The Real Deal New York

Village property valuation triggers lawsuit

Building owner wants analysis by Robert Knakal, Woody Heller, rejected

August 15, 2012 06:00PM
By Adam Pincus

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Robert Knakal (top), Woody Heller (bottom) and 820 Broadway

Families that have for decades owned a mixed-use building in the Village want a recent appraisal by two of the city’s most prominent investment sales brokers, Robert Knakal and Woody Heller, tossed out. The owners are alleging that Knakal was not an impartial party.

Owners of the 133-unit apartment building at 820 Broadway, including members of the Goldstein, Burton and other families, filed a petition yesterday asking a judge to block a price analysis of the 13-story building that valued it on June 25 at $15.6 million. They also hope to block Knakal and Heller from serving as arbitrators in subsequent valuations of the property.

The unusual case provides a rare view to the public of the complex and subjective process of determining the value of property outside of a sale. In this instance, the valuation determines how much an affiliate of Midtown-based Heller Realty will pay the property owners for a long-term ground lease on the property. Different entities have owned the ground lease covering the apartment building since 1961, and the parties are working out what the lease payments should be for the current 20-year period. (The actual annual payment is set at 6 percent of the property’s value, court records show).

To determine the fair market value of the building, the Goldstein and Burton families hired Bradley Mendelson, an executive vice president at Cushman & Wakefield in January 2010, court records show. Heller Realty hired Woody Heller, an executive managing director at Studley, on March 2010.

Mendelson put the value of the property at $55 million, or about $443 per square foot, according to court documents. Heller, meanwhile, put the value of the property at $8.8 million, or about $70 per foot.

But there is an important twist. The lease required the appraisers to determine the value of the property as if it were vacant and unimproved, but with the long-term lease. In this instance, the existing building is almost twice what current zoning would allow.

So using the number of square feet that can be built now, which is 67,980 square feet according to PropertyShark.com, Mendelson’s appraisal would put the value at $809 per foot, and Heller’s would be about $130 per square foot. The final number, $15.5 million, would yield a price per foot of $229 per foot.

To bridge the wide gap, in accordance with the terms of a court order, Mendelson and Heller selected a third party as an impartial arbiter. In February 2012, they turned to Robert Knakal, chairman of Massey Knakal Realty Services, to be the neutral expert to determine the value. Once any two agreed to a price, the value was set, according to court papers.

Knakal, Heller and Mendelson sat down for two meetings in June. On June 25 Knakal and Heller signed what court records said was an appraisal setting the value of the property at $15.6 million. Later, the building owners became aware that Knakal was the broker representing an affiliate of Heller Realty in the sale of 640 Broadway, which closed on Feb. 2, 2012 for $32.5 million.

The property owners claim they were not informed of what they claimed was a conflict of interest. But an attorney for Heller Realty disputed that in a letter sent Aug. 7 to an attorney for the owners. “Full disclosure was made. The facts are clear and the integrity of the appraisal process is beyond question,” Ronald Greenberg, a partner with law firm Kramer Levin Naftalis & Frankel, wrote.

Paul Massey, CEO of Massey Knakal, declined to comment. Heller, Mendelson, the property owners and Heller Realty did not respond to requests for comment.

  • One

    Brokers do not appraise property. They provide valuations. They estimate the value at which they think a property would trade. No one knows for sure at what price a property will trade until it goes to market.

    Allow the brokers to take it to market. Get 20-30 offers. Then you will know the value of the property.

    No one speaks louder than a motivated buyer.

  • Questions

    If it’s based on the highest and best used vacant and unimproved, then it seems like it could be worth a lot since it’s based on the valuation of the best use of hypothetical property, not on the building that is currently there. What is the purported evidence that Mr. Knakal made a full disclosure about his business dealings selling a $32.5 million property for the tenet?

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