Whatever befalls beleaguered landlord and developer Harry Macklowe and his property empire, his travails are part of a long line of epic busts in New York City real estate. As he and others before him demonstrate, even Gotham’s biggest builders fall from time to time.
When they do fall, they generally follow the Macklowe model: A developer builds or buys a trophy property, pledges it as collateral, becomes overextended and the entire empire topples. “That paradigm happens often,” said Tom Shachtman, author of “Skyscraper Dreams: The Great Real Estate Dynasties of New York,” adding, “The bigger you are, the more collaterized you are.”
Well-known busts include Rockefeller Center Properties, which was forced to file for bankruptcy in the 1990s when it was owned by the Japanese-based Mitsubishi Estate Company, and Donald Trump, whose entertainment company emerged from bankruptcy in 2005. Other less prominent examples echo the experience of Macklowe, who seems headed toward a resolution of his $5.8 billion default to Deutsche Bank. It will end in the surrender of seven buildings purchased with billions of borrowed dollars, thanks to a credit crunch that’s jacked up the price of financing deals in the wake of the subprime mortgage collapse.
Indeed, many of the largest real estate players survived bankruptcy and re-emerged as builders (or, in Trump’s case, also as television personalities).
With Shachtman’s help, The Real Deal has compiled a list of the biggest tumbles by New York City developers. Call them skyscraper nightmares.
Henry Mandel was one of the premier developers of the 1920s. He built hotels like the Lombardy and the Tuscany and an office tower in Pershing Square. Two of his grandest projects were the London Terrace apartments, a project for which Mandel acquired four city blocks in Chelsea and demolished 80 homes on the site, and the Park Vendome on 57th between Eighth and Ninth avenues.
Mandel’s crash came during the early years of the Depression. It was triggered not by his big deals, but by one of his small ones.
Mandel owned a modest building off Union Square. In 1931, a creditor who held a $40,000 mortgage on the Union Square property commenced foreclosure proceedings. Mandel, busy juggling the leasing on London Terrace and the building of the Park Vendome, was strapped, distracted by a messy divorce, and was ultimately unable to pay. In 1934, the Union Square foreclosure was granted. Three months later, Mandel was forced into personal bankruptcy, and his $36 million empire (big money in those days) was dispersed to creditors.
Bill Zeckendorf Sr.
In the 1950s and early 1960s, Bill Zeckendorf Sr. and his company Webb & Knapp controlled what Time magazine called the world’s largest real estate empire. Zeckendorf, who smoked foot-long cigars and hobnobbed with presidents, was so fond of credit that he once remarked, “I’d rather be alive at 18 percent than dead at prime rate.”
He owned hotels, office buildings, shopping centers and housing developments in 17 states, not to mention Canada. His portfolio included the Chrysler Building and the Century City site in Los Angeles.
Zeckendorf’s fall was triggered, Schachtman said, by his plan to build a hotel — the Zeckendorf — at 51st Street and Sixth Avenue. Zeckendorf broke ground, but the property sat as an empty hole. It was bleeding cash, and efforts to sell the site failed.
Hilton Hotels expressed interest, but ultimately built two blocks north. In 1965, Zeckendorf’s company declared bankruptcy, and its properties were sold off. But his family real estate business came back. Today his grandsons, William and Arthur, who developed 15 Central Park West, are two of the biggest developers in the city.
Until the mid-1970s, the Tishman family operated as one firm, the Tishman Realty and Construction Company.
The breakup into three separate companies was partly influenced by the city’s financial crisis and the sharp downturn in real estate that accompanied it. But it was directly triggered by problems with 1166 Sixth Avenue, an office tower the family started building in 1973. The project began with an informal agreement by the one-time communications giant General Telephone and Electronics to lease a third of the building. But after construction began, GTE’s headquarters was bombed in protest of the Vietnam War. Despite Alan Tishman’s urging, the company headed to Connecticut (as many were doing at the time). Tishman was left with a half-built tower and no tenants.
In 1976, Tishman walked away from the property, which was taken over by Equitable Life Insurance. The Tishman family divided its interests into three firms: Alan headed the management company, his brother, Bob Tishman, and Bob’s son-in-law, Jerry Speyer, took control of the development firm, and the construction company was sold to Rockefeller Center Corp. It was later bought back by company executives.
Like Donald Trump, Peter Kalikow was heir to a real estate fortune based in the outer boroughs and moved to Manhattan.
Also like Trump, Kalikow dabbled in takeovers (he bought a big chunk of CBS) and in media, buying the New York Post in 1988. The money-losing Post, by Kalikow’s own reckoning, was a huge distraction.
While he was focused on the paper and its turmoil, he also borrowed around $250 million to build the Millennium Hotel and purchase a collection of small apartment buildings in the east 70s. He planned to knock them down and make way for a luxury high-rise. The plan fell in the wake of tenant opposition. By 1991, he was forced into personal and business bankruptcy. His personal debt exceeded $350 million; his companies owed more than $1 billion. By 1994, though, Kalikow had rebounded strongly enough to be named a board member of the MTA. In 2001, he became the board’s chairman.
Ian Bruce Eichner
In the late 1980s, Ian Bruce Eichner emerged from relative obscurity as the builder of 1540 Broadway, a 44-story office tower in Times Square. While there were problems with construction — including the need to shore up the neighboring Lyceum Theater, which developed a dangerous crack, and the complications of an enormous electronic display on the façade — the main problem was that while the building was going up, the office rental market was coming down.
As the project proceeded without guaranties from major tenants, bankruptcy ensued. The whole episode is captured in “High Rise: How 1,000 Men and Women Worked Around the Clock for Five Years and Lost $200 Million Building a Skyscraper,” an entertaining 1993 book by Jerry Adler. Eichner reemerged as a developer in Florida and Las Vegas (where he has run into financial difficulties anew) as well as in New York.
Olympia & York
After buying nine New York skyscrapers during the 1970s recession and winning the rights to develop Battery Park City, Olympia & York emerged as the largest property company in the world. The company’s biggest difficulty was not in New York or Toronto, where it was formed, but in its London Canary Wharf project.
Problems in London were felt throughout the Olympia & York empire. With the company owing nearly $20 billion, founder and chairman Paul Reichmann was forced to resign in March 1992. The company filed bankruptcy in Canada later that year. By 1996, it had emerged with a new name, World Financial Properties (now part of Brookfield Properties), and still owned 11.5 million square feet of office and commercial space. Reichmann made his own comeback as a developer and fund manager and for a time even regained control of Canary Wharf, which has become a huge success as well.