The Real Deal New York

Sapir stares down the slowdown

Trump Soho developer plays big, but faces big obstacles
By David Jones | July 31, 2009 01:38PM

While it seemed to start well, 2009 has been a rough year thus far for the Sapir Organization, the family-owned real estate empire led by Alex Sapir and his enigmatic father Tamir.

After months of legal wrangling with the city, the company announced plans to open their trophy hotel project Trump Soho by the fall of 2009.

In addition, in February, the Sapir Organization signed Claremont Preparatory High School to a multi-year agreement to lease 255,000 square feet of space at 100 Church Street, marking one of the year’s biggest commercial lease agreements in the city.

However, sources say that Trump Soho is facing issues with its lenders, and the deal for the school has fallen apart.

“That school deal was a sign of desperation,” said Dan Fasulo, managing director of research at Real Capital Analytics. “Who wants a high school in your office building? It certainly wouldn’t be your first choice.”

If that wasn‘t enough, Tamir, whose net worth has been estimated at $1.4 billion, faced legal issues for an incident in which he docked his beloved multi-million dollar yacht, the Mystere, in Florida, and U.S. Customs officials found an array of illegal exotic animal items, ranging from elephant tusks to endangered cat skins, decorating the vessel.

He pled guilty to violating the Endangered Species Act and was fined $150,000.

The bizarre case capped off a rough couple of months for the Sapir Organization, which is struggling once again to produce wine out of sour grapes as the economy suffers. Without a dramatic rebound, the family could lose millions as buyers try to back away, brokers demand payment and the patience of their lenders runs short.

But that’s always been the story of the Sapirs: Just when it appears that they have taken a fatal blow, they disappear for a while, only to re-emerge with more deals and more money.

Trump card

Right now, one of the Sapir Organization’s most controversial projects is Trump Soho, the 46-story condo hotel at 246 Spring Street, which has been a flashpoint of a multi-year zoning fight with community activists.

The luxury 399-unit condo hotel is a partnership between Sapir, the Bayrock Group and the Trump Organization, with Donald Trump’s daughter Ivanka providing most of the marketing muscle.

Critics charge that Trump Soho is a transient hotel being developed in a neighborhood zoned for manufacturing. They also argue an agreement hatched with the city to allow guests to live in the property for only 120 consecutive days per year is a violation of zoning laws, and is unenforceable.

“This thing has been cursed from the beginning and has been a curse on the neighborhood,” said Andrew Berman, executive director of the Greenwich Village Society for Historic Preservation and a leading critic of the project.

In January, Trump officials announced plans to open the property by the fall of 2009, but industry observers say financial issues will, at best, delay the launch.

A spokesperson at Rubenstein Public Relations declined to comment on behalf of the Sapir Organization for this story.

“Financing for hotels throughout the country has basically dried up,” said Leo Leyva, a bankruptcy specialist and chairman of the commercial litigation group at the law firm Cole Schotz. “Every single hotel out there is running all kinds of specials just to get people in. On top of that, you have the loss of real estate opportunity funds providing the mezzanine debt for a lot of these deals.”

Sources say the financing environment has changed drastically for Trump Soho in particular. The $420 million hotel received a total of $350 million in financing, including a $75 million mezzanine loan from Los Angeles-based Lowe Enterprises.

The revenue side, meanwhile, might suffer as the poor climate drives away buyers.

Eric Anton, senior managing director at Eastern Consolidated, said “there’s a real problem” at Trump Soho. “They didn’t sell many, and the ones they did sell, they’re not going to be able to close,” he said.

Since launching sales in September 2007, Trump Soho officials have boasted that more than 50 percent of the units were under contract.

However, Trump Soho lender iStar Financial has placed the mortgage loan up for sale and multiple sources confirm that investors are considering a deal to buy the note at a discount.

Rubenstein referred inquiries about the Trump Soho loan to iStar; however, iStar officials did not return repeated phone calls.

Ed Mermelstein, a Manhattan real estate attorney, said the likely scenario for Trump Soho is that the mezzanine debt will be foreclosed upon, with a new buyer taking control of the property.

“It’s very unlikely that they [Sapir] will remain in that property from what I see, unless they bring in a partner that is willing to keep them on,” he said.

Cabs to commercial deals

Tamir Sapir immigrated to Israel from Tbilisi, Georgia, in 1973, before settling in Louisville, Ky., where he worked as a bus driver. He later became a taxi driver in New York — and, according to published reports, borrowed against his taxi medallion to get his businesses off the ground.

He partnered with a Russian Jewish émigré named Sam Kislin to operate Joy Lud International Distributors on Fifth Avenue, and amassed a small fortune by trading consumer electronics to the Soviet Union in exchange for the rights to distribute Russian oil and fertilizer in the U.S.

Like many other immigrant businessmen before him, Sapir tried his luck at real estate. In 1993 he founded Zar Realty Management, buying distressed assets and upgrading them into lucrative commercial properties.

He quickly became a man to watch in the industry, and developed an appetite for big deals and big spending, acquiring an 11-acre estate in Kings Point, Long Island, and his 156-foot yacht, the Mystere.

In 2006, Sapir made a huge splash by buying the legendary Duke Semans Mansion on Fifth Avenue across from the Metropolitan Museum of Art for a record $40 million. At the time, Forbes reported that the billionaire had planned to use it to display his ivory collection.

“My dream was, how can I leave my name in this country,” the magazine quoted him saying. “I cannot be a president, I cannot be a mayor, I cannot be a senator.”

A few years before that, Darcy Stacom, a vice chairman at CB Richard Ellis, told the New York Times in 2000, “The guy made some brilliant real estate investments.”

But not all of them have turned out brilliantly.

In 1995, Sapir acquired 2 Broadway in a bankruptcy sale from Olympia & York for $21 million. The move set up a fight with nearly disastrous consequences.

In 1998, Sapir entered into a 49-year contract to lease the building to the Metropolitan Transportation Authority and spend more than $100 million to upgrade it. Sapir tapped Fred Contini, a vice president at Zar, to oversee the project. The results were bad, with the MTA accusing Sapir of reneging on his promise to upgrade the property. The agency stopped paying rent and banned Sapir from its headquarters.

The parties ultimately faced off in an ugly three-year court battle involving at least five different suits and countersuits between Sapir, the MTA and others.

Then, in 2004, Contini pled guilty to extortion, bid-rigging and making payments to organized crime. Federal prosecutors later noted that both the MTA and Zar were victims of a racketeering scheme.

Although Sapir survived the MTA saga, he had developed a reputation as a ruthless landlord who was unforgiving with brokers. In 2004, CB Richard Ellis and Newmark & Co. filed suit against the developer after he failed to pay thousands of dollars in commissions at another property, 260-261 Madison.

Sapir’s troubled history with commercial brokers has left many unwilling to bring clients to its properties.

“They simply refused to play the game that everybody else plays,” said a Manhattan-based commercial broker, who asked not to be identified. “As a result, they didn’t play well in the brokerage community.”

That reputation may have helped destroy one of Sapir’s biggest leasing coups of the decade: In 2005, the Toy Industry Association announced plans to lease a whopping 400,000 square feet at 100 Church, a building Sapir acquired in 1997, which had the largest contiguous available space in Lower Manhattan. But the association mysteriously backed out and Cushman & Wakefield pulled out as the exclusive listing broker.

Overcoming reputations

Sapir’s 2009 guilty plea on charges that his yacht’s holding company (the Cayman Islands-based Ruzial Ltd.) illegally imported 29 exotic animal items into the U.S. in 2007 only furthers an image of a billionaire straight out of a James Bond flick.

According to the Fort Lauderdale based Sun-Sentinel, the items brought by Sapir into Port Everglades on the company yacht included an entire stuffed lion, a mounted tiger head and cigarette cases and bar stools covered with reticulated python skin.

Sandy Weinberg, Sapir’s Florida attorney, was quoted by the Sun-Sentinel as saying the skins were antiques, “legally purchased,” and that Sapir was simply lacking “proper documentation” of them.

Earlier, in 2006, looking to overcome his reputation, Sapir named his son, Alex, president of the company. The younger Sapir possessed a swagger and refinement that helped him relate to the younger crowd.

“Alex Sapir can give Tony Robbins a run for his money,” said Jason Binn, chairman of 100 Church tenant Niche Media, in a 2008 interview. “This guy is relentless. He’s on a mission and he wants to be a major player.”

Sapir invested more than $20 million to overhaul 100 Church with energy-efficient windows, granite-paneled elevator cabs and a lobby with Swarovski crystal suspension lamps, a sparkling two-tier fountain and streaming flat-panel LCD screens. The company even managed to bring CBRE back into the fold as the exclusive broker.

“Alex is great to work with,” said Brad Gerla, senior vice president at CBRE, last year. “He’s very eager to do what needs to be done.”

In 2008, Niche relocated to a 45,000-square-foot headquarters space at 100 Church. By this March, Interactive Data Corp. signed a 15-year lease to relocate its New York offices to a 65,000-square-foot space there. The firm is moving more than 200 employees to the site by the fall, according to Richard Berzine, president of Richard Berzine & Company, who brokered the deal for the company.

“We considered other spaces both in Midtown and in the Financial District,” said Berzine. “We think the numbers we agreed to will hold up over the terms of the lease.”

However, the building has hit some very public snags.

The Sapir Organization held extended talks with Newsweek about relocating its headquarters there before the magazine decided to move to 395 Hudson.

Fasulo said Sapir had other options to choose from when the market was strong, but that the company was picky about the tenants they wanted and the terms they were offering.

As for the deal with Claremont Prep, sources familiar with the situation say Wachovia National Bank refused to approve the deal over concerns about the credit quality of the school, which is owned by MetSchools Inc.

School officials, however, dispute the claim and say the lender refused to provide funding to help build out the space.

“We provided and met everything that they asked for,” said P.D. Cagliastro, a spokeswoman for MetSchools. “When we got to the table, the very last problem was that the lender was not going to come up with what the landlord said he was going to come up with.”

She said Claremont will open the school year at its 41 Broad Street offices as originally planned.

Other condo issues

Sapir’s other major condo project, William Beaver House, where closings began in April, has also faced a few disgruntled buyers and brokers. The property was developed by hotelier Andre Balazs and SDS Investments, a firm that includes billionaire investor S. Lawrence Davis, Alex Sapir and attorney Robert Ivanhoe.

A December 2008 lawsuit obtained by The Real Deal alleges that Beaver House officials scheduled a closing for a Rockland County woman for November 2008, despite the fact that the building was still under construction.

The plaintiff, Leah Rosenberg Rubin, agreed to buy a $1 million apartment in July 2007; however, when she went to her scheduled walk-through in the building in October 2008, the apartment had a non-working shower and no heat, and the lobby and common areas were still under construction, the lawsuit alleges. SDS officials, in a response and counterclaim filing, alleged that the offering plan stated that common areas may not be completed at the time of closing and that heat and other services might be disrupted from time to time. They alleged that the closing was rescheduled for December 2008, and that the buyer defaulted on her $157,000 deposit.

Core Group Marketing, the former listing broker at the Beaver House, has also filed suit against the sponsor, alleging that the firm stiffed it for more than $220,000 in commissions.

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