Sol Goldman’s $6B portfolio in play, as children accelerate dealmaking
Solil Management, the company that manages the assets of late real estate mogul Sol Goldman, has been sitting for decades on a huge but largely static portfolio of New York City properties. But a new day is dawning for the company, which has become more active in recent years as economic conditions have improved.
Since Goldman’s death in 1987, the enigmatic firm — which has Manhattan holdings estimated to be worth some $6 billion — has been headed by Goldman’s notoriously under-the-radar children, Jane and Allan, and has seen little change. Between 2003 and 2007, the Goldman estate did only about one major ground-lease deal a year, according to an analysis by The Real Deal of city and state records.
The company is known for holding onto its properties and rarely selling, instead signing tenants to long-term ground leases, typically 99 years or more. The tenants pay an annual rent to Goldman, but are responsible for taxes and upkeep of buildings on the properties.
For years, developers and brokers have drooled over the estate’s more than 240 Manhattan properties, particularly a handful of partially assembled development sites, which insiders say are ripe for deal-making.
The family patriarch “was ahead of his time,” said Ira Nesenoff, a partner with the law firm Nesenoff & Miltenberg, who has represented several ground tenants in cases involving the Goldman estate. “He was truly a genius, head and shoulders above many developers.”
The Goldman estate declined to comment for this piece. But TRD’s analysis revealed that the firm has recently accelerated its pace of deals, signing at least five significant new, long-term leases over the past two years. The estate last year inked a deal with retail investor Jeff Sutton for a 49-year lease in a century-old loft building at 313 West 125th Street in Harlem, which sources said Sutton’s Wharton Properties will redevelop. And in November, city property records show, Gary Barnett of Extell Development signed a 99-year lease worth $35.14 million to rent eight Goldman-owned properties across the street from Stuyvesant Town, including 516 East 14th Street, 530 East 14th Street and 222 Avenue A.
In fact, with a new generation of Goldmans preparing to enter the business, the company may for the first time delve into developing properties rather than just leasing and managing them.
Until now, the Goldmans have never developed their properties themselves, “but that will very likely change with the next generation,” said a company employee who declined to be identified.
Still, Solil’s relations with its tenants haven’t always been easy, in part because the company has a number of long-term, low-paying ground leases inked decades ago. In the past decade, Solil has hit nearly two-thirds of its 29 Manhattan ground-lease tenants with threats to terminate their agreements, which industry insiders say may be part of a strategy to wrest more money from tenants.
That strategy, however, has led to a number of lawsuits. Since 2003, the Goldman estate has been sued by 18 of its ground-lease holders, who all alleged that the firm threatened to terminate their long-term leases over trivial property violations, according to state court records.
Building an empire
In the past year and a half, the Goldman estate has done a number of major deals, such as leasing a 120,000-square-foot site at 18-22 West 56th street to the British company Firmdale Hotels, which plans to build a hotel there.
In addition to Extell’s 14th Street site — which has some 200,000 square feet of development rights, according to the real estate data website PropertyShark — Barnett’s firm in January filed plans to develop a 52-story residential tower at 551 10th Avenue, on a Goldman-owned site it leased in a 2011 deal valued at $28.6 million.
One Solil insider said the Goldmans’ recent activity is largely a result of market conditions. “The uptick in net-lease activity in 2012 reflects improved market conditions from the tight lending environment from 2008 to 2010,” the source said, “and new opportunities that surfaced.”
That marks a change from previous years, when the massive Goldman empire stayed largely quiet, doing retail deals but few large ground-lease agreements.
Sol Goldman, a Brooklyn-born grocer’s son, bought his first properties at age 16, scooping up foreclosures by offering $500 cash per building, his daughter Jane told TRD in a 2008 interview. “He got most of the money from going around the neighborhood, getting $50 from this one and $50 from that one,” she said. “That’s how he started.”
In the 1950s, Goldman started buying properties with partner and friend Alex DiLorenzo, Jr. Together, the pair rode the city’s postwar economic boom, snapping up iconic structures like the Chrysler Building, which they bought in 1960.
Goldman is legendary in industry circles for being a tough negotiator and a decisive investor.
“He was the ultimate deal guy,” recalled Barry Hersh, clinical associate professor at New York University’s Schack Institute of Real Estate, who once worked with Goldman on a deal. “He was very quick with a decision and knew the market intimately.”
Goldman and DiLorenzo had a voracious appetite for acquisitions, which led brokers to bring them even more potential transactions, said George Ross, their attorney for about 10 years in the 1960s.
“They were active buyers,” he said. “They built an empire, that is what they did, and they did it very well.”
Their strategy was to buy properties, lease them out and almost never sell, Ross said.
Goldman “knew the value of what he owned, knew that in many instances it was irreplaceable and had the vision to have his family own it forever,” Nesenoff said.
But the 1970s were more difficult. Foreclosure proceedings began on the Chrysler Building in 1975, and DiLorenzo died that same year. Despite these setbacks, Goldman continued buying properties on his own. Indeed, in 1983 he made a stunning 23 individual building purchases, and topped that in 1986 with 24, according to TRD’s research.
In total, Goldman snapped up more than 600 New York City properties in the three decades before his death, including well-known buildings such as the Stanhope Hotel.
That strategy paid off handsomely. Solil now has at least 245 buildings in Manhattan and at least 100 more in the outer boroughs. And according to TRD’s analysis of city Department of Finance records and court filings, the company’s Manhattan properties alone generate at least $150 million annually before taxes. According to TRD’s calculations, based on a 2.5 percent capitalization rate, the firm’s Manhattan holdings are worth some $6 billion.
After Goldman’s death, Allan and Jane took over the company, which by then was called Solil Management — the combined names of Goldman and their mother, Lillian. (After a dramatic battle over his fortune — the estate was reportedly the largest ever brought before the New York Surrogate’s Court — it was settled out of court. Lillian died in 2002.) Two other children, Amy and Diane, are not actively involved in managing the company.
Allan is now 70, and Jane is in her mid-50s. The two led the company together after their father’s death, but Allan now suffers from Parkinson’s disease and is less active. Jane now heads the company on a day-to-day basis, with Allan working “closely with her in an advisory capacity,” an inside source said.
After the patriarch’s death, the firm’s acquisitions slowed significantly. The estate has only bought 11 properties since Goldman’s death, TRD found, and did only a few major lease deals in the 2000s.
“They are a private enterprise, and they are happy with running their assets like they have historically run them,” said Sol Goldman’s nephew Lloyd, who runs another commercial real estate company, BLDG Management. “They are not looking to change things a whole lot.”
But the Goldmans also “have a reputation of not being conducive to doing deals,” said veteran New York assemblage broker Robert Shapiro, echoing an opinion shared by many in the industry.
Shapiro recalled approaching the Goldmans in the late 1990s with hopes of striking a deal. His client, a partnership of Benenson Capital Partners and Rose Associates, wanted to buy some of the Goldmans’ Third Avenue buildings, which were adjacent to the 44th Street site where they were developing a large apartment tower.
But Shapiro said the Goldmans “were completely unresponsive to any overture that was made to them.” A deal never materialized, so the partners developed a 42-story apartment building instead of the larger tower they’d originally envisioned.
From the Goldmans’ perspective, a company insider said, a “slow but steady” approach to development, plus low debt levels, have allowed the family “to be selective in the timing and quality of the deals they consider.”
But when it comes to leasing out retail space in buildings the Goldmans manage themselves, brokers who work with the family said Solil can turn around a deal quickly — as long as they get their target number.
“They are very direct and they want what they want,” said Jason Pruger, executive managing director at Newmark Grubb Knight Frank, a retail broker who has represented many Solil properties over the past decade.
While the Goldmans haven’t bought many properties since their father’s death, they have made some strategic acquisitions to fill out potential assemblage sites. The most notable are two small buildings they bought in 2005 and 2007, which could be added to an assemblage of three properties they already owned on Third Avenue between 55th and 56th streets.
And in 2007, the firm bought a building to add to another potential assemblage of five parcels at 686 through 696 Third Avenue, between 43rd and 44th streets.
These almost-complete assemblages are among the most valuable of the properties owned by the Goldman estate because of their potential to become development sites, brokers said.
While many of the estate’s smaller buildings are locked between taller towers and would be difficult to redevelop, others are ripe to be demolished and replaced with new towers, brokers said. TRD found 12 locations where the estate owns two or more adjacent buildings, each with total development rights of 93,000 square feet or more.
For example, the estate owns a commercial building at 22 West 34th Street, on a busy retail strip next to the Empire State Building. According to PropertyShark, the building occupies roughly 68,000 square feet, but could be developed into a property of almost 220,000 square feet, on a block where retail asking rents have surged by 42 percent over the last year to $683 per square foot.
By now, most competing firms would have moved aggressively to sell, lease or redevelop many of the buildings in the Goldman portfolio, noted Dan Fasulo, a managing director at real estate data firm Real Capital Analytics.
Anyone else “would knock them down and build a new building,” Fasulo said.
While the Goldmans have no immediate plans to develop the properties, that may change now that a third generation is set to join the family business.
Allan’s son is expected to join the firm next month after graduating from college, and Jane’s son will likely join the firm next year, sources said.
“The Goldmans hope that the next generation will further develop the real estate holdings,” said one insider.
Sitting on a goldmine
Much of the Goldmans’ massive Manhattan portfolio — which encompasses more than 13 million square feet of commercial and residential space — is controlled by others through ground leases.
According to TRD’s research, ground leases account for 8.5 million square feet, or 65 percent, of the Goldman portfolio. That includes the Lightstone Group’s 1407 Broadway, an office tower that is built on land owned by the Goldman estate. There’s also the Chetrit Group’s 500 Seventh Avenue and 512 Seventh Avenue, and the Cohen Brothers’ 475 Park Avenue South.
“Sol Goldman liked land leases,” Hersh said. “That was sort of his specialty.”
The Goldmans have at least 29 different ground-lease tenants (covering 65 individual parcels) on their Manhattan properties. And some of those tenants locked in very low rents decades ago.
For example, David Ishay’s Gotham Realty Holdings has a ground lease, originally signed by Sol Goldman in 1969, for the 370,000-square-foot office building 30 Broad Street in Lower Manhattan. According to city records, the current annual rent through 2035 is only $430,000, just a fraction of the building’s estimated pre-tax net operating income of $8.7 million.
But other ground leases yield significant rents. Blackstone Group, the ground lease tenants for the London NYC hotel at 151 West 54th Street, pays the Goldman estate some $3.7 million per year in rent, court records show.
Perhaps due to this vast disparity in rents, the estate’s relations with its tenants lately have been fraught. The friction often starts, court records show, when ground tenants need basic things like an estoppel certificate — typically given with little drama to certify that a lease is in good order. Ground-lease tenants generally need estoppel certificates when applying for a mortgage or attempting to sell the leasehold to another company.
But instead of simply handing over the certificate, the estate has, in a number of cases, sent notices threatening to terminate the ground lease if outstanding violations are not cured quickly, according to court documents. Many of the estate’s tenants, including the Blackstone Group, Extell, Cohen Brothers, Chetrit and others, have cried foul at these threats, suing to block the lease terminations.
Some of these suits allege that the estate is using these hard-ball tactics to extract additional payments from tenants, or even take back control of the leases.
For example, in 2010, El Fassi Realty — which has a ground-lease that runs through 2086 at 31 West 34th Street — needed a document from the Goldmans in order to ink a lucrative deal with the trendy clothing retailer Uniqlo. But Goldman balked, and instead issued notices threatening to terminate the ground lease. El Fassi sued, claiming that the move was “a bad faith effort, to oppress and harass plaintiff so that plaintiff would agree to pay defendant $7,000,000 not required under the ground lease,” the complaint said. An attorney for El Fassi declined to comment, but a Goldman insider said the lawsuit was settled amicably. Uniqlo eventually moved in to the space, and El Fassi has since approached Goldman to sign a net lease deal in another property.
In another lawsuit, involving the ground lease at 587 Fifth Avenue, the tenant claimed in court documents that the Goldman estate “continues to engage in a consistent pattern of harassment … so that [the estate] can oust the [ground tenant] and regain control of its building.”
TRD did not find a single instance where the estate prevailed and won a lease termination. A Goldman source said the firm is simply attempting to keep its properties in good condition.
Investors interested in working with the Goldmans may want to take a cue from Extell, which has done at least seven major deals on Goldman properties over the last eight years — far more than any other developer.
In addition to the recent deals on 14th Street and the Far West Side, Extell purchased air rights for Goldman’s 200 West 58th Street for $3.7 million in 2007, and in 2006 paid George Comfort & Sons $17.5 million for a ground lease at the estate’s 18 East 48th Street.
Extell also developed a residential condominium, the Lucida, on Goldman land at 151 East 85th Street. And in 2005, Barnett took over the ground lease at the former Stanhope Hotel at 995 Sixth Avenue, which Extell redeveloped as a luxury cond-op.
In fact, TRD found that Extell is the only firm to have done more than two large development deals with Goldman — or on a Goldman property — in the last 20 years.
Industry sources said Extell may have an in with the Goldmans because the firm has successfully completed deals on the estate’s property in the past, and because Barnett is often willing to pay handsomely for ground leases, with the expectation that he’ll sell out at a high price.
If economic conditions continue to improve, brokers said Solil may be looking to sign more ground leases, especially since it owns properties with more than 3 million square feet of unused development rights.
Regardless of what the family decides to do, Sol Goldman’s legacy continues to impact the real estate landscape in myriad ways.
“When you think about the strong New York City real estate families — the Dursts, the Rudins, the Milsteins,” Nesenoff said, “you must include the Goldmans.”