Wilpons’ real estate empire in spotlight

TRD New York /
Sep.September 01, 2010 07:00 AM

Scrutiny increases with Madoff losses and Mets woes

From left: Fred Wilpon, Citi Field and Jeff Wilpon

In the four years since Mets slugger Carlos Beltran struck out with the bases loaded in the now-infamous Game 6 of the National League Championship, fans across the city have waited for the Mets ownership to shake up the roster and return the team to the glory of its famed 1986 season.

The team — led by real estate magnate Fred Wilpon and his son Jeff — has faced questions from fans over whether the family will turn around a franchise that many believe has been unraveling for four straight years now.

However, the key to those answers may not lie on the baseball diamond, but in the executive suite of Sterling Equities, the Wilpons’ real estate empire, which has long operated in the shadows of their prized Major League Baseball team.

Like many of the nation’s largest real estate investors, the Wilpons are fighting an uphill battle against a persistent credit crisis. To compound matters, they are also dealing with the fallout of the Bernie Madoff scandal.

“The Madoff thing may have cast a pall over the rest of their investments,” Ben Thypin, senior market analyst at the Manhattan-based Real Capital Analytics, speculated. Thypin added that the lingering concerns about the alleged Madoff losses may leave investors questioning how deep the impact is on the rest of the Sterling Equities business.

The latest blow to the real estate firm is a lawsuit filed in U.S. District Court on July 30 by Elyse Goldweber, the widow of a former Sterling Equities employee. It alleges that her husband’s retirement savings were wiped out because Sterling invested in Madoff-controlled funds. The suit claims that the Wilpons not only invested millions of dollars with Madoff, but also that Madoff’s wife, Ruth, and other Madoff family members invested heavily in real estate and other funds controlled by Sterling.

“From at least 1985 until December 2008, certain principals of Sterling invested with Madoff-managed entities in discretionary accounts,” the suit alleges. “During that same period of time, principals of Madoff-affiliated entities and their relatives were also investors in ventures (primarily real estate) syndicated, managed, owned or controlled by Sterling and its principals, and from which Sterling and its principals earned investment and other fees.”

Goldweber has asked the court to certify her case as a class action. Sterling has not formally answered the suit, but it issued a statement saying the “suit has no merit,” adding that its “401(K) plan and its participants were among the many victims of Madoff,” Bloomberg News reported.

Sterling Equities did not respond to calls from The Real Deal for this story.

While the Wilpons haven’t publicly discussed the full financial impact that they’ve felt from the Madoff scandal, court documents show that they withdrew more funds from Madoff than they previously invested, suggesting that they profited from their Madoff investments. However, they filed court papers challenging the ruling that denied them compensation for Madoff-related losses.

Meanwhile, Forbes estimated in April that the Mets are the third most valuable franchise in Major League Baseball, at $858 million, trailing only the crosstown rival New York Yankees and 1986 World Series nemesis Boston Red Sox. The magazine estimated the Mets’ annual revenue at $268 million and operating income of $26.2 million. But after a series of embarrassing off-field incidents (including the civil suit filed against pitching ace Johan Santana and the arrest of star closer Francisco Rodriguez) and an extended losing skid this summer, there are concerns that attendance at Citi Field, the team’s new $800 million stadium, and viewership on their television network, SportsNet New York, could take a hit for the rest of the season.

In addition, Citi Field has suffered from forces beyond the Mets’ control. In February, Moody’s Investor Service and Standard & Poor’s slashed the stadium’s ratings to junk status, citing financial problems at Ambac Assurance Corp., the firm that insures the stadium’s reserve fund. The lower bond rating means borrowing costs for the Mets could go up.

No white knight



Mets fans have always invoked the catchphrase “Ya Gotta Believe,” which was coined in the 1970s when the team pulled off a major coup when it won the division title after being in last place. But if the team needs a white knight to shore up their finances, a commercial real estate company is hardly the best place to turn to during these tenuous times.

Still, Sterling is one of the nation’s largest family-owned real estate funds, with 23.3 million square feet of commercial property and 57,800 residential units across several states. It also has 8.7 million square feet of retail space and several sports-related entities, including Citi Field, the Brooklyn Cyclones (a minor league affiliate of the Mets that plays in Coney Island) and SNY, the cable network dedicated to the Mets, Jets and other New York sports teams.

Meanwhile, Sterling American Property Inc. — a series of funds created in a 1991 venture with American Securities L.P. — controls more than $4.5 billion worth of assets in 43 states. (A spokesperson at Sterling American declined to comment.)

While the vast majority of Sterling’s real estate business is based outside of New York, the Wilpons do have several major commercial and residential properties in Manhattan.

In December 2007, Sterling partnered with the Cheshire Group, a veteran investment firm, and rolled the dice on a high-profile residential gambit, buying the historic Devonshire House for $110 million.

The Emery Roth-designed building, at 28 East 10th Street, was one of the last major residential sales to close in New York before the credit collapse in September 2008. Wilpon helped assemble a high-powered team of interior designers and architects to reposition the landmarked 19th-century rental building (one of the first in the city to have an elevator).

“It’s one of the more massive conversions that have taken place, and certainly one of the most expensive ones,” said Andrew Berman, executive director of the Greenwich Village Historical Society.

The developers put about half the building’s units up for sale, with more than a third of the existing tenants remaining under rent-stabilized leases. Closings began in June, with units selling for about $1,600 a square foot, according to data provider StreetEasy.com, slightly below the original prices stated in the offering plan. In addition, PropertyShark.com shows that 22 sales have closed in the building.

Just last month, Eastern Consolidated brokered a $10.35 million deal to sell the Devonshire retail space to the Brodsky Organization.

The Devonshire is not the only current Manhattan project under the Wilpon umbrella.

One month before Lehman Brothers crashed in 2008, Sterling American bought a 91-unit rental building at 845 West End Avenue in Manhattan for $83 million and converted it to condos. The units, which are being marketed by Corcoran Sunshine, recently hit the market with prices ranging from $1.8 million for a three-bedroom to $3.7 million for a four-bedroom, according to StreetEasy.

The site shows that four of the apartments are currently in contract.

While the Wilpons have successfully managed a number of real estate projects since the boom ended, they have also felt the aftereffects of the credit crisis.

In San Francisco, one of the company’s prized acquisitions, an office building at 333 Bush Street, faced problems after its largest tenant, a 118-year-old law firm called Heller Ehrman, slid into bankruptcy in December 2008 and eventually shut down. Sterling and its partner, Houston-based Hines Interests, had just acquired the building in June 2007 for $281 million.

“At the time it happened, there just was not any demand [for space],” said Colin Yasukochi, vice president of research at Jones Lang LaSalle in San Francisco. “There wasn’t really much hope of finding a replacement tenant of that size.”

Sterling and Hines were forced to hand the property back to lenders; however, the building failed to sell at auction. Eventually, Brookfield Properties, a mezzanine lender on the project, foreclosed and took the building back.

Meanwhile, closer to home, Sterling American had acquired a 128,000-square-foot property in Hauppauge, N.Y., called Woodlands Office Park, for $20.2 million. But the Wall Street Journal reported last month that after Sterling fell 90 days behind on payments, leaving a loan balance of $12.7 million, a special servicer had to step in.

Wachtler Knopf Equities, which manages the park, did not return repeated calls.

Prized possessions



Fred Wilpon cofounded Sterling Equities in 1972 with Saul Katz, a childhood friend and the husband of his sister Iris.

Wilpon grew up in Flatbush, where he idolized the Brooklyn Dodgers and played high school ball with Sandy Koufax, who went on to become one of the most dominant players in baseball during the 1960s.

Barry Gosin, president of commercial brokerage Newmark Knight Frank, lived three doors down from the Wilpons.

“Fred’s brother Richie was my closest friend growing up,” Gosin told The Real Deal. “They were probably the only successful people I knew growing up in Brooklyn. They’re the reason why I got into the business.”

Gosin later shared an apartment with Richie while Richie traveled the country, helping the family acquire and manage residential apartment buildings. Years later at Newmark, Gosin worked on deals with Sterling, with his firm finding tenants for Sterling’s commercial properties.

Gosin concedes that Sterling may have been impacted by the downturn, but he still sees the firm in growth mode. “Everyone in the last couple of years has slowed down,” he said. “I think they’re still doing deals around the country.”

In New York, one of the company’s most prized possessions is 575 Fifth Avenue — a former Korvette’s department store that Sterling acquired for $25 million in 1980. The site, originally planned as a commercial building for diamond merchants, was redeveloped under a partnership with Credit Suisse First Boston into a 40-floor skyscraper with office and retail space. It was once home to restaurant Rusty Staub’s on Fifth, founded by the former Mets slugger.

In 2005, during the boom years, the Wilpons sold the tower to MetLife for $385 million. Sterling was represented by heavyweight commercial brokers Bill Shanahan and Darcy Stacom of CB Richard Ellis. The deal, a successful sale for the Wilpons, eventually closed in 2006, the single largest commercial office building sale in New York that year.

Attorney Chris Smith, who represented Credit Suisse First Boston in the 575 deal, praised Wilpon and Katz as savvy investors.

“They were good partners all the way through,” Smith recalled. “Certainly they were instrumental in effecting the sale.”

In 2006, Sterling Equities also acquired one of their first major Long Island property portfolios, an irony since the firm is based in Great Neck. The deal involved a seven-building portfolio from Syosset-based Blumenfeld Development Group.

Jack Britvan, owner of Commercial Realty Services of Long Island, said Sterling has established itself as one of the most respected landlords in the area, for its fair treatment of tenants, prompt commission payment policies, and the quality of the properties it manages.

“If they walk past a piece of paper on the sidewalk, they pick it up,” Britvan said. “They take care of [their buildings] like it’s their own home, they really do.”

Sports authority

Sterling has also long considered Long Island a natural expansion of its sports empire.

In 2006 it announced a $300 million joint venture with Blumenfeld to redevelop the Nassau Coliseum, the aging home of the New York Islanders hockey team. However, the plan — which would have included a light-rail terminal and a village for nearby Hofstra University — never materialized for a combination of reasons, including funding issues and government approvals.

Sterling has more recently reportedly been in discussions with Lighthouse Development Group and with Islanders owner Charles Wang in connection with a new plan to relocate the hockey team to Flushing Meadows and build it a new arena next to Citi Field.

Wang is also reportedly entertaining discussions of selling the Islanders to the Wilpons, despite whatever financial trouble they may be experiencing behind the scenes.

New York University professor Wayne McDonnell, a noted expert in sports management and economics, said Nassau Coliseum is one of the worst sports arenas in the country and plans to redevelop are desperately needed.

“They need to tear that place down,” said McDonnell. “If you’re trying to recruit free agents and you’re trying to recruit people to the facility, you’re going to lose people.”

“I actually think with the Wilpon family entertaining those conversations with Charles Wang, it would be a brilliant idea,” McDonnell added.

However, before the Wilpons pull off any expansion of their sports and real estate empire, observers say they will have to answer the lingering questions about their existing businesses.

 

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