. Renzo Piano Building Workshop, another unsecured creditor, has a $300,000 claim for “trade debt,” meaning services, labor, and materials, court papers show.
How did two savvy global businesses end up in this mess?
A representative for Renzo Piano Building Workshop couldn’t be immediately reached because the company is on summer break. A spokeswoman for David Zwirner gallery said that “the investment could not be secured.” Zwirner chose the project because it was the best option outside of West 19th Street at the time–not because he had a personal or professional connection to the developer–she added, responding to the Art Detective’s questions.
Their relationship began when Zwirner sold some of the excess development rights of the building he owns at 537 West 20th Street to Chaitchik’s proposed 540 West 21st Street development (that abuts Zwirner’s parcel) for $5.4 million, according to New York City property records. The deal also included an 8 percent equity stake in the development for Zwirner, filings show.
Zwirner’s “put option payment” appears to be a buyout by the developer in the event it fails to meet its obligations and deadlines, according to Joshua Stein, a commercial real estate attorney, who is not involved in the case.
Last month, Zwirner cited the developer’s “financial headwinds during Covid” as the reason for his decision to pull out of the project, according to the New York Times, which first reported the news.
While the severity of those headwinds wasn’t public at the time, 540 West 21st Street, isn’t the only real estate casualty in Chelsea. Right across the street, at 541 West 21st Street, a boutique office conversion, which had targeted galleries and tech companies, went into foreclosure this summer, according to The Real Deal.
At 540 West 21st Street, construction didn’t get beyond the foundation work– a complicated and expensive process on the landfill of Chelsea. A year ago, the Department of Buildings registered a complaint saying that the “construction site has been abandoned for about two years,” according to a filing.
The situation wasn’t great for Zwirner. The gallery needed space. Not to mention that many in the art world wondered what’s going on with “the David Zwirner building”–as 540 West 21st Street became known.
So, the dealer began exploring other options.
In February, Zwirner paid $11.7 million for one of the three buildings he’d been renting on West 19th Street, according to property records.
Located at 533 West 19th Street, it will become an 18,000 square-foot exhibition space by Selldorf Architects, which has designed all of Zwirner’s galleries.
“David always preferred 19th Street,” the gallery’s spokeswoman said, adding that the building became available as a result of the pandemic.
The gallery also leased 36,000 square feet at 520 West 20th Street, above David Kordansky and Kurimanzutto galleries, for its offices, which opened in June and were also designed by Selldorf Architects. The total footage of the new configuration is 54,000 square feet, 8 percent more than the original plan at 540 West 21st Street.
“While the space on 21st Street would have been wonderful, we would have outgrown it pretty much before move-in day,” Zwirner told Artnet News. “Now we will have more exhibition space when the new 19th Street galleries are completed and, very importantly, we now have four times the amount of office space, which we needed desperately.”
Now, all Zwirner has left to do is get the $28.8 million he’s owed.