Paydirt: Broken hearts and disproportionate warfare: How real estate does battle
The industry news you need to start your week, and what's ahead
Disque Deane kept a stuffed Alaskan timber wolf in his office, a reminder to be both lean and rapacious. He once smashed a bottle of wine over the head of a Merrill Lynch scion, and quizzed his kids about compound interest at the breakfast table. He was relentless as an investor, and among the most creative dealmakers of his time, a Harry Helmsley with fangs. His signature accomplishment: the development of Starrett City, the massive Brooklyn housing project that President Trump, one of his partners on the deal, called “the greatest tax shelter ever made.”
That tax shelter is now in play. But Rockpoint and Brooksville’s move to take control of Starrett City comes with the kind of drama befitting its developer, who died in 2010. The managing partners of Starrett City are led by Carol Deane, whom Deane divorced his wife Marjorie to marry when he was in his seventies. “Basically my father killed her [Marjorie],” Deane’s daughter Kathryn recounts to Vicky Ward in “Liar’s Ball.” “She died of a broken heart.”
In real estate, vendettas are best expressed through lawsuits. Last week, some of Carol’s stepchildren, who are limited partners in the complex, sued her company, alleging that she was rash in accepting an $850 million offer for the complex that they say was well below market-value and below an offer that one of the plaintiffs claim to have made. The suit also calls out the broker on the deal, Cushman & Wakefield’s Doug Harmon, alleging that because Harmon had worked with Brooksville principal Andrew MacArthur on the 2015 Stuy Town sale, he was “conflicted.”
The legal action may be a way for the limited partners to assert themselves into the process, and open up the complex to more offers, including their own. Or it may be a way to score a quick payday. Recall the 2015 Stuy Town sale again, to Blackstone Group and Ivanhoe Cambridge. After the parties were in contract to buy the complex, SL Green Realty, which is the city’s largest commercial landlord and had lost $200 million on the 2006 Stuy Town deal, threatened to file suit to block the sale. In the end, SL Green walked away without filing suit, but, according to a report in the New York Times, were paid $10 million for their trouble.
Going thermonuclear: The Starrett City lawsuit, though explosive in content, is mild in exposition – the plaintiffs describe being “doubly shocked” by how the managing partners handled the process. But in many other recent real estate disputes, the rhetoric and posturing is dialed way up.
Consider the dispute between private equity billionaire Ron Burkle and hotelier Andrew Zobler. The two partnered up on several hotels, including the development of the trendy 168-key NoMad Hotel, but now, according to Zobler, Burkle wants to squeeze him out. He filed a suit in which he alleged Burkle threatened to “crush” him and “go thermonuclear” with litigation if he didn’t step down as CEO of the JV. Considering what’s happening with the Trump administration and a certain “Rocket Man” in Pyongyang, it’s an odd choice of language. For his part, Burkle said Zobler became “overwhelmed” by the growth of the JV, and is now reneging on an agreement to step down.
Trump, you will recall, said that North Korea would be met with “fire and fury like the world has never seen” if it continued to threaten the U.S. Gamma Real Estate’s Jonathan Kalikow seems to have taken inspiration from this, but added in a literary twist. Discussing his dispute with Bauhouse Group’s Joseph Beninati over 3 Sutton Place, Kalikow told the Commercial Observer that he believed in “disproportionate retaliation.”
“Like ‘Count of Monte Cristo,’ but to the 10th power,” he said. “As in, now you’ve fucked with the wrong person.”
Being a fan of Alexandre Dumas, however, I was a bit confused: Does Kalikow see himself as a modern-day investor avatar of Edmond Dantes, the naive sailor who was betrayed by his best friend, spent 14 agonizing years in a hellish prison, and then went about exacting his revenge? Or does he see himself as Fernand Mondego, who conspired to get Dantes incarcerated, and spent the ensuing years amassing wealth and prestige only to lose everything, including his life, at the end? Not sure if Kalikow thought his reference through, but I am glad he made it.
Who pays for safety?: The City Council signed off on Intro 1447, a construction safety bill that will require workers to undergo at least 40 hours of safety training. There’s been an epidemic of construction accidents in the city over the last two years, and the Council, in Speaker Melissa Mark-Viverito’s words, wasn’t going to sit by “and watch workers die.” The unions are touting the measure as something that will make the construction industry in New York safer, while many developers and REBNY, who criticized the bill, said that it would put a chill on the industry.
Everyone agrees that more needs to be done on construction safety and that the current state of play is unacceptable, REBNY boss John Banks told me last week. But the bill, he said, leaves a big question on the table: Who pays for the training? Unions can allocate a cut of dues to pay for the training for their members, but the real casualties, he said, will be unaffiliated contractors.
“Those guys work on a job for several weeks or months, and then they go find another job,” Banks said. “There is no incentive for any contractor to invest in that employee.” And since these independent contractors generally don’t make enough, they are unlikely to pay out of pocket for the training, according to Banks, essentially freezing them out of the workforce.
Gary LaBarbera, president of the Building Trades, which represents unions, had a retort ready.
“If you’re so concerned about who’s going to pay for it, these workers you’re so worried about, well then you pay for it,” he said. “Obviously, they have the resources to pay for it. I think that’s what a responsible industry does.”
(Paydirt is a weekly column that riffs on the biggest NYC real estate news of the moment, providing analysis and historical context on the deals and players that make this town tick. Read more from Paydirt here.)