Jeff WinickDrugstore chain Duane Reade had a problem: A competitor was sniffing around a large space across the street from one of its best Midtown locations on Sixth Avenue near West 57th Street. Officials at the store enlisted its broker, Winick Realty Group, to take care of the situation.
Several months later, not only had the competitor disappeared, but Duane Reade had taken that site at 100 West 57th Street for itself.
That’s partly thanks to Winick Realty’s founder and CEO, Jeff Winick, who used back channels to help secure the site for the drugstore. Winick’s aggressive, take-no-prisoners style seems to win him accolades from clients but has created fierce enmity among his competition.
That style has been on full display for the last few weeks in a federal courtroom in Lower Manhattan, where two former Duane Reade executives are on trial for fraudulently pumping up earnings reports, partly through allegedly bogus real estate transactions involving Winick.
While Winick Realty has not been charged with any wrongdoing, the case, which The Real Deal has been regularly reporting on, is shining a very public light on the firm and its controversial namesake. And prosecutors — who refer to Winick as an “unindicted co-conspirator” — are now going through retail leases the firm was involved in with Duane Reade during the first half of the last decade with a fine-tooth comb.
Meanwhile, Duane Reade, which is Winick’s largest client, was recently purchased by Illinois-based Walgreens, one of its main rivals, for $1 billion. That deal could jeopardize Winick’s relationship with the drugstore chain, because it’s possible that Walgreens could give the company’s entire account to its own retail broker.
All of this comes after an impressive multiyear run for the brokerage, which has beaten the odds to turn itself into a New York retail force.
Winick Realty rode the construction boom as both a landlord representative broker (for the likes of big players like Rockrose and the Chetrit Group) and as a tenant broker for the furious expansion of retailers who were gobbling up space. In addition to Duane Reade, it counts AT & T, Starbucks and the grocery store Gristedes among its biggest clients.
Meanwhile, Winick, who declined to comment for this article, also poached top brokers such as Benjamin Fox, formerly of Newmark Knight Frank, from other firms and leased up hundreds of locations, giving competitors a run for their money.
Now the combination of the trial (which began last month), the Duane Reade sale and the overall retail slump has put Winick Realty in the most challenging position it’s faced during its three-decade life.
A controversial figure
Jeff Winick, the driving force behind the 34-agent firm, is a lightning rod in the industry.
A number of prominent brokers interviewed for this article complained about his overly aggressive tactics, and said the Duane Reade trial is something of a comeuppance for Winick.
Both supporters and critics said Winick is abrasive, has a short fuse and is known for screaming matches during negotiations. Some, though, praise him as a sharp and quick dealmaker, at home in the city’s retail hierarchy along with Robert K. Futterman, Gene Spiegelman of Cushman & Wakefield and Jeffrey Roseman of Newmark Knight Frank.
“He is a workaholic,” said Patricia Dunphy, a senior vice president at Rockrose Development. Dunphy described him as a dedicated father but one so hard-working that his teenage daughter (with ex-wife Lizzete Winick, a Corcoran broker) spends time with him at his office.
Roseman, an executive vice president at Newmark, said he and Winick often hammer out deals over the phone at 11 p.m. on both weeknights and Saturdays.
In addition to living and breathing work, Winick is said to be a high-stakes gambler. According to testimony from the Duane Reade trial, his penchant for betting has put the firm at financial risk more than once.
“He is a little bit of a cowboy. He’s not corporate at all. He does not play by anyone else’s rules,” said David Firestein, president of the White Plains-based retail brokerage Northwest Atlantic Real Estate Services, the exclusive broker for Starbucks in Manhattan. (Winick handles Starbucks’ outer-borough leases.)
“He’s got that bulldog approach. I think that is one thing that makes him good,” Firestein said.
Patrick Breslin, president of retail for Grubb & Ellis in New York, agreed, calling Winick a “great broker” who “gets his nose in the deals.”
“People say a lot of things. They are jealous. … He has to be doing something right,” Breslin said. “I have seen his handiwork all over town.”
Faith Hope Consolo, chairman of retail leasing and sales at Prudential Douglas Elliman, said his style works for some, but not for her.
“It’s like tangling [with] a gorilla. You try to calm him down, and you talk to him and reason with him. [But] there is no calm conversation. There is no negotiation,” she said.
Whatever people think of him, Winick has built one of the largest retail leasing operations in the city.
He started as an agent with the firm Sutton Garrett Realty before he founded his brokerage in 1979.
While Winick Realty has been around for years, it wasn’t until the mid-1990s that it moved into the big leagues.
Indeed, in 1996, Winick turned a professional corner. That year, when he had a staff of a little more than a dozen, he hired away a young broker named Cory Zelnik from CVS Pharmacy.
The same year Winick hired Zelnik, Anthony Cuti was named CEO of Duane Reade. Cuti began aggressively increasing the drugstore’s retail presence, which grew from more than 50 in the metro area when he started to 258 today. At its peak, the company was opening 30 to 35 stores a year.
But Cuti had a falling-out with Duane Reade after it was sold in 2004 to a private equity firm, and was fired in 2005. Then he and former compa ny CFO William Tennant were charged in 2008 with securities fraud and other counts related to using allegedly bogus real estate transactions to boost income between 2000 and 2005. They have both pleaded not guilty.
Zelnik, who would become a partner and star producer for Winick, is now a key witness in the case against the former executives, having cut a deal with prosecutors for immunity from his involvement in any of the allegedly fraudulent deals. Last month he testified that the number of annual Duane Reade openings while he was at Winick Realty was “as close to unprecedented as possible.”
During that “unprecedented” expansion, the company became Winick’s largest client, accounting during the past decade for as much as 50 percent of its revenues, which through 2005 were between $8 million and $15 million per year. (The revenue figures, which were revealed during court testimony, only cover up to 2005.) It should be noted that in addition to each new store Duane Reade opened, there could be secondary transactions to lease up the store Duane Reade was vacating in the case of a relocation.
Prosecutors say the vast majority of Duane Reade’s questionable real estate transactions were with three entities controlled by Jeff Winick — Winick Realty Group and two investment companies, Danielle Equity Holding and Store Op.
Zelnik told the jury he and Winick, as partners in Danielle Equity, engaged in a series of transactions with Duane Reade that had no economic value, but which were used to artificially boost the drugstores’ short-term earnings, starting around 2000.
For example, Danielle Equity, after receiving a sham payment orchestrated by Duane Reade for $831,000 in February 2001, proceeded to pay back Duane Reade the bulk of that figure, $806,000, for the right to control leases in eight Manhattan properties. Zelnik said the lease options were generally worthless, mostly because they were expiring soon.
The payment “was an arrangement we had, that Jeff Winick and myself had made with Tony Cuti to help raise capital for Duane Reade that would allow Winick Realty Group to continue its responsibilities in terms of new stores for Duane Reade,” Zelnik said on the stand. Cuti sought the $806,000 payment, prosecutors claim, because it allowed the company to show higher earnings on its books and thereby boost its share price.
But Cuti’s defense attorney Reid Weingarten said the transactions were legitimate, and outlined for the jury how the brokers actually earned the $2.2 million in commissions and fees related to the deals.
Weingarten said the drugstore chain viewed Winick as a crucial figure, characterizing him as running “Duane Reade’s in-house real estate department.”
In court, Weingarten and other defense attorneys for Duane Reade painted Winick as not only an aggressive dealmaker with an encyclopedic knowledge of Manhattan commercial real estate, but also an active property owner and a gambler who put his company’s finances at risk. It’s important to note that the finger-pointing both prosecutors and defense attorneys are doing at Winick and Zelnik (who left the firm in 2006, in part, he testified, because Winick wanted to bring someone on board over his objections) is going unanswered because neither of them is on trial.
In court, Weingarten read from a ledger of Winick’s gambling debts (which involved company money). In 2000, he owed the Mirage Hotel & Casino in Las Vegas $250,000, MGM Grand $210,000, and Foxwoods Resort Casino in Connecticut $125,000, Weingarten said. He added that at one point Winick owed the IRS $824,000.
Revolving door
According to testimony that’s come out during the Duane Reade trial, Winick Realty has been something of a revolving door for investors, with brokers Warren Newcorn and Frank Terzulli, and investors Stanley Chera, Lloyd Goldman and S. Laurence Davis, all involved at one point or another since 1996.
Terzulli is no longer alive and none of the other investors responded to requests for comment.
Part of Winick Realty’s strong growth was fueled by his business relationship with developers such as Rockrose, Joseph Moinian and the Chetrit Group. It’s common for retail brokers to partner with developers, and Winick Realty was one of the most aggressive in the city.
But the freeze in new development has brought a similar halt to leasing in such projects. Winick Realty is, for example, listed as the exclusive retail broker for 855 Sixth Avenue, a vacant site where Tessler Developments and the Chetrit Group planned to build a 30-story tower, but that site is now tied up in foreclosure litigation.
And the slow economy has also hindered leasing in completed projects. Winick Realty has not been able to fully lease the Stellar Management and Chetrit Group rental project on the Upper West Side, Columbus Square. Despite snagging prominent tenants like Whole Foods, the 300,000 square feet of retail in five buildings remains about 25 percent vacant, the Winick Realty Web site shows.
The retail run-up
While Winick Realty would not be the company it is today without Duane Reade, it has had success in attracting other major tenant clients over the years.
In addition to handling Starbucks’ outer-borough leases and the leasing of grocery store Gristedes, the firm has also represented beauty supplier Ricky’s, which has signed no fewer than eight leases in Manhattan, Brooklyn and Queens since August.
Also, while many firms concentrate on either Manhattan or the outer boroughs, Winick Realty represents tenants and landlords all over the city.
Clients say the smart and scrappy Jeff Winick gives blunt assessments.
Ary Freilich — a managing partner with landlord Blumberg & Freilich Equities who has known Winick for more than 20 years — said a few years ago Winick told him to lower his expectations on what he could earn in rental income on a Manhattan building he was looking to purchase.
“He said, ‘You are not going to achieve those deals,’ so I did [the purchase] with more realistic expectations,” Freilich said.
Like many firms, Winick Realty has fluctuated in size over the past few years. In May 2007, the firm had 45 brokers. In an unpublished interview with The Real Deal in February of that year, Winick said: “We’re the hottest company out there. Everything we market, [we market] exclusively.”
But like many of its competitors, it appears to have shrunk in size since the downturn. In the middle of last month, the state’s Division of Licensing Services had 35 brokers and salespeople registered at the company.
One of Winick’s main rivals, Robert K. Futterman & Associates (also an independent firm), had 46 brokers and salespeople registered with the state last month. Other firms with a significant retail presence include Newmark’s retail division, with 33 agents, and Ripco Real Estate, with 11 in its Manhattan office.
But brokers say it’s difficult to assess which of Manhattan’s retail firms are the most dominant, because the number of brokers a firm has does not necessarily translate into the most deals or market influence. Also, not all transactions are reported to data firms like CoStar Group, so individual deal volume is hard to track.
By one metric, the amount of space listed by a given brokerage, CoStar shows Winick Realty listing just over 300,000 square feet of space in March. The same statistics showed Futterman with just under 300,000 square feet and Newmark with 380,000 square feet.
Data for the larger multiservice firms like Cushman and CB Richard Ellis were not available because the retail data is combined with office space.
At times, brokers have criticized Winick Realty for representing both sides of a deal, saying it’s a conflict of interest. However, the practice is perfectly legal and, in fact, is often trumpeted by retail firms when a deal is announced. As a result, some say any criticism of Winick for the practice may just be sour grapes.
According to The Real Deal‘s monthly Deal Sheet, a tally of leases voluntarily submitted by brokerages, over the last 15 months the firm represented both the landlord and tenant in 60 percent of the 116 transactions it submitted.
That figure was slightly higher in the 19 deals involving Duane Reade. In those deals, Winick represented both sides 70 percent of the time.
Holding on to Duane Reade
Trial or no trial, there’s no disputing that the Duane Reade account is a pot of honey.
But the Walgreens purchase of the drug giant puts Winick Realty’s hold on that agency at serious risk. That’s because when there’s a corporate sale like this one, the incumbent broker often has a leg up.
In New York, Walgreens is represented by Patrick Smith, an executive vice president at SRS Real Estate Partners, a Dallas-based brokerage firm.
Representatives for Walgreens and SRS declined to comment, but Northwest Atlantic’s Firestein said brokers are speculating about who will get the account.
Regardless of which firm that turns out to be, Freilich of Blumberg & Freilich said he expects Winick to remain a dominant player in New York retail.
“I think Jeff remains at the top of the pyramid, very much as master of his field,” Freilich said. “I think in the end, people will gravitate to his talent and his energy and the directness of his advice.”
For more coverage of the Duane Reade trial, see the stories below:
Garage owner Gerald Brauser testifies in Duane Reade execs’ fraud trial
Major property owner Jeffrey Sutton testifies in Duane Reade fraud trial
Winick Realty faces fallout from Duane Reade trial, insiders say
Duane Reade execs’ trial reveals underbelly of retail brokerage
More allegedly fraudulent Duane Reade lease deals outlined at execs’ trial
Former Winick prez outlines alleged sham deals between Winick affiliate, Duane Reade
Real estate deals between Duane Reade and Winick were bogus, prosecutor says at trial of drugstore chain execs
Jury selected in Duane Reade execs’ trial
Winick Realty featured in Duane Reade execs trial commencing tomorrow