June 07, 2015

One of Japan’s largest real-estate companies has joined forces with a homegrown New York investment company on a $330 million Hell’s Kitchen development with an unusually large component of affordable housing.

The U.S. unit of Mitsui Fudosan Group, which owns $39 billion in property world-wide, has purchased an undisclosed majority equity stake in 525 W. 52nd St. from Taconic Investment Partners. The two-towered project—one 22 stories, the other 14 stories—will include 392 rental units, with about 80 set aside for low-income residents.

On the same block, between 52nd and 53rd streets and 10th and 11th avenues, is a 102-unit affordable-housing project being developed by the nonprofit Clinton Housing Development Corp. that 525 W. 52nd St. is helping subsidize. Nearly 40% of the units in the two projects will be for either low- or moderate-income occupants.

Developers more commonly set aside about 20% of the units for New Yorkers who can’t afford market rates. The venture of Mitsui, Taconic and Clinton is getting ready to break ground at a time when Mayor Bill de Blasio is cranking up pressure on developers to produce more affordable housing.

The projects are taking advantage of the 421-a tax exemption program, now being considered for renewal by New York state lawmakers in Albany. The exemption has saved local developers billions of dollars and is considered crucial to ensuring developers build additional units of affordable housing, according to Mr. de Blasio and several in the real-estate industry.

The larger affordable component also is possible because of a favorable rezoning and proceeds from Taconic’s purchase of additional air and development rights going to the Clinton project.

“It’s pretty unique,” said Charles Bendit, co-chief executive of Taconic.

The Hell’s Kitchen project marks the latest chapter in New York investment for Mitsui, which has been far more successful than most other Japanese real-estate companies in the city. Mitsui was part of a wave of Japanese investment in U.S. real estate in the 1980s, buying the 2.3-million-square-foot tower at 1251 Sixth Ave.

But unlike most other Japanese companies, Mitsui didn’t retreat from the market with huge losses when the commercial real-estate industry collapsed in the early 1990s. Today, 1251 Sixth Ave. is one of the most valuable properties in Mitsui’s portfolio.

Mitsui also remained active as an investor and developer in New York, typically working with local partners. For example, the company is developing a 42-story apartment tower with J.D. Carlisle and is partners with Related Cos. And Oxford Properties Group on a speculative office project at 55 Hudson Yards.

“In Japan, Mitsui often brings together multiple parties to create diverse community developments, so this project was a natural fit for us,” John Westerfield, chief executive of Mitsui Fudosan America, said in a statement.

Taconic Partners was founded in 1997 and has a long track record of investment and development in the New York region. Its successes include redeveloping the office building at 111 Eighth Ave. and selling it to Google Inc. for $1.9 billion and developing 837 Washington St. in the Meatpacking District.

Taconic and Mitsui are hoping to complete 525 W. 52nd St. by spring 2017. The companies moving forward at a time when residential development is booming in Hell’s Kitchen. Other newer developments in the neighborhood include Mercedes House, at 550 W. 54th St., by Two Trees Management and the Durst Organization’s Helena, at 601 W. 57th St.

“There is a whole transformation to the West Side that is taking place,” Mr. Bendit said. “We felt like we were in a good position to take advantage of that move to the west.”