Vacant commercial real estate can be a diamond in the rough, or an albatross.
In Manhattan, nobody’s quite sure what description best fits 100 Church Street, which has had more than 500,000 square feet of space vacant for longer than most of the 11 other buildings that share that dubious distinction.
As of mid-April, the Class B tower near Ground Zero, which in recent years housed offices for Merrill Lynch & Co. and Bank of New York, had the most unoccupied space of any completed office building in Manhattan, according to the CoStar Group.
The other Manhattan buildings with more square feet of space available than 100 Church Street are all under construction, proposed, or not yet ready for occupancy — 7 World Trade Center, 400 West 33rd Street, 11 Times Square, One Bryant Park, 1095 Sixth Avenue and the new New York Times Building. The St. John’s Center at 550 Washington Street has 810,000 square feet available, but it is occupied by Merrill Lynch until next year.
But while it sits unoccupied with some 582,000 square feet of space available, some market observers say 100 Church Street may be hitting its stride.
“As I saw 100 Church Street sitting there for years, I wondered why the building owner didn’t make a greater effort to do business, but in hindsight, he’s made the right decision,” said Barrett Stern, a senior managing director at commercial brokerage Grubb & Ellis. “I don’t think the market was there for that building two years ago. Now, I believe it will rent.”
Thomas Arbuckle, a broker with Murray Hill Properties, who was among those representing the Toy Industry Association in its recent and ultimately abortive negotiations for space at 100 Church Street, agreed.
“I bet that space is gone in six months,” he said.
But others say that the landlord, Russian oil magnate and billionaire Tamir Sapir of Zar Realty, might be advised to do some work on the 48-year-old tower to get the asking rents that, according to CoStar, start at $25 a square foot.
“The owner has not had a commitment or a plan to really market and lease the building,” said Bruce Surry, an executive vice president at CB Richard Ellis. “He seems to have one now. But people have to have proof. They have to see — not just be told — that this ugly duckling is going to become a [swan].”
Stern, who said he competed against other brokers recently to lead the marketing effort at 100 Church Street and lost out to Cushman & Wakefield, said that Sapir could see amplified returns if he refurbished the tower.
“The building has a lot of great attributes,” he said. “Look, it needs work, and I think that any well-thought-out leasing effort will include some substantial upgrades to the building. But the payback for those upgrades today will be far greater than it would have been two years ago.”
After the terrorist attacks, Merrill Lynch, which was leasing 100,000 square feet in the building, moved out, according to CoStar. The building, which is one block north of Ground Zero, was damaged and needed to be repaired and cleaned. Then the Bank of New York was told by the federal government to vacate several hundred thousand square feet of space because of security issues.
Instead of subleasing the space, the Bank of New York decided to sell the lease at 100 Church Street back to the building’s landlord.
According to court records from the Manhattan state Supreme Court, the landlord, Merrill Lynch, and the Bank of New York, among other parties, also were entangled in litigation over a burst pipe in the building in 2003.
Thus the 1,032,000-square-foot building went from 4.2 percent vacant in the third quarter of 2004 to 55.9 percent vacant in the final quarter, according to CoStar. That space has since remained vacant.
According to Mitchell Konsker, an executive vice president at Cushman & Wakefield, the space was never remarketed.
“The building’s been off the market,” he said. “The reason it hasn’t been re-leased is the landlord was evaluating all its alternatives. They’re trying to make a decision as to how to reposition the property.”
In October 2005, the Toy Industry Association announced it was leasing 400,000 square feet at 100 Church Street for use as the future home of the toy industry in North America. A month later, it cancelled its plans, citing concerns with the building’s location and quality.
While Arbuckle said in early April that a deal could still be sealed at 100 Church Street, by late April, Konsker was saying that any potential toy industry deal had been nixed. “The toy industry was looking at the property, and that deal never came to fruition,” he said. “That deal is dead at 100 Church.”
While major former and current tenants in the building refused to be interviewed for this article, a handful of their employees, who declined to be identified, said that while there were no major issues, the building was “dirty” and had “crowded elevators.”
Some brokers said one of the difficulties the landlord may be having in leasing the building’s space may revolve around a reputation for failing to pay brokers’ commissions. Reportedly, both CB Richard Ellis and Newmark Knight Frank sued Zar Realty for nonpayment of commissions at 260-261 Madison Avenue, with CB Richard Ellis working out a settlement in early 2005.
Newmark reached an agreement later that year involving a payment plan in which Zar would compensate the company’s brokers for commissions owed, according to Manhattan state Supreme Court documents.
“Brokers don’t get paid their commissions, so why go to his buildings?” said a long-time commercial broker active in the Downtown market, who asked not to be identified. “There are a handful of landlords in this town who are radioactive — this is one of them.”
Sapir, who did not respond to requests for an interview for this article, has been variously drawn in media portraits as a Russian immigrant and former cabbie who, in the late 1970s, invested his earnings in an electronics retail business that served Soviet higher-ups — and cemented relationships that Sapir then converted into an opportunity to distribute Soviet oil.
With the returns of that lucrative business, Sapir amassed 6.6 million square feet of office space in Manhattan, and counts on his tenant roster some Fortune 500 tenants. His company’s holdings include 11 Madison Avenue, home to Credit Suisse First Boston and the second-priciest Manhattan building sale of 2003 when Sapir made the $675 million purchase. Other properties include 2 Broadway; 260-261 Madison Avenue; 384 Fifth Avenue; a couple of converted residential buildings; and other properties in Lower Manhattan, according to published reports.
Sapir’s ownership of 2 Broadway has generated the most controversy of all his real estate holdings so far. He bought the building from the crumbing Olympia & York empire for $20.5 million in 1995, with the property rising in value to more than $200 million four years later. Problems surrounding renovations followed a 1998 lease agreement with the MTA to move their headquarters there. Renovations were plagued by lawsuits, more than $300 million in cost overruns for what was initially a $135 million project, and criminal convictions, including the conviction of the man who oversaw Sapir’s real estate empire, Frederick C. Contini. Only in late 2003 did law enforcement agents conclude both Sapir and the MTA had been “victimized” by outside parties in the ordeal.
Sapir, with an estimated worth of $1.9 billion, is No. 410 on Forbes magazine’s list of the world’s billionaires. At the end of 2005, he made headlines when he purchased the Duke Semans mansion at 1009 Fifth Avenue for $40 million, a record price for a Manhattan townhouse.
Sapir has a penchant for litigation and winds up with many stints as both plaintiff and defendant, particularly with parties in his business negotiations outside of real estate. According to Forbes magazine, he is currently seeking damages of $350 million from Moscow Oil Refinery for wrongfully voiding contracts for oil exports.
Stern said Sapir may require more delicate handling than other landlords in New York City, but that shouldn’t prevent 100 Church Street from leasing.
“People have found him to be challenging to deal with, but in the current market, there will be those who decide to take that space, and they will get it,” he said.
Joseph Jerome of JEMB Realty, owner of 150 Broadway and 75 Broad Street, both buildings with desirable Class B space located Downtown, said he didn’t know Sapir personally and hadn’t heard anything about the landlord’s reputation, but that he wasn’t surprised that 100 Church hasn’t found a lessee for its large chunk of space.
“They had that deal with the toy industry that took the space off the market for a long time,” he said. “Then it didn’t happen. And as for large chunks of space Downtown, there have been a lot of them on Water Street and a big piece at the World Financial Center, so there were better buildings that have had space available. It’s a B building, let’s face it.”
Surry agreed, but said 100 Church Street is ripe for opportunity — if the landlord makes the investment.
“To achieve a new image for the building, which has a negative image in the marketplace, the owner will need to upgrade its appearance, its lobby, its systems, its elevators — and that’s a lot,” he said. “If they do that, they may get a return consistent with the kind of rents they expect to achieve.”