The biggest bargains the last time around

Looking back at distressed investment sales during the 1990s recession

Nov.November 30, 2009 09:55 PM


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While Manhattan buildings have seen sale discounts as high as 70 percent in this recession, this is not the first time the city has seen bargain-basement prices for skyscrapers.

Indeed, in the early 1990s, when New York was in the throes of another recession, a flurry of deals was brokered that in hindsight seem shrewdly forward-thinking.

This month, The Real Deal took a walk down memory lane and looked at some of those real estate deals to see which buildings traded at significant markdowns and which investors made savvy bets.

“There were tons of deals back then. It was ridiculous. They got in while the getting was good,” said Kenneth Patton, a professor at NYU’s Schack Institute of Real Estate who also worked as the chief operating officer for Helmsley-Spear in that era.

Perhaps the most striking discount during that recession was at 40 Wall Street, a 72-story tower capped with a verdigris pyramid that was briefly the world’s tallest building.

In 1995, Donald Trump paid $1 million for the building, according to comments he’s made publicly (sale prices weren’t disclosed before 2003). That clocks in at 77 cents a square foot for the 1.3 million-square-foot tower — compared to the $100-per-foot price that was average for a Class A building in Lower Manhattan at the time.

Part of that discount can be explained by the fact that, in a highly complicated deal, Trump actually bought the property’s lease, not the building outright, according to records compiled by Robert Sammons, the research director at Colliers ABR.

In addition, the building’s old spaces, interrupted by numerous columns, were very difficult to rent, Sammons explained. As a result, it was essentially being used for storage; that’s why the Hinneberg family of Germany was quick to sell it.

Trump wasn’t the only buyer to get a deal in the Financial District in the early 1990s. At the time, the area was pocked with vacancies, and a few savvy investors took advantage of its yet-to-be reached potential.

For example, in 1994, eccentric real estate tycoon Abe Hirschfeld and Bruce Menin of Crescent Heights Investments picked up 25 Broad Street, a 500,000-square-foot empty bank building, for $4.975 million from New West Federal Savings, which controlled the mortgage after the Shapolsky Organization defaulted, according to published reports.

That price of $9.95 a foot pales next to the $520 a square foot developer Kent Swig paid at the height of the market in 2005 to convert the 21-story tower into a 346-unit condo building. Today, Swig faces a $50 million judgment at 25 Broad Street, where the conversion was never completed.

Some buys were clearly deals in their day; others are more obviously steals in retrospect. For instance, in 1995, developer Tamir Sapir of the Sapir Organization bought 2 Broadway from Olympia & York, the bankrupt Canadian developer, for $20.5 million, or $13 a foot.

Today, that building, a glassy 1.6 million-square-foot office tower designed by Emery Roth, could probably trade for $714 million, or 34 times as much.

While in the mid-1990s, $13 a foot was par for the course in a moribund area, said Larry Longua, an NYU Schack professor who worked as a commercial banker in that era, the seller was facing bankruptcy and the building needed to be unloaded.

“The prices were valid, because there was no liquidity. If you had some money, you could do these deals,” he said.

Ditto for 156 William Street, another Roth building, which in 1995 sold to the Steven Witkoff-Larry Gluck team for $4.25 million, or $17 a foot, said Longua.

In 1993, right after Olympia & York was forced into bankruptcy, Alabama’s pension fund snapped up 55 Water Street, a 52-story tower in which the fund already owned a stake. The result was a $100 million purchase of a 3.6 million-square-foot tower, or $27 a foot, according to reports, though the building required a major renovation.

Midtown also saw a fair share of bargain-basement deals during (and just after) the last recession.

Tishman Speyer, which ironically is now dealing with its own distressed situation at Stuyvesant Town, bought the Chrysler Building in 1997 in conjunction with the Whitehall Fund, from a group of investors that included Jack Kent Cooke, the late sports team owner, for $220 million.

The complicated deal with the 77-story Art Deco landmark included the purchase of an adjacent property, plus a lease arrangement with Cooper Union, which owns the land beneath it.

A typical office building likely could have sold for twice that, Patton said, though he added that the Chrysler’s uniqueness makes it hard to compare with others.

Still, last year, Tishman sold a 90 percent stake in the building to the Abu Dhabi government for $800 million.

Meanwhile, in 1996, 370 Lexington Avenue, a ziggurat-peaked Art Deco office building, was sold by Calpers, the California pension fund, which held the mortgage, to a group led by Witkoff and Gluck for $18.5 million. That was the equivalent of $62 a foot for the 300,000-square-foot building. Similar buildings near Grand Central were trading for $300 a foot in that era, brokers estimated.

The Karfunkle family, Brooklyn investors, scored a similar discount at 150 East 58th Street, the 39-story tower known as the Architects & Designers Building. In 1993, they picked up the 550,000-square-foot building from Equitable Real Estate, an overextended distressed landlord, for $61.5 million, or $112 a foot, according to Peter Hauspurg, the chairman of Eastern Consolidated, who was involved with the deal. A typical rate for that neighborhood then would have been $200 a foot, other brokers added.

Meanwhile, in 1992, Mutual of America also bought a piece of the Olympia & York empire at 320 Park Avenue for what brokers said was $109 million, or about $175 a foot. The building is 34 stories and 622,000 square feet. But because so few other buildings were actually selling in this area at the bottom of the market, determining discounts is tough. In fact, the sale of the building is seen as something of a turning point for the whole market.

While today’s market is obviously severely suffering, rock-bottom deals are still few and far between. Distressed asset funds are waiting for prices to drop even further as investors search for willing lenders.

Still, there are a few deals today that stand out as relative bargains even without a rearview mirror, including developer Youngwoo & Associates’ purchase of AIG’s two buildings — 70 Pine Street and 72 Wall Street — for $150 million, or $105 a foot; and George Comfort & Sons’ buy of Worldwide Plaza, which closed for $590 million last summer, after last selling for $1.8 billion in 2007.

Hauspurg, however, cautions against comparing the two eras. In the old days, a landlord could work out a souring loan with a single face-to-face meeting. Today, with so many lenders involved with each property, workouts will be difficult, he said.

“The trouble today is that today, banks don’t own their own loans,” Hauspurg said. “Wall Street sliced and diced them into tranches and sold [them] around the world.”


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