The Real Deal New York

Astor master

With a mega-construction loan in hand, developer Edward Minskoff is betting the bank on his speculative Astor Place office tower.

February 01, 2012
By Adam Piore

Edward Minskoff

In New York City, possibly the only thing rarer than a developer who can get a $100 million-plus construction loan these days is a developer who can get one to build a speculative office tower.

Recently, Edward Minskoff surmounted both hurdles, winning approval for a $165 million loan to build a flashy, 400,000-square-foot, 13-story office tower in the heart of Astor Place, an area one doesn’t normally associate with new office space.

Minskoff will be looking for rents in the high $80s to $100 a square foot for the top floors, according to Paul Glickman, vice chairman of Jones Lang LaSalle, which will serve as the commercial broker for the building.

Those are numbers that have raised some eyebrows. To get those rents, said Richard Bernstein, vice chairman of Cassidy Turley, the market will need to climb another 10 to 15 percent.

“The fact that the building is not online today is a good thing,” he said. “Once we get beyond the election, I think the market is poised for another spurt in prices. But we would have to see some absorption to take away some of the supply.”

Minskoff — who is in his early 70s, wears his white hair slicked back Gordon Gekko–style and favors well-tailored business suits with colorful suspenders — has a long history of anticipating market trends.

Even so, his plans are ambitious. Minskoff could name just one other completely speculative office tower that has been constructed in New York City in the last 20 years. And its fortunes so far aren’t especially encouraging.

More than a year after SJP Properties officially opened 11 Times Square, the 40-story, 1.1 million-square-foot tower remains 62 percent vacant, according to data from the CoStar Group. Recently, the developer replaced leasing agent CBRE Group with JLL.

It also filed plans to convert some of the office space to commercial condos.

If demand for his office space falls short, Minskoff’s options will be limited. He purchased the lot from Cooper Union, knowing that the zoning allows only commercial or retail on the site.

Nevertheless, Minskoff, who sat down for an interview with The Real Deal last month, said the sale immediately struck him as “a great opportunity.” In addition to easy access to mass transit, the area is “a very, very attractive neighborhood for people to work in” — especially young, creative types in competitive industries, he said.

A personal bet

Fumihiko Maki, Paul Glickman and 51 Astor Place

Clockwise from top left: 51 Astor Place architect Fumihiko Make, a rendering of 51 Astor Place and leasing agent Paul Glickman of Jones Lang LaSalle

The 51 Astor Place site sits on an island at the top of Astor Place, bounded on all four sides by streets — Third Avenue, Fourth Avenue, 9th Street and Astor Place — providing the space needed to create an architecturally unique structure.

Minskoff takes pride in a discerning eye, honed over decades building an art collection that includes masterpieces from the likes of Pablo Picasso, Roy Lichtenstein, Jasper Johns, Jackson Pollock, Damien Hirst, Takashi Murakami, Andy Warhol, Willem de Kooning and Jean-Michel Basquiat. So it’s not surprising that he hired the Pritzker Prize–winning architect Fumihiko Maki to design 51 Astor Place. The design is a distinctive Neo-Modernist edifice with three parts, consisting of a low-lying glazed box, upon which he will stack glass and dark granite geometric shapes. It’s a bold design that promises to transform the feel of Astor Place. Minskoff is banking that the cachet will draw the big-money tenants he’ll need to make the project work financially.

So far, the JLL team handling the leasing — which, in addition to Glickman, includes Peter Riguardi, president of the company’s New York region; Mitchell Konsker, vice chairman; and Cynthia Wasserberger, managing director — has seen “significant interest” from technology, finance and publishing companies, Minskoff said.

“We’re in conversations with a number of different tenants [and are] already trading paper,” Glickman said. “We have proposals [and] counter proposals.”

Minskoff said the building, which is scheduled to be ready for tenant construction at the end of 2012 and open for business in the spring of 2013, is “one of the smallest buildings I have developed in the last 25 years.”

“But I think it’s the coolest,” he said. “It’s not just another tall box. It will have an identity. It’s going to be very, very, very visible. It’s going to be an iconic building.”

And he’s betting his own money on that prospect.

He estimated the total development cost to be north of $300 million, backed with a $165 million construction loan from a Bank of America–led consortium of lenders that also included TD Bank, PNC and U.S. Bank. The rest of the equity comes from Minskoff himself and his partner Rockwood Capital. (Minskoff declined to say how much he personally contributed to the deal.)

“I don’t think that others in our industry so easily could get a construction loan for a 100 percent vacant office building,” he said. “But I never doubted for a minute that we would be successful in getting the construction financing we needed for this property. I have developed more than 37 million square feet of office space around the United States, and I have never given back a building — ever.”

Mike Kaufman, who as a partner at the Kaufman Organization has brokered deals for a wide array of tech companies, including Apple and Infosystems, noted that the building is surrounded by tech tenants, as well as big-name fashion houses.

Just a block away is 770 Broadway, the 15-story former home of the Wanamaker Department store, where AOL relocated its corporate headquarters in 2008, joining Viacom International, J. Crew and the publisher VNU.

A number of tech companies have space to the south on Lafayette Street. And slightly to the north, Apple, discount-deal website Living Social and Yelp all have significant space.

“I agree with the location,” Kaufman said. “This will attract creative types.”

However, in order to get high rents, he said, “they will need a certain corporate type. Obviously an entrepreneurial startup is not going to go there.”

Career changer

The grandson of the legendary New York City developer, Sam Minskoff, Edward Minskoff arrived in New York City in the late 1960s with nothing but a beat-up used car and a few hundred dollars to his name. His uncles and cousins who controlled the family real estate empire did not get along with his side of the family, and he has long insisted that he “never took a penny from my family.”

“It happens sometimes that you have families that are cohesive, and sometimes families that are dysfunctional,” he said. “Unfortunately, I was on the wrong side of that.”

But his connections still helped.

After growing up in Washington, D.C., and Southern California, Minskoff attended Michigan State University, then studied finance at UCLA Business School, during which time he helped manage the construction of two apartment buildings being developed by his father.

When he arrived in New York in 1967, he took a job as a broker at Cushman & Wakefield to “learn leasing.” During that time, he claims, he brokered the largest commercial lease done up to that point. The deal, he said, was structured to allow his uncles, who controlled the family empire, to acquire the variety store W.T. Grant’s headquarters at 1441 Broadway, so that W.T. Grant could then move and lease roughly 500,000 square feet of space in another building owned by his uncles at 1515 Broadway.

After roughly two years, Minskoff left Cushman and moved to Lehman Brothers, where he worked as a senior vice president specializing in real estate. At the time, many big U.S. retailers owned thousands of properties nationwide and were coming to believe that getting them off their balance sheets and raising the cash would be better for business. Minskoff helped structure deals to sell the properties as securities to investors, and rented the properties back to the retailers under long-term 30-year leases.

During his six years at Lehman, Minskoff said he helped raise billions of dollars and made contacts throughout the financial world.

Upon leaving the company in 1976, he set up his own real estate firm, specializing in property ownership, consulting and debt financing, and began working with Paul Reichmann, the scion of a Toronto-based real estate family that owned a billion-dollar Canadian developer called Olympia & York.

Reichmann, who did not own any properties in New York, had agreed to buy a 48-story tower that four banks had foreclosed on with Minskoff serving as both the broker and an investor at 1633 Broadway, near Times Square. But when that deal fell through, Minskoff came up with a better idea.

In 1973, two moguls, Harold and Percy Uris, had sold a package of nine buildings to a company controlled by Warner Communications. And around the time the 1633 Broadway deal fell through, Warner CEO Steven Ross announced that he had decided to liquidate the Uris holdings — which were 55 Water Street, 2 Broadway, 60 Broad Street, 245 and 320 Park Avenue, 850 Third Avenue, 10 East 53rd Street, and 1290 and 1301 Sixth Avenue.

Tapping his connections, Minskoff was able to get a meeting with Ross. At the time, Ross had already entered into protracted negotiations with developer Sam LeFrak, but had been unable to reach an agreement.

“There were a lot of people in my industry that were circling the package of properties, but most of them wanted to do complicated, structured deals,” Minskoff said. “I met with Steve Ross, and I asked him how he wanted to get it done.”

“‘I don’t want to take back paper,’” Minskoff recalled Ross telling him. “‘And I don’t want to sell one building at a time. I want to sell the whole package.’”

So Minskoff called Reichmann. And within 10 days, Minskoff claims, he was able to broker an all-cash deal.

In the depressed New York market of the mid-1970s, Olympia & York ended up acquiring eight prime buildings, totaling 11 million square feet. Overall, the cost was about $56 million, plus the assumption of about $288 million in debt.

To some it seemed risky. New York was in danger of falling into bankruptcy, and the properties needed tens of millions of dollars in upgrades. Plus, many of the buildings were saddled with leases that included caps on rent escalation.

Even so, Minskoff estimated that the rents, which averaged about $10 a square foot, would average about $18 a square foot within 18 to 24 months.

He was wrong, very wrong. Instead, over a three-year period, rents rose to the mid-$30s. The value of the buildings appreciated over seven years, he estimates, from about $334 million to about $3.5 billion.

It was a career-making deal. Soon, Minskoff was working for Olympia & York, overseeing most of the company’s North American operations. His contract included the opportunity to purchase a $10 million equity stake in the company, bankrolled with a loan from the Reichmanns, according to the 1997 book “The Reichmanns,” by former Businessweek reporter Anthony Bianco.

“There are certain talents which are in the creative field — development of new ideas, new concepts,” Reichmann once said. “Mr. Minskoff had these particular talents. … As an executive he was wanted for his creative talents, not for his expertise in the field, because that you can hire easily.”

During his time at the company, Minskoff oversaw an aggressive expansion of the firm’s New York presence, most notably with the construction of the 7.5 million-square-foot World Financial Center. At the time, he noted, the Wall Street Journal ran a front-page story “saying I was certifiable for ever committing to build 7.5 million square feet all in one fell swoop, but I didn’t think the project would have been successful unless we did that much space.”

Minskoff believed in the project, in part because it was located in proximity to billions of dollars of mass transit — a benefit he also sees applying to his Astor Place property today.

“The World Financial Center was actually a deal that when I did it, I really never thought, and still don’t think, that I could ever duplicate it — not in my lifetime,” he said. “I chose every piece of stone in that development.”

No more tantrums

From left: 101 Sixth Avenue and 101 Warren Street

When Minskoff left the company after five years, he sold his equity stake back to Olympia & York for $40 million, pocketing $26 million in cash.

That money helped bankroll Edward J. Minskoff Equities, the firm he founded in 1987. Today, in addition to deploying his own capital, he also invests for a wide array of “institutions, private equity funds, high-net-worth individuals and friends in the industry,” according to a spokesman.

He has also done joint ventures with partners ranging from the State Teachers Retirement System of Ohio to Vornado Realty Trust. In addition, he owns and manages about 4 million square feet, mostly in New York City.

Through the years, Minskoff has earned a reputation for his strong opinions and has been variously described — to quote from press accounts from the early 1990s when he teamed up with hedge fund Odyssey Partners to purchase the old IBM headquarters at 590 Madison Avenue for $200 million — as “controlling,” “tenacious as a bulldog” and prone to “rampages and tantrums.”

Back then, Minskoff acknowledges, he was motivated by a “chip on his shoulder” against his family.

“But I have far surpassed that, probably over 20-some years ago, so that part of my mindset doesn’t exist anymore,” he said. “I’m totally at peace with it. … Today, I guess I am much more comfortable with myself. So it’s probably not as intense as it was.”

However, he still does, on occasion, clash with partners.

At the 414,000-square-foot office building at 101 Sixth Avenue, Minskoff has, in recent years, repeatedly butted heads with partner the Andalex Group. Minskoff constructed the building in 1991 and with Andalex leased it to Local 32BJ of the Service Employees International Union.

Late last year, after the SEIU announced plans to vacate the site and move to a smaller space, Minskoff brought out Andalex for an undisclosed price. Andalex did not return calls for comment.

“We didn’t get along; let’s put it that way,” Minskoff said. “There was no chemistry between us and the direction we were going in was not the direction I wanted to go in. … I bought 100 percent of it, and I will not be inhibited moving forward by their actions.”

Minskoff is now planning a gut renovation there, so that “the building will be 21st-century brand-new when we are done.”

(The mortgage on the property expired in early December while Minskoff and Andalex were completing their deal, which earned 101 Sixth a spot on a recent list of properties with distressed loans. But Minskoff said the lender was in the loop the whole time, and there was never any question that the loan would be extended. He signed a two-year extension on the mortgage with the same lender on Dec. 30, as soon as the deal with Andalex was complete.)

Despite occasional reports of his contentiousness, some who’ve worked with him in the past praise his vision.

In 2008, Minskoff completed a 1 million-square-foot, mixed-use development in Tribeca, begun in the wake of the 2001 World Trade Center attacks.

The site, which included a retail building at 270 Greenwich Street, residential condos at 101 Warren Street, and a 12-story apartment building at 89 Murray, is “one of the greatest success stories in the history of development in New York City,” insisted James Lansill, a senior managing director at the Corcoran Sunshine Marketing Group, which a year and a half ago finished up the sales of 234 condos at the site.

“He took a neighborhood that was a relatively barren kind of transitional space and converted it into a thriving residential community,” he said.

Minskoff, he added, is “his own guy. He’s a leader, not a follower, and I find that doesn’t always go with being polite. It’s very easy to get really nervous in this industry, and want to change strategies, and he is just a man with very strong convictions.”

Not all of Minskoff’s investments, of course, have worked out as well.

He recently abandoned plans to build a 635-room dormitory in Long Island City, selling a 238,000-square-foot building for $21.5 million, five years after purchasing the property for $15.75 million. The reason, he insisted, is so he can focus on 101 Sixth and 51 Astor Place.

Whether those instincts will prove him right at 51 Astor Place depends largely on the direction of the market. But Minskoff has little doubt the market will rise to meet him. Close to 26 million square feet of leases are rolling in 2013 and in the first quarter of 2014, he pointed out, “which is the time frame our building will be completed.”

The timing, he argued, couldn’t be better.

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