The Real Deal New York

Making nice with Mike: Developers with close ties to City Hall, and who’s out of favor

By C.J. Hughes | April 01, 2012 07:00AM

Mayor Michael Bloomberg

Knowing how to cozy up to City Hall is an important skill for any developer, especially those vying to get selected for lucrative, city-led projects. But even for those who are building “as of right,” meaning they have no government hurdles to clear, having a good relationship with the powers that be can be key for future projects.

Take, for example, the 2007 purchase of the massive rent-regulated apartment complex Stuyvesant Town by a group led by Tishman Speyer.

The $5.4 billion deal was approved, even though many residents of the middle-class enclave staunchly opposed the takeover, fearing they might be displaced. And Mayor Michael Bloomberg did not step in to block the sale — a move viewed by some as tacit support of Tishman’s purchase. (The buyers ultimately relinquished Stuy Town in 2010 after failing to make loan payments.)

Also in 2007, by contrast, City Hall and a slew of elected officials blocked an attempt by David Bistricer’s Clipper Equity to purchase Brooklyn apartment complex Starrett City for $1.3 billion, amid concerns that it could rob tenants of vital affordable housing.

Why differing stances? Some observers speculated that it comes down to relationships. Indeed, Jerry Speyer, Tishman Speyer’s chairman, serves on the board of the Museum of Modern Art, with other city big shots. A former chairman of the Real Estate Board of New York, he also has a stake in the Yankees and sits on the board of the Federal Reserve Bank of New York.

“People loved him, so nobody asked why he was paying a lot of money for Stuy Town,” said one person familiar with the behind-the-scenes maneuvering among elected officials.

Bistricer, on the other hand, was a much more low-key player, who didn’t have the same pre-existing relationships.

“It was Jerry Speyer, the former chairman of the real estate board … who owns landmarks all over town, versus someone who most people never heard of,” REBNY president Steven Spinola told the New York Times in 2007.

In addition, Bistricer was cited for a host of building violations by residents at the other Brooklyn apartment buildings he owned, according to the paper. He was named as one of the city’s worst landlords by public advocate Bill de Blasio in 2010, but was later removed after clearing up violations.

Some have called that characterization of Bistricer unfair because those buildings were troubled when he bought them. Still, “by the time [Bistricer] got his act together,” said a source who asked to remain anonymous, “the narrative had been set.”

Nonetheless, establishing a good relationship with City Hall is a no-brainer, sources say. Bloomberg is considered an efficient and technocratic pro-business mayor looking to grow the economy. And he believes development is a key part of that, sources say.

This month, The Real Deal looked at which firms have established warm relationships with City Hall and other public officials — and which have chillier ones.

Related Companies

The Related Companies' Stephen Ross

It’s no secret that the Related Companies, the 30-year-old industry giant, is a City Hall darling.

In 2005, Related and several others teamed up with the New York Jets to pitch a proposal — which was also being aggressively pushed by Bloomberg — to build a football stadium on the Far West Side. While that plan didn’t come to fruition, the Stephen Ross-led company has remained a go-to developer for the city.

In 2008, Related stepped in as a white knight after Tishman Speyer abruptly bowed out of developing a $1 billion mixed-used project at Manhattan’s Hudson Yards site, which is owned by the Metropolitan Transportation Authority, shortly after being selected in a competitive bidding process.

While stalled by the financial crisis, Related has recently made headway at Hudson Yards, where it is partnering with Oxford Properties Group.

Indeed, late last year, Bloomberg and Related announced that Coach signed on as a corporate tenant for a 51-story tower that will rise on the 26-acre site.

Related also seems to have gotten a break on the “living wage” bill being drafted by the city council. Late last month, Christine Quinn, the council speaker, floated a version of the bill that would exempt Related from paying that wage, or $10 an hour, at much of the Hudson Yards work site, according to the New York Times. That means Related could end up paying its employees there $7.25 an hour, the state minimum wage, while developers at other sites would have to pay their workers $10 an hour. Bloomberg — whose office said the city doesn’t play favorites and that projects stand on their own merits, but didn’t elaborate for this story — and REBNY oppose the bill.

Either way, the Hudson Yards project will no doubt be a legacy-maker for Bloomberg, and a lucrative feather in Related’s cap. And Related is no doubt qualified to build it.

But the firm’s relationship with City Hall has long been under a microscope. For years, Related’s critics blasted the friendship between Ross and Daniel Doctoroff — Bloomberg’s former deputy mayor for economic development. Both grew up in suburban Detroit; they also have both been investors in the New York Islanders hockey team.

Projects like Related’s redevelopment of Bronx Terminal Market in 2004 stemmed from that friendship, critics said. At that site, the city brought in Related to evaluate the property’s development potential, and later approved the transfer of a lease to Related without a typical city bidding process.

But the city defended that move, saying that Related helped it out of a jam at the project, where it had been desperate to evict the landlord, who had let the facility crumble. The city also argued that it couldn’t hold an auction on a site it didn’t control, and the landlord’s lease was good till 2052.

Even Related, however, doesn’t always come out a winner. Its plan to bring retail to the Bronx’s Kingsbridge Armory met an end in 2009 in the city council, which voted to override a veto by Bloomberg that would have allowed it to go forward.

Related’s supporters say it’s earned a spot in the city’s good graces because of a track record of complicated, neighborhood-defining projects like Time Warner Center, the $1.7 billion development that revitalized Columbus Circle.

Another huge recent prize: the mixed-use, middle-income Hunters Point South project in Queens. In February 2011, the city picked Related, along with Phipps Houses and Monadnock Construction, to develop the 5,000-unit project.

David Kramer, a principal of the Hudson Companies, which partnered with Related on Roosevelt Island’s Riverwalk complex, said “these public processes are incredibly transparent, and for the most part, meritocratic.”

He added: “No developer is going to get selected because they are friendly with folks.”

Vornado Realty Trust

Vornado's Steven Roth

Steven Roth’s Vornado Realty Trust is also in the good graces of both the mayor and City Council.

The massive real estate investment trust won a major rezoning in the city council in 2010 after a battle with a rival developer.

The zoning change was needed so that the REIT could move forward with its proposed 1,210-foot tower at 15 Penn Plaza on Seventh Avenue and West 32nd Street. As part of its proposal, Vornado pledged to construct and pay for public transit improvements, including creating new subway entrances and opening a pedestrian tunnel.

The project got Bloomberg’s vote of confidence, despite objections from the owner of the nearby Empire State Building, Anthony Malkin, that the building would be detrimental to the city’s iconic skyline.

“It would be a great addition to our skyline,” Bloomberg fired back. dates back further than 15 Penn Plaza.

In 2001, Bloomberg struck a deal with Roth to relocate the mega-media company he founded, Bloomberg L.P., into a tower Vornado would build, giving the long-stalled project the anchor tenant it needed to move forward.

Further working to Vornado’s advantage is that its principals rub elbows with city bigwigs on the charity circuit, analysts say. Vornado CEO Michael Fascitelli supports the Boy Scouts, while company president David Greenbaum donates to Jewish causes and is frequently photographed at benefits.

“Being very philanthropic in the real estate industry goes a long way,” said Bob Knakal, chairman of Massey Knakal Realty Services, who has sold Vornado buildings. “But the city also looks favorably upon developers who maintain their properties well and play by the rules.”

And Albany has called on Vornado, too.

In 2006, the state awarded Vornado, along with Related, development rights to turn Manhattan’s Farley Post Office into Moynihan Station, while building an office tower across the street on Eighth Avenue. (In February, however, the Moynihan Station Development Corp. rejected the bids for the first phase of construction because they were too high, dealing Vornado a setback.)

L&M Development Partners

L&M CEO Ron Moelis attributed the firm’s productive relationship with the city to getting projects done on budget and on time

Affordable housing builders in New York must navigate an especially daunting thicket of permits and approvals, since they are often building on city land and underwriting it with coveted tax-free bond financing.

L&M — which has a portfolio of 7,000 units, half of which are affordable housing — is known for working closely with government officials.

The Aspen, L&M’s 233-unit project in Harlem, in 2004 became the city’s first project financed as a 50-30-20 mixed-income rental. L&M CEO Ron Moelis worked with the Department of Housing Preservation and Development to develop the program. More recently, the firm converted a once-abandoned city public school in Harlem,

PS 90, into condos.

Some of that success can be attributed to Lisa Gomez, a former staffer at the city’s Housing Development Corporation, who L&M hired in 2006 and knows the ins and outs of the public financing system.

But as part of the complicated process by which affordable developers get shovels in the ground, they must also often get a green-light from HPD, which dispenses publicly owned land.

Last spring, L&M hired Rafael Cestero, the former HPD commissioner, though he left in December. According to Moelis, Cestero was hired to expand the company’s building management business and was prohibited from dealing with any HPD issues.

In fact, Moelis said that of his 150 employees, “only a few” come from city government.

Instead, he attributed the firm’s productive relationship with the city to getting projects done on budget and on time.

Also, the fact that L&M has its own construction division can make for smoother passage through the city’s Department of Buildings and Department of Environmental Protection, Moelis explained.

He noted that having ex-city hall personnel on staff doesn’t necessarily “make life easier” for developers, because turnover is so high in those agencies and there are new people coming in all the time.

For her part, Gomez has also been influential with community boards, whose support is crucial in the so-called Uniform Land Use Review Procedure, which a project needs to get the green light. She played a key role in front of Community Board 11 to drum up support for 1951 Park Avenue, a 300-unit project in East Harlem, Moelis said.

“It’s very important to galvanize support in the community, and with elected officials,” he said.

Two Trees Development

David Walentas of Two Trees Development

Two Trees is famous for taking a rundown Brooklyn neighborhood littered with half-empty warehouses and transforming it into the thriving residential enclave of Dumbo.

Getting there wasn’t easy for the company, which is run by the father-son team of David and Jed Walentas. Seventeen years elapsed, from 1981 to 1998, before David Walentas got the rezoning he wanted, and it was for just a single building, One Main Street.

In fact, permission granted by the Koch administration to build on public portions of the neighborhood in the early 1980s was revoked a few years later.

But since 1998, the rezonings have flowed like gangbusters, seven in all, which Two Trees has said was the result, in large part, of the pro-development positions of Mayors Giuliani and Bloomberg.

And the rezonings the company needed were complicated. Over the years, the firm has needed “mappings, demappings, garage special permits, rezonings, zoning text changes; [reviews from] Landmarks, the Corps of Engineers and the Department of Environmental Conservation,” Walentas’s lawyer, Raymond Levin, told the New York Times in 2008.

What helped, sources say, is that the city’s Board of Estimate, a government body that made land-use decisions, was abolished in 1990. That gave the City Planning Commission, which is currently headed by Bloomberg appointee Amanda Burden, more power. And because there are more mayoral appointees on the commission than the board, projects tend to get built more frequently if the mayor is pro-development.

And that’s very true of Bloomberg, said Howard Goldman, a former land-use lawyer who now lobbies for developers.

“We basically have a pro-business and pro-development mayor, and I think they look at those companies as economic engines that drive the city and create jobs and keep the city prosperous,” he said, adding, “Two Trees has done very, very well.”

Meanwhile, the firm has also made efforts to win public support. Two Trees used direct mailings, community meetings and online marketing to overcome an earlier zoning defeat, by Brooklyn’s Community Board 2, of a 17-story rental at Dock Street. The project will finally be built this summer.

Two Trees’ land-use attorney and lobbyist, Ken Fisher, is also a former city council member.

Having worked in government helped him navigate the process, he said.

“We understand what’s doable and what’s not,” Fisher said. “When I approach key staff people [in the council], they know that I won’t be wasting their time.”

BFC Partners

BFC Partners’ Donald Capoccia is developing a project in the East Village, where he benefited from a city rezoning

In the early 1980s, almost immediately after founding BFC Partners, Donald Capoccia began a two-decades-long development binge in the East Village.

Helping him along was the city, which had watched tenements burn down years before and was ready to see them added back to the tax rolls, according to news reports.

The bulk of the 4,500 units Capoccia has built in the past 30 years, most for low- and middle-income residents, were centered on the blocks east of the Bowery.

But his relationship with that community wasn’t friendly. Activists complained about BFC destroying the gardens they had cultivated. And complaints about careless construction prompted a public rebuke from former city council member Maragarita Lopez.

But Capoccia was a supporter of Mayor Giuliani, having given about $50,000 to him between 1997 and 2000, according to news reports.

Indeed, public records show that the politically active Capoccia also doled out campaign contributions — $13,000 in a citywide election cycle — to a range of politicians, including former city council member Melinda Katz, who headed the council’s influential land-use committee.

More recently, in 2005, Capoccia was the beneficiary of political largess for his Schaefer Landing project — a part affordable, part market-rate condo-rental hybrid on the Williamsburg waterfront. The Bloomberg administration paid for the clean-up of the former brewery site and kicked in $2 million. Another $36 million came from the state.

“We worked with Mayor Bloomberg and his administration to raise the affordable housing bar even higher and create an economically diverse and flourishing addition to the neighborhood,” Capoccia, who partnered with L&M at the site, said in a statement at the time.

Capoccia’s supporters say he’s well-liked because he does his own construction and has a staff laden with engineers, guaranteeing solid project oversight. That was especially useful in putting up Toren, a 240-unit condo in Downtown Brooklyn that straddles 12 subway lines and required collaboration with the MTA.

Now, BFC is back in the East Village with its latest project: a 12-story apartment development at 11-17 Second Avenue, which benefited from a speedy rezoning last year, despite much local opposition.

But his stature with elected leaders of all party stripes is undeniable. He’s been appointed to boards by President George W. Bush and Governor George Pataki. And the Republican also crosses party lines. Governor Cuomo recently appointed him to the Battery Park City Authority.

Extell Development Company

Extell's Gary Barnett

By all measures, Extell is one of New York’s most prolific developers today. Some of its current projects — like One57, the 1,000-foot tall skyscraper rising on West 57th Street — are as-of-right, so they require little more than a pile of money and strategic site assembly to get done.

Yet when Extell does do projects requiring approvals from city agencies, the firm seems to be looked on favorably.

For example, there’s the $750 million International Gem Tower, a 34-story commercial condo in the Diamond District on West 47th Street. Extell, which is headed by Gary Barnett, received $49.6 million in tax breaks from the city and state, contingent on filling the tower with jewelry tenants and companies expanding in the city.

“It’s a major private investment on the part of Extell, and it serves as a tremendous vote of confidence in the future of New York City at a time when it’s much needed,” Bloomberg said in a statement in 2009, when the market was in the doldrums.

Meanwhile, the state also created a $100 million fund that will provide loans to help diamond merchants buy commercial condos in the Extell tower.

The company’s competitive advantage?

Barnett attributed his successes to three simple things: “Great design, a lot of work and a lot of patience,” he wrote in an e-mail.

Hiring good expediters, who are brought on to work with the DOB and other city agencies in the project approval process, also helps, sources said.

Extell has also hired Bloomberg veterans. From 2006 to 2008, former deputy mayor Marc Shaw worked at the firm, helping to prepare Extell’s bid for the Hudson Yards project.

Shaw also ran the MTA, which owns the Hudson Yards site, before joining city government. But after Extell lost the bid, Shaw decamped for a position with former Governor David Paterson’s administration in Albany.

And, of course, Hudson Yards was not Extell’s last brush with government.

In 2010, in a contentious process, the city agreed to rezone five Riverside South parcels on the Hudson River to allow for even more residential development than originally planned, on the condition that Extell build 500 units of affordable housing and a school. Extell agreed, but is now looking to sell the two parcels that require affordable housing to be built.

Out of favor with the city…

Thor Equities

Thor Equities' Joe Sitt

For years, Thor Equities chairman Joe Sitt engaged in a public and acrimonious standoff with the Bloomberg administration over parcels he owned on Coney Island. At first, the city offered to pay about $229 a square foot for the land. But Sitt played hardball — essentially holding the land hostage by threatening to build a massive, mixed-use complex on it — before accepting $96 million, or $320 a foot, in 2009.

Like the Coney Island parcels, some say Sitt’s M.O. is to unveil bold plans for properties which never materialize. Indeed, he bought the ground lease at Albee Square Mall, which sits on city-owned land, in 2001 for $25 million, and promised a huge new tower in the rundown Downtown Brooklyn area. But in 2008, he sold the property for $125 million before acting on those plans. The move ruffled some features in the community.

Recently, Sitt has focused more on buying and selling buildings (including many on Fifth Avenue in Manhattan), and less on the kind of projects that require a city stamp of approval. That’s probably a good thing: If he did, sources say, he might encounter a lukewarm reception.

Sitt was not available for comment.

Malkin Properties

Empire State Building owner Anthony Malkin

Empire State Building owner Anthony Malkin earned a public rebuke from Bloomberg after opposing Vornado’s 2010 plan to build a nearby skyscraper (see related item above).

Bloomberg came out against Malkin when the developer said Vornado’s proposed tower would be detrimental to the city’s skyline.

“Anybody that builds a building in New York City changes its skyline; we don’t have to run around to every other owner and apologize,” Bloomberg said in 2010, according to the Associated Press.

The same year, Quinn, a mayoral hopeful, and other politicians lashed out at Malkin for his refusal to illuminate the Empire State Building in blue and white lights for what would have been Mother Teresa’s 100th birthday. Malkin said he doesn’t light the building for religious figures.

But Malkin also dismissed talk of tension. “I am a big fan of the Bloomberg administration,” he said via e-mail. “There is no bad blood at all. Everyone has differences from time to time. Fifteen Penn Plaza does not define our relationship.”

Magnum Real Estate Group

Magnum, run by Ben Shaoul, ran afoul of some city leaders this winter in a spat involving an East Village property.

Shaoul wanted to add a floor to a five-story building on East 10th Street in an area that was under consideration to be landmarked.

Rather than wait and find out if the city was going to approve the landmark designation, which would have made any renovations difficult, Shaoul asked the DOB to approve the addition. The agency was required to respond in 40 days. The Landmarks Preservation Commission did vote to stop the project, but not before the addition was approved.

Shaoul has also come under fire for adding two floors atop an apartment building at 514 East 6th Street without proper approvals. Tenants said the additions were unsafe, while Shaoul rebutted that those claims were baseless. In 2010, the Board of Standards and Appeals voted to allow him to keep one of the floors, but to remove the penthouse.

But Shaoul is seeking a variance to keep both floors in place. In December, state senator Daniel Squadron told the board that Shaoul should not be granted that waiver.

“Due to the imperative to protect the safety of residents, the previous noncompliance of the owner and the need to maintain the character of the neighborhood, I urge the BSA to refuse this request for a zoning variance,” Squadron said, according to written testimony.

And late last year, Shaoul paid $26 million for the East Village’s Cabrini nursing center with the intention of selling it to the Archdiocese of New York, over the objections of local leaders, like Squadron, who wanted to keep it as a health-care center. But talks with Cabrini broke down and condos are now planned for the site, a source familiar with the negotiations said.

Ken Fisher, who is also Shaoul’s attorney, dismissed the incidents, saying that the community is just reluctant to change.

“There are many people who want to encase the city in amber,” Fisher said, “but if they did that, it would die.”

The Guttman family

Josh Guttman and his son Jack own warehouses and apartment buildings in Greenpoint and Dumbo. But they haven’t done much to ingratiate themselves with the local officials.

Four fires that have occurred on their properties since 1991 have been discovered to have been intentionally started, the New York Times reported. Arson was also suspected in a fifth — a 10-alarm blaze in 2006 that destroyed 15 warehouses along the Greenpoint waterfront and took days to extinguish. But investigators ultimately determined that the 10-alarm fire was started by two homeless men.

The Guttmans have never been charged with any arson-related crimes. But they have been cited for environmental violations at their properties, including the site of the most recent fire, where piers and bulkhead were poorly maintained, according to the Brooklyn District Attorney’s office. The Guttmans have promised to bring the bulkheads up to code.

They are now at loggerheads with the city over another issue, however. The city’s Department of Transportation sued the Guttmans to get a chain-linked fence removed on Noble Street in Greenpoint, which is blocking access to the waterfront for neighborhood residents. The Guttmans claim they own the property where the fence is located.

Josh Guttman did not return a call for comment. The New York City Law Department said the case is active, but in the discovery phase.

So far, the duo has not had much business before the city. But if they were to ever develop their waterfront parcels, sources said, they would likely encounter resistance.

“It has not been their strategy to go to the local community and try to win friends,” said Stephen Levin, the city council member who represents the area. “That works to their detriment.”

On the flip side, Levin applauded the Guttmans’ new Green Desk business, which rents shared office space at 158 Water Street and 68 Jay Street in Dumbo.

“They haven’t done everything wrong,” he said.