Oheka Castle sold for $72 million at auction. Is that a good deal?

Rare is it that a property like Oheka Castle hits the Long Island real estate market.

There are mansions built during the Gilded Age, Hamptons villas overlooking the water, and, of course, luxury condominiums. But there is no precedent for 115,000-square-foot French-style chateaus built more than a century ago.

So after the castle's tentative sale at auction for $72 million, real estate experts offered a mix of reactions: While the sale fell short of what an appraisal estimated, the price was always going to be difficult to predict. The estate is an outlier in a hard-to-categorize market. It wasn't another Hamptons waterfront property on Dune Road, and Long Island, after all, is not known for its inventory of castles.

The winning bid, experts said, reflected the property's potential. 

Gold Coast Property & Estate Management LLC, led by principals Ronald Browning and Paul Alflen, outbid six other entities last Tuesday during a Manhattan auction for the right to own the castle. A federal bankruptcy court last week granted Gold Coast Property & Estate an eight-day extension to come up with its 10% down payment. 

The secured creditor, 135 West Gate LLC, filed the backup bid. The company, which objected to the extension, bid $60 million for only the real property, bankruptcy court filings show.

An appraisal prepared earlier this year as part of bankruptcy proceedings put the castle's value at $137 million, including the rights to develop 95 condominium units on the property. The 15-acre mansion was valued at $92 million, with the five-plus acres for the condominiums at $45 million.

The most valuable part of the deal is the developers' right to build the condominiums, real estate experts have said.

"It’s the ability to modify the use of the property to something else," Jonathan Miller, president and CEO of Miller Samuels, a Manhattan firm that publishes Long Island housing market reports for Douglas Elliman, said in an interview. "It becomes a logical rationale to pay that kind of number because there is a housing shortage. Prices are at or near record levels."

Oheka owner Kahn Property Owner LLC filed for federal Chapter 11 bankruptcy protection last year to hold off a foreclosure sale. Court documents show power broker and developer Gary Melius, 82, who lives at the castle and has an ownership interest in Kahn Property Owner LLC, owes about $60 million to a secured creditor, and between $8 million and $10 million to unsecured creditors and for professional fees.

'An outlier'

Those development rights make Oheka an attractive target because of the potential for future profits, said Nicholas Campasano, partner and broker at The Agency, a Beverly Hills, California-based real estate business with offices on Long Island.

The appraisal estimates the combined sales value of the property, once the condominiums are built, at $320 million.

Appraising Oheka's value was challenging, experts have said, because there is no other property like it — part owner-occupied home, part hotel and catering business — anywhere on Long Island.

Campasano thought the appraisal figure was “a tall number” because of lingering uncertainty over the condo development.

"I’m not shocked,” Campasano said in a phone interview on Wednesday. “It’s still an amazing sale [and] an amazing price point.”

Miller said the $72 million price matched the previous high on Long Island for this year — 43 East Dune Lane in East Hampton.

Last year, the property at 370 and 372 Further Lane in East Hampton sold for $70 million.

Homes in the Hamptons are regularly listed for more than $100 million, Miller said, with six homes being sold for more than nine figures, according to his records. He said the reason Oheka didn't fetch closer to $100 million is because it isn't near other properties of similar value. The previous high for a real estate sale in Huntington Town was $17.5 million in June 2013 for the home at Lloyd Haven Drive in Lloyd Harbor.

"This is much more of an outlier relative to its local market, versus the Hamptons, where it's pretty common to have sales north of $70 million every year," Miller said. 

'Fair market value'

Completing the condo development could be challenging, Campasano added.

“Even though they got an approval, they still have to go through the motions” of paying building costs and marketing the units, he said. 

Melius bought the property in 1984 for $1.5 million following the closure of Eastern Military Academy. He invested heavily in renovations. 

Maria Babaev, who sells Gold Coast real estate for Douglas Elliman, said any property's price point "is determined by what buyers see in the opportunity and how much they are willing to pay."

"I view the $72 million winning bid as the fair market value established through this auction," Babaev said in an email. The castle's wedding and event package "preserves the estate’s identity while providing a foundation for its next chapter."

"Securing development approvals is a lengthy and complex process, and having that approval in place is a major asset for a buyer," she said.

Last week, attorney Brian Gardner, counsel for Gold Coast Property & Estate Management, said the new owners plan to move forward with development “consistent with prior approvals."