Commercial Observer - September 7, 2016

THIS ISSUE

Finance

SEPTEMBER 7, 2016

LAWYERS ISSUE

• Edward Mermelstein discusses the overseas buying frenzy.

• Kramer Levin’s Jay Neveloff has a few Trump cards up his sleeve.

• Why Manhattan DA Cyrus Vance Jr. is targeting the crooks of real estate.

P17

THE $2 BILLION DIVORCE What does a high-profile break-up do to a big real estate fortune?

Harry Macklowe is about to find out.

SPECIAL 15th ANNIVERSARY 9/11 ISSUE

SOLID TO THE CORE COM M ERCIAL

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N E W YO R K C I T Y ’ S L A R G E S T O W N E R O F C O M M E R C I A L R E A L E S TAT E

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LAWYER ISSUE 1 WHITEHALL STREET, 7TH FLOOR NEW YORK, NY 10004

28 50 4 NEWS BRIEFS

14 LEASES Leases of the Week

17 FINANCE Debt Deals of the Week Q&A Talking shop with Rick White, Dan Flanigan, Anna-Liza Harris, Christine Spletzer, Edward Mermelstein, Jay Neveloff, Amy Arentowicz and Jeff Temple

D.A.mn!

Cyrus Vance Jr.

Divorce, Real Estate Style Harry Macklowe is about to step into a hugely expensive divorce...what comes next?

Columns

Joshua Stein and Richard Fries

Takeaway Chart Finance Data

Max Gross Editor-in-Chief — Lauren Elkies Schram, Deputy Editor Cathy Cunningham, Finance Editor WRITERS Danielle Balbi, Finance Reporter Terence Cullen, Reporter Liam La Guerre, Reporter — Robyn Reiss Executive Director — SALES Barbara Shapiro, Associate Publisher, Finance James Storey, Senior Account Executive Shannon Rooney, Account Executive — MARKETING Lauren Russell, Marketing Director Genevieve Rupp, Marketing & Events Manager — DESIGN, PHOTO & PRODUCTION Paul Dilakian, Art Director Lisa Medchill, Advertising & Production Director Jeff Cuyubamba, Senior Designer Emily Assiran, Photo Director Kaitlyn Flannagan, Photo Editor — OBSERVER MEDIA Jared C. Kushner Publisher Joseph Meyer Chairman and CEO Ken Kurson Editorial Director

62 9/11

Thomas D’Agostino VP of Operations and Controller TO SUBSCRIBE, CONTACT ALEXANDRA ENDERLE AT AENDERLE@OBSERVER.COM, OR CALL 212-407-9331.

52

Ground Zero, ‘01 - ‘16 CO’s timeline of the major events at the World Trade Center from 2001 to 2016

The Builder Larry Silverstein’s 15-year mission

END NOTES 72 The Plan

74 ChartLease / Sale

FROM TOP: NIEL WEBB; SPENCER PLATT/GETTY IMAGES COVER ILLUSTRATION: GONZA RODRIGUEZ

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| SEPTEMBER 7, 2016 | COMMERCIAL OBSERVER

FOR REAL ESTATE ADVERTISING, CONTACT ROBYN REISS AT RREISS@OBSERVER.COM, OR CALL 212-407-9382.

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TOWER FLOOR EXCEPTIONAL VIEWS FLEXIBLE LAYOUTS

PROPOSED OPEN LAYOUT

PROPOSED OFFICE INTENSIVE LAYOUT

ENTIRE 24TH FLOOR

17,320 SF

Justin Royce, Executive Director 212-841-7764, justin.royce@cushwake.com Jeremy Bier, Vice President 212-216-1722, jeremy.bier@slgreen.com

Tara I. Stacom, Executive Vice Chairman 212-841-7843, tara.stacom@cushwake.com

Connor B. Daugstrup, Associate 212-841-7964, connor.daugstrup@cushwake.com

Krystyn Gatto, Leasing Associate 212-356-4106, krystyn.gatto@slgreen.com

Barry J. Zeller, Executive Vice President 212-841-5913, barry.zeller@cushwake.com

Matthias Li, Director 212-841-7712, matthias.li@cushwake.com

slgreen.com

BRIEFS

News GETTING WITH THE TIMES

Outstanding Hospitality Management Group has signed an 11,970-square-foot lease at the 229 West 43rd Street retail condominium owned by Kushner Companies for a curated food hall by celebrity chef Todd English.

Called American Market by Todd English, the venue will be located on the ground floor of the building between Seventh and Eighth Avenues, according to a Kushner Companies release. (Jared Kushner, the chief executive officer of Kushner Companies, is the publisher of Commercial Observer).

The food hall is set to open in the summer of 2017 at the property, also known as the old New York Times Building. Asking rent in the 15-year deal was not disclosed, but the average ground-floor asking rent in Times Square is about $2,363 per square foot, according to The New York Post, which first reported news of the deal.

“We are confident that this will become an essential Times Square dining destination and we look forward to welcoming guests to the American Market by Todd English in 2017,”Milan Patel, the president of Outstanding Hospitality Management, said in prepared remarks.

JRT Realty Group’s Greg Smith and Kelly Si mek represente d O ut s t a nd i n g Hospitality Management in the deal, while SCG Retail’s Chase Welles and Alexandra Escobar brokered the deal for Kushner Companies. Smith and Welles did not respond to requests for comment on the deal.

With the signing of the food hall, Kushner Companies has fully leased its 250,000-square-foot retail condo, which it purchased in October 2015 for $295 million. A few weeks ago the landlord signed the first brick-and-mortar location for the popular Los Tacos No. 1, as CO first reported. Gulliver’s Gate, a 49,000-square-foot interactive miniature world display, and the 60,000-square-foot 4 | SEPTEMBER 7, 2016 | COMMERCIAL OBSERVER

entertainment venue National Geographic Times Square: Ocean Giants will also be in the building.

“In less than a year, we’ve completely transformed an underperforming asset into a top-flight entertainment and dining destination,” Morris Harary, a managing director at Kushner Companies, said in a statement. “The American Market by Todd English will perfectly complement the retail condo’s entertainment venues.”—Liam La Guerre

MIKE COPPOLA/GETTY IMAGES PORTRAIT

Food Hall by Todd English Coming to Times Square

KING’S ENGLISH: Celebrity chef Todd English is bringing a food hall to Times Square.

STAT OF THE WEEK

63.5 Percent

BY RICHARD PERSICHETTI In the commercial real estate industry, law firm leases are considered especially coveted. In New York City, the dedicated brokers who investigate these transactions are members of an elite squad known as the “Special Leasing Unit.” Here are the latest numbers: The legal services industry has been active through the first eight months of the year, as 51 new leases and renewals were signed through August. On an annualized basis, this industry is on pace to surpass 75 transactions and outpace the 2015 total of only 64. Similar to the increase in renewal activity throughout the market, 33.3 percent of law firm leases signed this year were renewals, up from only 26.5 percent in both 2014 and 2015.

Despite the increase in the number of leases signed, total leasing volume is down 34.3 percent from one year ago, with just under 1.3 million square feet completed. Although there were six leases greater than 50,000 square feet signed by law firms through the first eight months of the year—equal to the same total from all of 2015—the average size of each deal is down 33.6 percent to only 24,619 square feet. Despite six leases over 50,000 square feet signed this year, the legal services industry has yet to notch a lease greater than 250,000 square feet, which this sector has completed at least two of since 2013. On a square footage basis, 63.5 percent of the leases signed were renewals, as four of the top six deals were law

firms that remained in place. Renewal activity is up for law firms this year, as the industry has averaged a 39.1 percent renewal rate since 2000.

Since 2014, law firms’ average starting rent was $72.64 per square foot, the highest three-year average on record, but 2016 has started off with a 6.5 percent decrease from 2015 to $69.06 per square foot.

Richard Persichetti is the vice president of research and marketing at Cushman & Wakefield.

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Keith A. Cody 212-850-2759 • kcody@empirestaterealtytrust.com

Harry F. Blair 212-841-5996 • harry.blair@cushwake.com Sean N. Kearns 212-841-7517 • sean.kearns@cushwake.com

BRIEFS

COURTESY COSTAR GROUP

Your livelihood, empowered. friedmanllp.com

No obstacle is insurmountable with the right partner.

ACT IT OUT: The Actor’s Fund has expanded by about 50 percent at 729 Seventh Avenue.

The Actor’s Fund Cues More Space at 729 Seventh Avenue

The real estate industry’s propensity for rapid growth and change continues to generate new challenges. We help our clients clear the hurdles and capitalize on new opportunities.

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| SEPTEMBER 7, 2016 | COMMERCIAL OBSERVER

An organization serving actors in theater and film among other mediums has signed a deal to expand at Himmel + Meringoff Properties’ 729 Seventh Avenue, the landlord announced in a press release.

The Actor’s Fund has grown to 33,600 square feet at the 164,000-square-foot property between West 48th and West 49th Streets, per the release. That’s a roughly 50 percent increase from the 24,000 square feet the company currently leases at the building.

Asking rent in the deal was in the $60s per square foot, according to The New York Post, which first reported news of the deal.

The new Actor’s Fund lease runs until 2030, according to the release. The 134-year-old group first signed a 17-year deal at the building in April 1998, according to CoStar Group, and renewed again in 2013. It has been based on the 10th and 11th floors and will now expand to the 12th floor, according to David Lebenstein of Cushman & Wakefield, who represented the tenant.

The new space will be used for healthcare

operations for the group, which provides services to its members, Lebenstein said.

Those were previously based at another building on West 57th Street and 10th Avenue. About 4,500 square feet of the expanded space will be subleased, he added, and used by The Actor’s Fund for future growth.

Jason Vacker and David Cohen of Himmel + Meringoff represented the landlord in-house.

“We are very pleased to be able to accommodate The Actor’s Fund’s expansion needs,” Leslie Himmel, a principal of Himmel + Meringoff, said in prepared remarks. “We look forward to having them continue as one of the building’s primary tenants.”

But the acting organization isn’t the only dramatic tenant at the property. Playbill, the publisher of theater programs, signed a deal this April to move its headquarters to the building. The company will occupy 11,200 square feet on the whole fourth floor, as Commercial Observer previously reported.

—Terence Cullen

Portrait by renowned illustrator Joseph Adolphe.

WILMINGTON TRUST RENOWNED INSIGHT

“How could the November election affect your portfolio?”

Luke Tilley Chief Economist A vital part of our deep bench of experienced analysts, strategists, and economists, Luke oversees Wilmington Trust’s macroeconomic forecasting for the U.S. and international economies. He researches emerging issues to support and enhance our overall investment strategy and to communicate the outlook to both clients and the public at large. For access to knowledgeable professionals like Luke and the rest of our team, contact Larry Gore at 212-415-0547.

Today, the U.S. government’s staggering debt is $18.1 trillion. Even worse, the Congressional Budget Office projects that, if left unchecked, it’s only going to increase.

Most of the debt is due to federal programs like Social Security and Medicare, which could tack on an extra $573 billion to the nation’s tab by 2020. Fortunately, the twofold solution to this problem is rather simple. We need to spend less and earn more in order to promote growth and create incentives that should help keep jobs and assets in the U.S. But making headway isn’t easy.

Where do the presidential candidates stand? The leading candidates are focused on the overall economy. However, their solutions are drastically different, with a wide range of estimated results over the first decade. The nonpartisan Tax Policy Center says Donald Trump’s proposed lower taxes would reduce revenue by $9.5 trillion and add $11.2 trillion to our national debt. Meanwhile, Hillary Clinton’s proposed higher taxes would boost revenue by $1.1 trillion and cut the debt by $1.3 trillion.

The bigger picture. It’s important to keep in mind that the numbers alone don’t tell the story and a longer view must be taken into

account. Even if one of the proposals came to fruition, a great deal remains to be quantified.

For instance, how much economic drag would result from higher taxes? Or, conversely, would there be enough economic stimulus from lower taxes to make the nation debt-neutral?

T H E U.S. G OV E R N M E N T O W E S

$18.1 TRILLION

Source: Congressional Budget Office, January 2016

Where does that leave you? With Wilmington Trust, your portfolio is in experienced hands. We have prudently managed risk and stewarded client assets through many up and down markets over the past 100 years. Though U.S. economic growth struggles are weighing heavily on markets, we are confident that our clients’ portfolios are sensibly positioned to meet challenges and capitalize on opportunities in the decade ahead – no matter the election’s outcome.

For further insight, along with more of our outlook on expected trends, go to wilmingtontrust.com/election.

F I D U C I A R Y S E R V I C E S | W E A LT H P L A N N I N G | I N V E S T M E N T M A N A G E M E N T | P R I VAT E B A N K I N G

This article is for informational purposes only and is not intended as an offer or solicitation for the sale of any financial product or service. This article is not designed or intended to provide financial, tax, legal, accounting, or other professional advice since such advice always requires consideration of individual circumstances. If professional advice is needed, the services of your professional advisor should be sought.

Private Banking is the marketing name for an offering of M&T Bank deposit and loan products and services.

Investments: • Are NOT FDIC-Insured • Have NO Bank Guarantee • May Lose Value Wilmington Trust is a registered service mark. Wilmington Trust Corporation is a wholly owned subsidiary of M&T Bank Corporation (M&T). Investment management and fiduciary services are provided by Wilmington Trust Company, operating in Delaware only, and Wilmington Trust, N.A., a national bank. Loans, retail and business deposits, and other personal and business banking services and products are offered by M&T Bank, member FDIC. Wilmington Trust Investment Advisors, Inc., a subsidiary of M&T Bank, is a SEC-registered investment advisor providing investment management services to Wilmington Trust and M&T affiliates and clients. ©2016 Wilmington Trust Corporation and its affiliates. All rights reserved.

BRIEFS

COURTESY TERRA CRG

GPB Capital Pays $30M for Would-Be DoBro Condo Site

DO, BRO: GPB Capital Holdings has scooped up 211-215 Schermerhorn Street.

GPB Capital Holdings has finally closed on a $30 million purchase of a development site in Downtown Brooklyn at 211215 Schermerhorn Street from developer Nicholas Cammarato, 13 months after signing a contract, Commercial Observer has learned.

The Chelsea-based asset management company filed plans in February for a 75,000-square-foot, 47-unit condominium on the site between Hoyt and Bond Streets with the New York City Department of Buildings.

The 14-story project, which will be surrounded by much taller rental residential buildings in the booming neighborhood, will include 5,372 square feet of retail space on the ground floor, according to the public filings. Morris Adjmi Architects is designing the project, city records indicate. (The initial plans were disapproved in March.)

According to TerraCRG’s Ofer Cohen, who represented the seller with colleagues Melissa Warren, Dan Marks and Peter Matheos, both sides agreed to the August

closing date so Cammarato could “have more flexibility” to purchase property via a 1031 exchange—which allows investors to defer taxes on a newly acquired property after a sale. Cohen said he did not help his client in the purchase of a new property and did not know if he had successfully identified one.

Cammarato wasn’t available for comment.

In 2013 and 2014, Cammarato paid more than $16 million for the three lots comprising the site, as CO previously reported. Today he is able to double his profits thanks to the surge in value in Downtown Brooklyn, Cohen said.

“He took advantage of a very healthy market,” Cohen told CO. “If he had put it on the market today, it would not have been such a great return. Timing is everything. He was smart enough to take advantage of the market.”

GPB Capital did not return a call seeking comment, and the company didn’t have a broker in the deal.

The Real Deal first reported news of the property being in contract last year.—L.L.G.

Sam Chang Nabs Two Midtown Hotels for $155M

Two and a half years after shuttering its Greenwich Village location, the iconic hot dog chain Gray’s Papaya is opening up shop in Midtown West, independent broker Thomas Lee said. This will be the second Gray’s Papaya in New York City and marks the company’s return to Eighth Avenue near Port Authority Bus Terminal.

The all-night hot dog establishment, founded on the Upper West Side in 1973, will occupy 1,300 square feet at Hata Realty Corp.’s 612 Eighth Avenue between West 39th and West 40th Streets so it can “take advantage of the high foot traffic from both commuters and tourists,” Lee said in an email. He was the lone broker in the deal.

The lease is for 20 years and the asking rent was $250 per square foot, Lee said, noting that the new outpost should open in three months. Owner Rachael Gray didn’t respond to a request for comment.

The wiener chain has its original and lone operating store at 2090 Broadway at West 72nd Street. Gray’s Papaya closed down at 402 Avenue of the Americas at West Eighth Street in January 2014 due to a rent increase, as CBS News reported at the time. The rent issue also plagued the Gray’s Papaya at 539 Eighth Avenue at West 37th Street, and it shuttered in 2011.

Alpine, N.J.-based Hata Realty bought the 1925 three-story building at 612 Eighth Avenue in 1984 for $1.1 million, property 8 | SEPTEMBER 7, 2016 | COMMERCIAL OBSERVER

LWYANG/FLICKR

A Second Act for Gray’s Papaya

HOT DIGGITY DOG!: Gray’s Papaya is making a comeback with a new spot new on Eighth Avenue. records indicate. The structure is 9,917 square feet and has residences upstairs, according to PropertyShark.

Port Authority Bus Terminal is surrounded by fast-food joints. As Commercial

Observer reported in June, Jollibee Food Corporation is bringing its fried chicken, hamburgers, spaghetti and rice meals to Manhattan, joining Arby’s sandwich chain at 609 Eighth Avenue.—Lauren Elkies Schram

Hotel maestro Sam Chang of McSam Hotel Group has acquired two Club Quarters hotels with a total of 400 rooms in Midtown for $155 million, a source with intimate knowledge of the deal said. The seller was Rockwood Capital.

The hotels are Club Quarters Hotel, opposite Rockefeller Center and with an address of 25 West 51st Street, and Club Quarters Hotel, Midtown, at 40 West 45th Street, both between Fifth Avenue and Avenue of the Americas.

Chang will hold onto the hotels, which have long-term management contracts with Club Quarters, for their “cash flows,” the source said.

JLL’s Jeffrey Davis negotiated the sale, and JLL’s Kevin Davis brokered the financing for Chang.

Aareal Capital Corporation provided a $100.5 million senior loan and NorthStar Realty Finance gave a $16.5 million mezzanine loan to fund the acquisition, both with three-year terms and two one-year extension options.

Chang declined to comment. A spokesman for JLL didn’t respond to a request for comment, nor did representatives for Rockwood or the banks.

—L.E.S.

Bringing on the BesT. Newmark Grubb Knight Frank is proud to welcome

JOHN BUSI as President of NGKF Valuation and Advisory

NGKF is actively working to transform the valuation business through an innovative approach that leverages technology and real-time analytics, centered on world-class capital markets intelligence and data harnessed by our growing platform. Our deep bench in capital markets, roots in technology and analytics, and entrepreneurial culture sets the stage for a next-generation valuation and advisory practice.

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CAMERON SPENCER/GETTY IMAGES

BRIEFS

Write caption here

As Zara’s FiDi Business Booms, the Retailer Takes More Space

Guess who is watching video?

Spanish clothes and accessories retailer Zara, which opened a three-story store at 222 Broadway in the Financial District last year, has leased nearly 10,000 square feet for storage, according to one of the brokers in the deal.

“They didn’t have enough stock space,” Cushman & Wakefield’s C. Bradley Mendelson told Commercial Observer. “It’s interesting because I believe the tenant underestimated the volume they are capable of doing in that marketplace. So they’re obviously doing well, which is a testimonial to the market.”

Zara has signed a lease for 9,900 square feet in the sub-basement in the 1961 office building, which is between Ann and Fulton Streets. The new space brings the chain’s

square footage in the building to 40,100 square feet. The store spans the ground, second and lower levels.

The new lease is coterminous with its existing 15-year lease, Mendelson said. The asking rent wasn’t immediately clear.

Mendelson represented landlord L&L Holding Company in the deal along with Alan Schmerzler, Steven Soutendijk and Christopher Schwart. Zara represented itself, Mendelson said.

Beacon Capital Partners and L&L paid Bank of America $230 million for the building in 2012, as CO previously reported. Boston-based Beacon sold its equity stake to Deutsche Asset & Wealth Management in 2014 for $502 million.—L.E.S.

Websites with video convert new business at

2x

the rate of sites that don't have video

w w w. M u l t i Vi s i o n D i g i t a l . c o m 10 | SEPTEMBER 7, 2016 | COMMERCIAL OBSERVER

An affiliate of Upper West Sidebased RCR Management has picked up an apartment building at 45-41 39th Place in the Sunnyside section of Queens for $19.7 million, according to city records published last week.

RCR completed the purchase of the six-story rental property between 47th Avenue and Queens Boulevard on Aug. 18 from B.M.F. Associates, an entity controlled by Forest Hillsbased Just Management Corporation, public records indicate. The 1940 elevator building is comprised of 66 apartments.

The sale of the property comes at a time when demand for Sunnyside investment properties is starting to take off, thanks to the neighborhood’s proximity to Midtown via the 7 train and relatively low prices, as Commercial Observer previously reported.

COURTESY PROPERTY SHARK

UWS Owner Buys 65-Unit Sunnyside Resi Building for $20M

SUNNYSIDE UP: 45-41 39th Place.

The buyer’s plans for the 72,000-square-foot property were not immediately clear. Ari Paul, a managing agent at RCR, declined to comment via an assistant, who abruptly hung up.

A call to the offices of Just Management was not returned.—L.L.G.

“An extremely talented real estate group with an impressively deep bench: the team is ideal for handling the most complex matters.”

– Chambers USA

Fried Frank Real Estate Where major real estate transactions happen

JPMorgan Chase Bank

Eleven Madison Avenue

Miami Design District

Counsel to JPMorgan Chase Bank in connection with the redevelopment and construction financing of up to US$950 million relating to the Century Plaza Hotel in Los Angeles, California.

Counsel to SL Green in the financing of its acquisition of Eleven Madison Avenue for US$2.285 billion, plus approximately US$300 million in costs associated with lease stipulated improvements to the property, the largest single-building transaction in New York City history.

Counsel to Blackstone Real Estate Group in connection with a US$590 million construction loan

by Blackstone, Bank of China, Deutsche Bank, and Credit Agricole for the development of the Miami Design District, a creative neighborhood and shopping destination in Miami, Florida.

Manhattan West

Hudson Yards

Exeter Property Group Counsel to Exeter Property Group in the US$3.15 billion sale of a 58-million-square-foot portfolio of core industrial properties to a joint venture of Henley Holding Company, a wholly owned subsidiary of the Abu Dhabi Investment Authority (ADIA), and one of the largest Canadian pension investment managers.

Macy’s Downtown Brooklyn Counsel to Tishman Speyer in the closing of its US$270 million real estate transaction with Macy’s Inc. to enable the re-creation of Macy’s Downtown Brooklyn store.

Attorney Advertising.

Counsel to Brookfield in securing a construction loan for the development in the amount of US$1.25 billion from a syndicate led by Wells Fargo.

Fannie Mae Counsel to Carr Properties as landlord in a 700,000-square-foot lease of a building that will be constructed for Fannie Mae’s new headquarters at 15th and L Streets in Washington DC, the largest-ever non-government lease in Washington DC.

Counsel to The Related Companies in connection with the development of the 26-acre Hudson Yards on the West Side, the largest private development in Manhattan since Rockefeller Center.

One Vanderbilt Counsel to SL Green in connection with the proposed development of One Vanderbilt, a 1,200-foot, 65-story office tower to be located directly across from Grand Central Terminal.

friedfrank.com

NEWS

Lucky 7 MARKO TATARAC/ ARIEL PROPERTY ADVISORS

7 train on track to increase multifamily property values in Queens

BY LIAM LA GUERRE

D

on’t stand clear of these doors: Jump aboard before they close! The next hot area for real estate investors may be further into Queens than Long Island City, in residential neighborhoods like Woodside, Sunnyside, Jackson Heights, Elmhurst and Corona.

Similar to how the L line drew activity to Brooklyn’s Williamsburg, Greenpoint and Bushwick, as people are priced out of Kings County, the 7 train will increasingly attract investors to inner Queens areas, according to an Ariel Property Advisors report provided first to Commercial Observer.

“With the impending shutdown of the L train and the oncoming development of the Cornell Tech campus on Roosevelt Island as well as the proposed Midtown East rezoning set to affect Manhattan stations along the line, we see the time as now for investors looking to take advantage of the relative discount in prices in Queens, specifically along the most convenient path to Manhattan, the 7 train,” Aryeh Orlofsky, the director of investment research at Ariel, said via a spokeswoman.

Over the last few years, the rising value of multifamily buildings—essentially the 12 | SEPTEMBER 7, 2016 | COMMERCIAL OBSERVER

main asset class in inner Queens neighborhoods—point to investor interest in the borough. In Sunnyside, multifamily building values doubled to $334 per square foot at the end of 2015 from $168 per square foot in 2012, according to Ariel. And through the first quarter of this year, the average price has been around $426 per square foot. In comparison, in Woodside prices grew to $236 per square foot last year from $132 per square foot in 2012. In the first six months of 2016, they averaged $306 per square foot.

And those rents are a bargain, compared with other boroughs. Manhattan multifamily buildings go for $1,000 per square foot today, and Brooklyn ones trade for $400 per square foot, the report notes.

Cap rates, representing the return on investment, have been more attractive in Queens than in Manhattan and similar to Brooklyn. During the first half of 2016, cap rates in Manhattan were 3.67 percent; in Brooklyn they were 4.44 percent; and in Queens they were 4.39 percent, according to Ariel.

Regarding the upside in the multifamily market in inner Queens, Thomas Donovan,

a vice chairman at Cushman & Wakefield, said, “The cat’s out of the bag. It’s not a secret any longer. Make the apartments a little nicer. It’s worth investing [in them] because the buildings—a lot of them are undervalued.”

Despite the activity, skyscrapers won’t be built along the 7 line, Daniel Wechsler, a vice president at Ariel, told CO, due to zoning restrictions and the high costs of building high-rise residential structures. Instead, developers and landlords will buy multifamily properties there and upgrade them.

“You are not going to see the type of physical growth [among buildings] that you are seeing in LIC,” Wechsler said. “[But] you are going to see a major pop in rent growth because of the proximity to Manhattan.”

That is likely to increase exponentially in the next number of years when more than 10 million square feet of office developments are built in Hudson Yards near the 7 lines’ West 34th Street Hudson Yards station, which opened in September 2015, the report indicates.

The cheap rents are already evident in parts of Queens. Compared with two-bedroom apartments in Midtown and Midtown

East that go for around $4,674 and $4,257 a month, respectively, areas like Sunnyside and Woodside are a bargain, with monthly rents of around $2,287 and $2,112, and both are just a 15- to 20-minute commute via the 7 train, the report shows.

Even further east on the 7 line, Jackson Heights, Elmhurst and Corona are expected to start to gain serious traction from millennials looking for cheaper rents, who don’t mind 30-minute commutes. Rents in Corona for a two-bedroom pad are as low as $1,968 per month.

“It’s the chase for affordable rent,” Wechsler said. “The further east you go the cheaper it gets. People will ask, ‘Can I tack on another five minutes to my commute, another 10 minutes to my commute?’ These neighborhoods are going to become more attractive for people.”

This trend has been long underway in Long Island City, where the average rent for a two-bedroom apartment is $2,905 and the commute to Manhattan ranges from six to 11 minutes via the 7 train. And in that Queens neighborhood, developers are erecting various multifamily skyscrapers, hotels and office buildings.

Specialization • Expertise • Results

Marcus & Millichap Has a History of Closing and a Track Record of Success Below is a Sampling of Our Recent Closings CLOSED: 8/16/2016

CLOSED: 8/16/2016

CLOSED: 8/22/2016

CLOSED: 8/18/2016

Mixed-Use Tribeca (New York), NY $16,200,000 Agents: Matthew Fotis, Samuel Hoefle

7-Unit Multifamily Bushwick (Brooklyn), NY $2,900,000 Agents: Shaun Riney, Daniel Greenblatt, Thomas Shihadeh

Shopping Center Bensonhurst (Brooklyn), NY $3,930,000 Agents: Bobby Barbatsis, Evmorfea Barbatsis-Savidis

74-Unit Multifamily West Hartford, CT $7,950,000 Agents: Victor W. Nolletti, Steve B. Witten, Eric Pentore, Wes Klockner

CLOSED: 8/19/2016

CLOSED: 8/26/2016

CLOSED: 8/18/2016

CLOSED: 8/25/2016

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LEASES

MarketAxess 83,000 Relocation

MarketAxess, which provides an electronic trading platform for investors, is the latest firm to decide to move to Related Companies’ 55 Hudson Yards.

The tenant signed an 83,000square-foot lease at the planned 1.3-million-square-foot tower. Related is partnering with Mitsui Fudosan America and Oxford Properties Group to build the skyscraper.

The terms of the deal were not disclosed. MarketAxess will occupy three full floors in the future building at 11th Avenue between West 33rd and West 34th Streets, according to The New York Post, which first reported news of the deal.

“Hudson Yards represents a perfect fit for our corporate mission to deliver innovative technology solutions to our clients,” Richard McVey, the chief executive officer of MarketAxess, said in a statement. “It is transformative, exciting, efficient and environmentally friendly.”

MarketAxess will relocate from Fisher Brothers’ 299 Park Avenue.

“MarketAxess wanted to create a world-class, state-of-the-art environment for its employees and clients for its global headquarters, with the ability to attract top talent for its growing and expanding business,” CBRE’s Brad Gerla, who represented the tenant in the deal, said via a spokeswoman. “Hudson Yards filled that requirement.”

Robert Alexander and Howard Fiddle, also of CBRE, represented the landlords with Related’s Stephen Winter in-house.

—Liam La Guerre

Global Atlantic Financial Group 44,000 Relocation Global Atlantic Financial Group has signed a deal for the whole 51st floor of the 2.3-million-square-foot 4 World Trade Center, a source in the know told Commerical Observer.

The landlord announced that a tenant had signed a 44,000-squarefoot, 15-year lease on the floor but declined to identify it.

The international insurance firm is no stranger to the World Trade Center. Global Atlantic’s New York City offices are about 1,000 feet away at Silverstein Properties’ 7 World Trade Center. The company will be doubling its size in the move, as it leases 20,326 square feet for about half of the 47th floor of 7 WTC, CoStar Group indicates.

Jeremy Moss, the director of World Trade Center leasing for Silverstein, represented the landlord along with CBRE’s Mary Ann Tighe, Steven Siegel, David Caperna, Steve Eynon, Adam Foster, Evan Haskell, Robert Hill and Ken Meyerson. Erik Schmall and Michael Mathias of Savills Studley represented the tenant.

Asking rent in the deal was in the $70s per square foot.

“In the last four weeks alone, we’ve inked 200,000 square feet of new leases at 4 WTC,” Larry Silverstein, the chairman of Silverstein, said in a press release.

“Top companies continue to be drawn Downtown because of its exceptional transportation, worldclass retail and convenience to neighborhoods where today’s professionals are choosing to live.”

—Terence Cullen

14 | SEPTEMBER 7, 2016 | COMMERCIAL OBSERVER

Validus 24,489 Relocation

Validus, a Bermuda-based insurance firm, has signed a deal to relocate its Big Apple operations to Silverstein Properties’ 4 World Trade Center from within Downtown. The company has signed a 16-year lease for 24,489 square feet, according to a press release. That gives Validus a little more than half of the 47th floor of the 72-story tower.

The company is currently based at 48 Wall Street between Pearl and William Streets, where it leases 10,342 square feet, according to CoStar Group.

Camille McGratty of Silverstein represented the landlord in-house in the deal along with Mary Ann Tighe, Steven Siegel, David Caperna, Steve Eynon, Adam Foster, Evan Haskell, Robert Hill and Ken Meyerson of CBRE. Eric Deutsch and Jonathan Cope of CBRE represented Validus and declined to comment via a spokeswoman.

Asking rent in the deal was in the $70s per square foot.

The three-year-old tower is now about 80 percent spoken for, with the biggest leasing push coming in the last few weeks. Zurich American Insurance Company signed a 132,000-square-foot deal for the 52nd through 54th floors of the skyscraper, as CO reported.

Hudson River Trading, a financial technology company, signed a deal to take two floors at 4 WTC, CO reported in May. —T.C.

Roland Jonas Interiors 22,669 Renewal Furniture designer Ronald Jonas Interiors, which crafted sofas for the Oval Office, has signed an early renewal for its 22,669-square-foot offices at 44 West 18th Street, Commercial Observer has learned.

The company will remain in the entire 16,684-square-foot 10th floor and 5,985 square feet on part of the seventh floor of the 12-story building between Fifth Avenue and Avenue of the Americas, according to Adams & Co. Ronald Jonas Interiors operates a showroom in addition to having offices at the building, which is owned by Forty Four Eighteen Associates. Asking rent in the 10-year deal was $45 per square foot.

“The centrally located building allows for easy access to the finest eco-friendly materials, and is convenient to high-end clients and delivery services,” Adams & Co.’s James Buslik, who represented the tenant and the landlord with colleague Alan Bonett, said in a statement. “Being an upscale furniture provider, the building’s large floor plan was also necessary to accommodate its pieces and can be hard to find in the popular Flatiron District.”

The company isn’t the lone furniture designer tenant in the building.

Ralph Pucci International signed a nearly 50,000-square-foot lease for the entire ninth, 11th and 12th floors, as CO reported two years ago. Other tenants include marketing firm Taboola and data and document management company National Reprographics.—L.L.G.

Legal Aid Society 22,070 Expansion

Legal Aid Society is growing its presence in the Bronx at Acadia Realty Trust’s 260 East 161st Street, also known as The Melrose Building.

The national nonprofit, which provides legal services for the indigent, has signed a 15-year, 22,070-square-foot lease for the entire seventh floor of the building, according to the landlord’s broker JRT Realty Group. This is in addition to its current 55,655-squarefoot offices within the building on the eighth through 10th floors.

Average rent at the property, which is located between Morris and Sherman Avenues, is in the mid-$30s per square foot.

“As New York’s foremost provider of legal services to low-income residents, the Legal Aid Society needed to expand the size of its operations,” JRT’s Greg Smith, who represented the landlord with colleague Ellen Israel, said in prepared remarks.

“Its decision to remain at The Melrose Building reflects the owner’s commitment to professional property management and firstrate tenant services.”

The Legal Aid Society plans to build out and move into its space next year. Craig Reicher, Chris Mansfield and Greg MaurerHollaender of CBRE represented Legal Aid Society in the deal.

The brokers did not respond for to a request for comment via a spokeswoman.—L.L.G.

PHOTOGRAPHS COURTESY COSTAR GROUP

L PHOTOGRAPHS COURTESY COSTAR GROUP

Lease Deals of the Week

PHOTOGRAPHS COURTESY COSTAR GROUP

PHOTOGRAPHS COURTESY COSTAR GROUP

Lease Deals of the Week Spark Labs 20,000 New

Spark Labs, an office space provider, has signed a 20,000-squarefoot lease for an additional location at Thor Equities’ 25 West 39th Street near Bryant Park.

The new office will occupy the entire 14th floor of the building between Fifth Avenue and Avenue of the Americas, and will open this fall.

Asking rent in the 15-year deal was $62 per foot, according to The New York Post, which first reported news of the transaction. The location will be quadruple the size of Spark Labs’ current 4,000-squarefoot space, which is on the second floor of 833 Broadway between East 12th and East 13th Streets.

Spark Labs, which was founded in New York City by a European entrepreneur, is devoted to helping foreign tech startups expand to America through workstations.

“We choose the second location of Spark Labs to be located on West 39th Street near Bryant Park to expand our tech ecosystem closer to large media and technology players already in the area, as well as the building space and layout suiting nicely with our members’ needs,” a spokesman for Spark Labs said.

Dan Harroch of Thor, who represented Spark Labs in the transaction, did not reply to an inquiry about the deal.

Workstations at Spark Labs start at $40 for a daily pass and go up to as much as $550 per month, including 24/7 access to the office, invites to business events, a network of venture capitalists and mentors and mail and packaging services, the company’s website says.—L.L.G.

EverGreene Architectural Arts

Wealth Advisory Group

19,000 Relocation

15,882 Renewal

EverGreene Architectural Arts is departing Manhattan for Industry City in the Sunset Park section of Brooklyn, Commercial Observer has learned.

EverGreene, one of the largest specialty contractors and architectural arts studios in the United States, has leased 19,000 square feet on part of the fourth and part of the fifth floors in IC’s Building 3 at 253 36th Street through a 10-year deal.

Asking rents range from $15 per square foot to $35 per square foot, according to an IC spokeswoman.

EverGreene will be relocating its 50 employees to the Brooklyn complex in January from the seventh floor at 450 West 31st Street between Ninth and 10th Avenues in Manhattan.

“It’s very exciting to be part of the Industry City community of designers,” Alan Weiner, the chief operating officer of EverGreene, said in prepared remarks. “It will be incredible to have such great space to paint murals, develop specialty finishes, sculpt ornaments and work on conservation and restoration projects.”

IC’s Kathe Chase, Jeff Fein and Brett Harvey brokered the deal directly with the tenant. Other tenants include Design Within Reach, Danielle Trofe Design and Force Majeure Design.

Since August 2013, a partnership led by Belvedere Capital, Jamestown and Angelo Gordon & Co. has been working on a $1 billion revitalization of the 16-building property.—Lauren Elkies Schram

Investment consulting firm Wealth Advisory Group has signed a 10-year, 15,882-square-foot renewal for the entire ninth floor of 355 Lexington Avenue, according to the landlord.

It was one of a quartet of existing tenants in Rudin Management Company’s 22-story property between East 40th and East 41st Streets to have inked renewals totaling 41,300 square feet, Commercial Observer can first report.

The asking rent in the 1959 building is $55 per square foot.

David Berkey of L&L Holding Company represented Wealth Advisory Group in the transaction, while Robert Steinman, a vice president at Rudin Management, represented the building in-house on all four leases. Berkey did not respond for a request for comment via a spokeswoman.

In other transactions, accounting firm Rogoff & Company, signed a renewal for 8,300 square feet for an additional 10 years; Howard Poretsky of Savills Studley, represented Rogoff & Company. Time Square Construction will be in its fullfloor, 8,122-square-foot suite on the entire 17th floor for five more years after signing its renewal.

And Citymeals-on-Wheels, which provides meals for senior citizens in the city, re-upped its 8,996-square-foot office for an additional 10 years. Jeffrey Frenkel of CBRE represented Citymeals-on-Wheels in the deal.

A CBRE spokeswoman didn’t reply with a comment.—L.L.G.

Gettry Marcus 13,797 Relocation

Infosys Technologies 13,175 Relocation

Long Island-based Gettry Marcus, an accounting firm, has signed a 13,797-square-foot lease to relocate its offices to 1407 Broadway, Commercial Observer has learned.

The company will occupy the whole 40th floor of the 43-story building between West 38th and West 39th Streets, which is owned

by Solil Management and controlled by Shorenstein Properties via a ground lease.

Gettry Marcus is consolidating from two offices—one at 3 Park Avenue and the other at 462 Seventh Avenue. Asking rent in the 10-year transaction at 1407 Broadway was in the $70s per square foot, according to a broker in the deal. Shorenstein is building out the space and expects the tenant to move in early next year.

“I think the reason 1407 Broadway was so attractive to them is because they like being on the West Side, and having a full floor was a desirable factor,” said CBRE’s Gregg Rothkin, who brokered the deal for Shorenstein with colleague Peter Turchin. Rothkin added that the location was key because of its “close proximity to Penn Station… and Grand Central.”

The 40th floor of the building features panoramic views of the city and the Hudson River, which was another draw to the space.

Cresa New York’s Vincent Tuminelli and Richard Plehn, who represented Gettry Marcus in the deal, did not respond to requests for comment.—L.L.G.

An Indian business technology firm has inked a deal to move its New York City offices to an upper floor of 1 World Trade Center.

Infosys Technologies will occupy 13,175 square feet on part of the 79th floor of the 104-story skyscraper, according to a press release from the tenant’s broker CBRE. The company’s lease is for 11 years at the 3-million-square-foot Downtown tower, which is owned by the Port Authority of New York & New Jersey and Durst Organization.

Asking rent in the deal was not available, but pricing on lower floors has been $69 per square foot, as Commercial Observer has previously reported.

Infosys Technologies is currently based at 45 Rockefeller Plaza.

CoStar Group indicates that the company leases 14,068 square feet at that property.

Alex Kantor and Joseph Mangiacotti of CBRE represented the tenant in the deal and did not return a request for comment.

Connor Daugstrup, Justin Royce, Tara Stacom, Peter Trivelas and Barry Zeller of Cushman & Wakefield represented the landlords. A spokesman for Durst, which handles leasing of the building, did not return a request for comment.

Occupancy at 1 WTC recently hit the 70 percent occupancy milestone—leaving about 1 million square feet at the property left to lease. In June, Port Authority commissioners approved Durst’s plan to expand its pre-built and built-tosuit program by three floors.—T.C.

COMMERCIALOBSERVER.COM | SEPTEMBER 7, 2016 | 15

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Finance

18 46 50

Debt Deals of the Week Cyrus’ Construction Crusade Splitting Real Estate Empires in Two

The

Lawyers Issue “T

PHOTO ILLUSTRATION BY KAITLYN FLANNAGAN/COMMERCIAL OBSERVER

he law is reason free from passion,” said Aristotle in ancient Greece.

Thankfully this remains the case today when relying on its guidance in the contentious division of billion-dollar real estate empires or the heated unwinding of property in bankruptcy cases.

For our lawyer’s issue, we tackled a very sticky subject—divorce—and used lots of dirty words— prenup, postnup and “division of assets.” On the heels of Harry Macklowe’s impending divorce, Commercial Observer spoke with industry experts on the ins and outs of marital separation when a real estate empire is at stake. Love and marriage don’t always go together like a horse and carriage, and without a clearly stated contract prior to the blessed day, things can get real ugly, real fast.

Cyrus Vance Jr., the Manhattan D.A., is investigating another kind of ugliness: shoddy construction. The district attorney sat down with CO to discuss how his office has addressed crooked developers and careless construction magnates in this era of building boom.

Finally, CO interviewed eight real estate finance attorneys whose expertise range from the development of a mini-city within New York City to commercial mortgage-backed securities to loan workouts.—Cathy Cunningham

COMMERCIALOBSERVER.COM

| SEPTEMBER 7, 2016 | 17

FINANCE

Debt Deals of the Week Wells Fargo and Natixis Team Up on $197M Williamsburg Office Financing An aerial view of Pearl City.

HAWAII 5-9!

Aloha: New York Life Lends $59M Against Hawaiian Shopping Center Los Angeles-based Robertson Properties Group landed a $59 million refinancing from New York Life Real Estate Investors on Pearl City Gateway, a 146,205-square-foot shopping center located 11 miles outside of Honolulu, Hawaii, Commercial Observer has learned.

Sonnenblick-Eichner Company negotiated the life company loan, which carries a fixed interest rate of less than 4 percent and a 10-year term with a 30-year amortization period.

RPG developed the center—at 1150 Kuala Street in the suburban neighborhood of Pearl City—in 2010, and is using the proceeds of the financing to replace maturing debt. The property is fully leased and has a 566-space parking lot.

Tenants include AT&T, Babies “R” Us, Domino’s Pizza, Petco, Subway and TJ Maxx.

The sponsor, RPG, is also in the works with a $767 million, 12-acre master-planned development called ‘Live, Work, Play, ‘Aiea’ on the island of Oahu. The waterfront site is slated to house 1,500 residential units, 220,000 square feet of retail and office space, a hotel as well as restaurants and cafés.

A representative for New York Life was not available for comment, and a call to RPG was not returned.—Danielle Balbi

Wells Fargo and Natixis Real Estate Capital have provided a $197 million construction loan to Rubenstein Partners and Heritage Equity Partners for 25 Kent Avenue, a mixed-use commercial and industrial property in Williamsburg, Brooklyn, as first reported by The Wall Street Journal.

The new debt will finance all development costs of the eightstory, 482,424-square-foot Class A building, which will occupy an entire block next to the East River waterfront.

Rubenstein Partners’ private equity Fund II, together with Toby Moskovits’ Heritage Equity Partners, acquired 25 Kent Avenue in December 2015. Moskovits bought out former partners Yoel Goldman and Joel Gluck on the development late last year, according to The Real Deal. In January, the project achieved New York City’s Uniform Land Use Review Procedure.

“Our vision of developing 25 Kent Avenue to reignite Williamsburg’s entrepreneurial tradition started some four years ago and takes another major step forward with

25 Kent Avenue.

the financing we need to start construction,” Moskovits told Commercial Observer. “The city’s expanding creative and tech-based companies have a rare opportunity to create a flagship presence that extends beyond an office location

in Williamsburg, tapping into a history and present that capture the spirit of entrepreneurship that is unique to Brooklyn!”

Rubenstein has transacted with Wells Fargo across its portfolio, but the deal is the developer’s

first time working with Natixis, said Jeremiah Kane, Rubenstein’s director for New York City. “Both Wells and Natixis demonstrated a commitment to spending the time and effort to understanding a new office market,” he told CO. Kane described why the project was especially attractive to the lenders at a time when construction lending has slowed. He said that the appeal came down to the sponsorship and Rubenstein’s track record in developing offices along the East Coast, as well as the project’s location. “We believe that the site is perhaps the best location in Williamsburg: waterfront, incredible views, directly adjacent to the five new hotels either open or about to open in the area, close to parks. And the lenders agreed,” he said.

The New York office of JLL advised Rubenstein Partners on the financing, with Max Herzog and Marko Kazanjian leading the team.

Officials at Wells Fargo and Natixis did not respond to requests for comment. JLL declined to comment.—Cathy Cunningham

Qatar Investment Authority Invests $622M in ESRT Qatar Investment Authority has scooped up a 9.9 percent stake in Empire State Realty Trust for $622 million.

The Doha, Qatar-based investor, which was introduced to ESRT by CBRE’s Darcy Stacom, now owns roughly 29.6 million Class A common shares of the real estate investment trust at $21 per share.

That mass of shares accounts for 19.4 percent of ESRT’s Class A stock. QIA also secured voting interest in the company only equivalent to 9.9 percent on a “fully diluted basis,” according to a press release from ESRT.

18 | SEPTEMBER 7, 2016 | COMMERCIAL OBSERVER

ESRT lined up Goldman Sachs and Eastdil Secured as financial advisers on the deal, while QIA used QInvest as its financial adviser.

David Karp, ESRT’s executive vice president and chief financial officer, said in prepared remarks that QIA’s investment, along with the company’s recently expanded credit facility of $1.1 billion, is in line with ESRT’s commitment to driving “long-term value” and “flexibility for the future.”

The company received a total of $621.8 million in gross proceeds from the transaction and will

use that capital to pay outstanding debts, including its revolving credit facility, and to fund future purchases and capital improvements, according to a filing today with the U.S. Securities and Exchange Commission.

“We welcome QIA as an ESRT shareholder and see their investment as an endorsement of ESRT’s strategy, team and portfolio of irreplaceable assets,” John Kessler, the REIT’s president and chief operating officer, said in the release. “We continue to plan for the future, now with more capital and one of the most

sophisticated and reliable real estate investors in the world as our partner. As we continue our internal growth strategy execution, added strength and flexibility in our balance sheet expand our capacity to take advantage of opportunities through external growth.”

Father-and-son Peter and Anthony Malkin took the Empire State Building, along with their other properties, public in 2013, and stocks first traded around $13.

Stacom did not reply to a request for comment.—D.B.

25

YEARS OF

RELATIONSHIPS

FIRST

Since 1991, Meridian has closed more loans with more lenders for more borrowers than any other broker on earth.

CO – 25th Anniversary.indd 1

8/29/16 8:22 PM

FINANCE

Jeff Sutton, Partners Get $195M Refi for 529 Broadway in Soho

5-9 Union Square West.

Newmark Bags $30M for Union Square MixedUse Property Amalgamated Bank has provided a $30 million loan to Newmark Holdings to refinance 5-9 Union Square West, sources told Commercial Observer.

The property is an eight-story, 105,000-square-foot mixed-use building located in Union Square between East 14th and East 15th Streets. It is currently more than 93 percent leased, with a roster of tenants that includes Staples and Rockwell Architecture Design.

Amalgamated also provided the previous $7 million debt on the building that was originated in 2004 and consolidated in 2011, according to property records.

“Amalgamated Bank was the existing lender and competed aggressively with other lenders to retain this loan, which is for a seven-year term with a fixed interest rate of 3.13 percent. The first five years are interest only,” said Paul Talbot, a senior managing director at Newmark.

Newmark has been busy in the Downtown area as of late. The owner-operator-developer closed a $120 million loan with Bank of New York Mellon and TD Bank for the refinancing of a three-building office portfolio in the Soho area in mid-July, as previously reported by CO. Officials at Amalgamated could not be reached for comment.—C.C.

UBS and Morgan Stanley have teamed up to provide $195.3 million in financing on Soho’s nearly completed, six-story retail development at 529 Broadway on the corner of Broadway and Spring Street, according to records filed with the city.

Jeff Sutton’s Wharton Properties, along with other high-level real estate investors Bobby Cayre’s Aurora Capital Associates, A&H Acquisitions and Joseph Sitt’s Thor Equities, purchased the property in December 2012 for $146.9 million from the Goldstein family, city records indicate. At the time of the acquisition, Deutsche Bank provided a $100 million acquisition loan.

The new debt from UBS and Morgan Stanley refinances previous mortgages on the property, but the term and rate of the loan were not immediately clear.

There have been a range of plans for the development including a hotel, but now a new, 52,500-square-foot building stands on the site, replacing a two-story retail building that previously housed a Steven by Steve Madden shoe store.

Once completed, the development will reportedly be anchored by Nike, which Commercial Observer has reported would pay $16 million per year in rent.

In August 2015, Jared Epstein, a vice

529 Broadway on the corner of Broadway and Spring Street. president and principal at Aurora Capital, told CO that “corner spaces due to their scarcity and dramatic wraparound frontage and foot traffic…command a significant premium over inline spaces, especially when they are located adjacent to a major subway entrance

and that’s the case with Broadway and Spring and Broadway and Prince.” He did not comment on the Nike lease at the time.

Sutton and Epstein did not respond to a request for comment, nor did representatives for UBS and Morgan Stanley.—D.B.

Deutsche Bank, SL Green Put Down $80M Financing on Midtown Office New York-based AION Partners received an $80 million financing package from Deutsche Bank and SL Green Realty Corp. on a 19-story, fully leased office property at 11 East 44th Street between Madison and Fifth Avenues in Midtown East, Commercial Observer can first report.

Headed by former finance execs Michael Betancourt and Siraj Dadabhoy, AION has used the proceeds to refinance old debt and buy out Clarion Partners from its ownership stake in the building, according to a source with intimate knowledge of the deal.

I r on Ho u n d C apit a l Management negotiated the new financing, which is comprised of a $65 million senior mortgage from Deutsche Bank and a $15 million mezzanine loan from SL Green.

The debt carries a floating rate and a two-year term with three one-year extension options, which AION may opt to use, bringing the total term to five years, the source said.

20 | SEPTEMBER 7, 2016 | COMMERCIAL OBSERVER

It replaces a $38.5 million loan— which was paid down to roughly $36 million—that was securitized in a J.P. Morgan-sponsored commercial mortgage-backed securities deal, JPMCC 2006-CB17. At the time of securitization in 2006, the conduit carried a balance of $2.54 billion across 154 loans and now stands at $638.4 million with 52 mortgages remaining.

AION originally acquired a 77.1 percent interest in 11 East 44th Street from Kensico Properties for $45.5 million in December 2004, city records show, and ING came in as a recapitalization partner in 2007.

A spokesman for Clarion confirmed that a “commingled fund” it advised purchased an interest in the 135,150-square-foot property that year and, as of earlier this month, relinquished that holding.

AION’s buy-out values it at just north of $100 million, according to the source.

Brooks Brothers is the largest tenant and leases a total of 40,395

11 East 44th Street.

square feet of office and groundfloor retail space in the property, according to CoStar Group. While the retail is currently empty, Brooks Brothers previously toyed with a restaurant concept branded “Makers and Merchants,” The New York Post reported in 2014.

The retailer, along with other tenants including international software provider eFront and

insurance marketplace Liazon Corporation, have lease expirations within the next six years, data from Trepp indicates. And because of the city’s recently announced plan for the Midtown East rezoning—which could increase the market’s density by 30 percent—and soon-to-be mega developments like SL Green’s $3.14 billion One Vanderbilt, AION could achieve higher rents for office spaces in the building and secure permanent financing at a later date, the source said.

The submarket’s average asking rent is $39.54 per square foot and for three- to five-star properties reaches $69.64, while 11 East 44th has office rents ranging from $36 to $65 per square foot, according to CoStar.

Representatives for SL Green and Deutsche Bank declined to comment, while a representative for AION did not respond to press inquiries. A representative for Iron Hound was not available.—D.B.

25

YEARS OF

ALWAYS

DELIVERING Since 1991, Meridian’s consistent market leadership has allowed us to close more than 45,000 loans totaling $260 billion.

That’s more than one quarter of a trillion in financing.

CO – 25th Anniversary.indd 2

8/30/16 2:18 PM

FINANCE: THE LAWYERS ISSUE

The Deal Facilitator RICHARD WHITE, PARTNER BRYAN CAVE’S REAL ESTATE CAPITAL MARKETS AND FINANCIAL SERVICES PRACTICE

BY CATHY CUNNINGHAM

R

Commercial Observer: How’d you get your start in the industry?

White: I started off in the corporate mergers and acquisition practice [at the predecessor firm to Bryan Cave] for a short time, and the first client I brought in on my own, as a mid-level associate, was a loan servicer called Trimont Real Estate Advisors. I represented the three managing directors in acquiring the company from the former owners in 2002, and they owned the company until last year when Trimont was sold to Varde Partners. I still work with them, mainly on defeasance deals and some collateralized debt obligation deals as well as general CMBS transactions—commercial servicingrelated. I left the firm because we didn’t really have a CMBS or servicing practice, and I went to Kilpatrick Townsend & Stockton. At that time they had the premier group in the city.

[White returned to Bryan Cave in 2015.] I continue to represent Trimont to this day, through the ownership change, and I’m very grateful for that.

Your clients include master servicers, prime servicers and special servicers. Do they make up the bulk of your client base?

My entrée into the CMBS world was representing commercial servicers, who I still represent today, but I also do a lot of work for hedge funds and nonbank lenders. What I’m most busy with right now is representing a couple of hedge funds in seven or eight transactions that involve the purchase of loans out of CMBS trusts in what we call 22 | SEPTEMBER 7, 2016 | COMMERCIAL OBSERVER

“cleanup-call transactions.” They occur when the balance of the CMBS trust is reduced to a certain dollar amount, typically 10 percent of the original balance, and parties to the pooling and servicing agreement or the trust agreement have the right to purchase remaining loans and REO [or real estate-owned] property out of the trust. That seems to be fairly hot right now, as some of the older trusts of these deals—2001, 2003, some even go back to the late 1990s—have been in existence for quite a while, and there aren’t many loans left in the trust so there is an ability for our clients, through various vehicles, to purchase those loans out of the trust.

Is this activity a recent phenomenon?

It’s interesting because back in the mid-2000s we were doing this work, but we were representing clients in liquidating these pools and then reselling the loans into new securitizations. Those were being sold to other large banks who had securitization platforms. Now what we are seeing is that the hedge funds we are representing are purchasing these loans then pooling them with other loans—either from other liquidations or loans that they have on their balance sheet—and securitizing them themselves.

Are you seeing many loan workouts this year?

We are seeing loans that are in default, whether they are

COURTESY RICHARD WHITE

ichard “Rick” White got his start in corporate mergers and acquisitions law but today represents lenders, primary servicers, master servicers and special servicers in all matters related to commercial mortgagebacked securities loan servicing. He’s had his hands full this year at the Atlanta office of Bryan Cave, thanks to his clients’ ingenuity and the deal-making he helps facilitate between transaction parties. In a market where it’s harder to get deals done, White’s hedge fund clients have found the proverbial silver lining by exercising cleanup-call rights on CMBS trusts and are taking advantage of fair-market-value purchase options on defaulted loans.

White talked Commercial Observer through the deals he is working on, the trends he’s seeing and why it pays to have a diversified practice in a sometimesvolatile industry.

maturity defaults or payment defaults. They seem to run the gamut a little bit. I’m not currently working on a ton of liquidations, but what I am working on is fair value purchase options. This means that whoever is the controlling class holder in a trust oftentimes has the right to buy a defaulted loan out of the trust from the special servicer at what is called, “the fair value purchase price,” which is the appraised value of the loan. Our clients are acquiring the loan, modifying the loan or doing some other workout of the loan, or they are foreclosing on the property to get to the real estate.

So you’re working on some modifications also?

Only when clients acquire loans out of the trust and have the ability to modify them. Often our client will acquire a loan and foreclose on it if it can’t be worked out with the existing borrower—because the borrower wants to walk away from the property, for example—then we will enter into a new loan with a new borrower who wants to own the property at a reduced loan balance, because we acquired the loan for less than the original unpaid principal balance.

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8/29/16 8:23 PM

FINANCE: THE LAWYERS ISSUE Has the industry changed this year for your clients?

It’s picked up a lot lately, but the market has definitely changed. We have a fairly large commercial loan origination practice: the large banks are going to originate throughout the rest of the year, while the nonbank lenders are trying to originate as much as they can prior to October. Given the current political environment, there’s a lot of uncertainty.

Brexit also makes things interesting.

with borrowers or may know of borrowers that need loans.

So introducing them to our lender clients is advantageous.

Clients are thankful for that. It’s important to always keep your finger on the pulse of what is happening.

representation, as well as being a good base for operations.

Where do you see the opportunity lying in 2017?

There’s opportunity for bridge financing and a huge opportunity to collapse trusts and purchase loans out of the trusts and resecuritize these deals. So I think you’ll see a good bit of Are your special servicer clients busy with the maturity private securitization. wall and a deluge of loans being transferred to their books?

When I look at bridge financing from the outside, it is a Yes, I’m seeing that, and with respect to what we talked about market that is pretty saturated in that there are a lot of lendearlier, that presents the opportunity for people to buy loans ers out there and not a lot of product quite yet, but I do think out of CMBS trusts—bondholders, controlling class holders or What trends are you seeing? with loan maturities and the inability to get long-term financservicers. Quite frankly, I thought that was going to die down, The trend for most of my clients on the hedge fund side is ing things will change and new players may show up. There will but it seems to be picking up as borrowers can’t get refinanced. going hard and fast after opportunities that are out there right be increased lending opportunities when the now. I think on the distressed loan side there election shakes out—right now there is a lot of is less opportunity in the U.S. but a ton of money on the sidelines waiting to be deployed. opportunity in Europe, so a lot of the funds I The CMBS market will probably stay flat through represent are looking at the real estate oppor‘I think it’s important to be diversified because you the election with respect to new issuances; 2017 tunities there. I haven’t seen them look at the could be a busier year, once we get more clarity U.K., but I’ve seen interest in Ireland, Spain, want to create a recession-proof practice. across the political and financial markets.

Portugal and Italy.

So when the market is good, you’re doing loan In the U.S. there is caution on the lendYour practice seems very diversified. ing side; everyone is aware that there are origination and securitization and when it’s bad It is, and I think it’s important to be diver[many] lenders out there—bank and nonsifi ed because you want to create a recesbank—and there is competition for good boryou have the ability and history of working out bad sion-proof practice. So when the market is rowers, good loans and good real estate. I good you’re doing a lot of loan origination and think people are upholding strong underloans and modifications.’ securitization, and when it’s bad, you have the writing standards and people are continuing ability and history of working out bad loans to make [high-quality] loans because everyand doing modifications. one still remembers the real estate crash. So I’m fortunate as the hedge fund clients I work with are Your clients are based all over the country, right? while that is still at the back of everyone’s mind, people want really smart. They constantly diversify, and so they’ve taken I represent clients all over the U.S., and several of the funds to make [sound] loans and that may be slowing down the maradvantage of market swings and constantly found ways to I represent have gone overseas. We’re not currently doing ket to some extent. be successful despite what the market is doing at any time. work for them in Europe, but we have significant ability in The one other trend that has gone on for four or five years In an up or down market, there is always opportunity, and our London office. They are setting up shop in London as an now is that lawyers used to be called and given a project, I’m very lucky that my clients have been very successful in entry into the rest of Europe. Despite Brexit, it seems the most but in today’s world, we’re deal facilitators. We’re tasked finding it. settled and where you can get the most sophisticated legal with helping clients find deals because we may be working

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FINANCE: THE LAWYERS ISSUE

Dan, the Bankruptcy Man DAN FLANIGAN, CHAIR POLSINELLI’S REAL ESTATE AND FINANCIAL SERVICES DEPARTMENT

BY DANIELLE BALBI

A

Commercial Observer: How did you get your start as an attorney?

Flanigan: In 1969, I was in my last year of college and I had no idea what I was going to do except that I had a very low draft number and the Vietnam War was raging. I took a course in American Constitutional history and I turned in a paper. I remember thinking, “This is the worst paper. I hate this thing.

It’s going to be terrible.” And I got it back and my teacher had written, “This is the best paper I have ever received from an undergraduate.” There was an “A+” on it. “If you would like a fellowship to Rice University, I’ll get it for you.”

26 | SEPTEMBER 7, 2016 | COMMERCIAL OBSERVER

KAITLYN FLANNAGAN/COMMERCIAL OBSERVER

s Kansas City, Mo.-based Polsinelli has grown to 20 offices across the U.S. with 800 lawyers, the real estate and financial services industry has drawn the law firm’s presence to New York City. Dan Flanigan, who joined in 1999 as the firm’s 97th lawyer, has very much been at the forefront of the effort, overseeing that practice (which has about 180 attorneys across the firm in total) out of both New York and Kansas City. He sat with Commercial Observer in Polsinelli’s offices at 600 Third Avenue and East 39th Street and talked about how he went from being a civil rights lawyer to working on major bankruptcies and representing some of the largest financial institutions and developers today.

So I did that. I went down there to just do graduate work in history, but my mentor had always wanted to have a dual program where someone got a Ph.D. in legal constitutional history and a law degree, so we just invented that sort of dual program and I ended up with a Ph.D. in history and a law degree, with no intention of ever practicing law. I taught history for a couple of years at the University of Virginia. The best way I can say it is that I really wasn’t cut out to be an academic, so I ended up moving into the law.

This was the early 1970s. I was initially a civil rights lawyer with the Department of HEW [or Health, Education and Welfare] in Kansas City, Mo., where I had grown up. I actually worked on a [historic] Kansas City desegregation case [which eventually became Missouri v. Jenkins]. Once that was done, I really wanted to get out of government. The next raise would

things are. When the insurance companies did well, banks made all kind of loans, but the nonbanks really have not done so well this year. You would think that is just a bump and they’re going to continue to be able to expand because they just don’t have the same regulatory pressures. They will eventually—someone is going to want to regulate them.

What other trends are you seeing in real estate finance now?

People are scratching to figure out what’s around the next bend, especially anything related to capital markets. To me, the most interesting thing that’s occurred over the last few years is the emergence of nonbank bridge lenders, people like Prime Finance, that are not raising money through CMBS but raising it through funds and doing floating-rate, shorter-term

‘CMBS is too valuable a product to go away, or at least go away without a fight. Especially for B- and C-properties all over the

KAITLYN FLANNAGAN/COMMERCIAL OBSERVER

country, that’s been in some ways the main financing mechanism.’

have trapped me for the rest of my life. I ended up with a law firm [Linde Thomson], and they made me half a real estate lawyer and half a litigator. That was at a time when specialization wasn’t quite as pronounced as it is today and when bankruptcy was just the opposite of what it is today. Nobody really did it. Only desperate young lawyers like me trying to make a living would even think about it then. So these three components—real estate law, bankruptcy, litigation—are things that I stayed involved in, in some way, for the rest of my career.

lending, like banks have traditionally done. That’s really an important and valuable source for developers that they don’t have when the banks get seized up or feel a lot of pressure from regulators.

What are the types of clients you primarily represent?

It’s mainly financial institutions. My largest client, and one of the firm’s largest clients, is KeyBank. Another major client of mine is Prime Finance. They’re a New York-based bridge lender that primarily raises their capital through funds. We’ve been really successful in the nonbank, alternative lender space [too], even though KeyBank is probably our largest client. Beyond myself, the firm has done work with Extell Development Company over the years. Our Chicago office has a very dynamic real estate practice and does a lot of work around the country in student housing and also in charter schools.

So you think there’s going to be new players in that space?

I think there already are and there will be more. There will be new players coming into that B-side, but you have to think that the 40 CMBS lenders are going to drop to something like 20 or 25.

As far as alternative lenders go, are you seeing them become more active now that banks are pulling back because of regulations?

Yes and no. Of course, that’s been the whole story since the [savings-and-loans] crisis of the late 1980s. Banks were just out of the business of lending in a way. Right now for example, you would have thought that this year especially, nonbanks would have been incredibly successful because the banks have been hit with [the High Volatility Commercial Real Estate rule] and just general regulatory pressure and so on, but then [early this year] the bond market went crazy with spreads having blown out and really shut [commercial mortgage-backed securities] down. It’s amazing how correlated

When it comes to risk retention, are you worried that B-piece buyers in CMBS deals will start closing shop?

This may be a different set of investors, but there are people who are raising 10-year money to be in that market.

Originally people were worried B-piece buyers would disappear. Why has that sentiment changed?

People probably misjudged the amount of money out there sitting on the sidelines and the ability of people to marshal—back to [the idea] that nature abhors a vacuum and someone is going to fill it. CMBS is too valuable a product to go away, or at least to go away without a fight. Especially for B- and C-properties all over the country, that’s been in some ways the main financing mechanism. It got somewhat of a bad rap in 2008 and 2009 because it actually got a spillover from [residential mortgage-backed securities], which really was totally out of hand.

We have a client that immediately started raising funds to invest in B-pieces, specifically geared to this risk retention model. It’s just such a creative financing world out there that people are not going to just die without a fight, but the larger institutions will be the one withstanding more at the end of this. It’s not just risk retention. It’s Regulation AB II where [originators] have to sign off on reps and warranties,

and that may be more significant than anything.

Now that it has been nearly nine months since Reg AB II has been implemented in the CMBS market, what feedback are you getting from clients?

I think there’s been some reluctance to buy [smaller originators’] product, when you, the big guy, have to make the warranties and reps. Can you really look back to that [smaller CMBS shop]? I think that’s actually caused some difficulty.

Are you doing a lot of bankruptcy work right now?

I’m sure glad I haven’t been mainly a bankruptcy lawyer—there just have not been significant bankruptcies, relatively speaking. In the 1990s I was basically doing nothing but bankruptcies. The biggest thing that’s changed the whole landscape [since then] is the invention of bringing recourse, meaning if you have nonrecourse financing and file a bankruptcy it becomes full recourse to the individual. There used to be all of these bankruptcies filed just to slow down a lender, just to take the asset hostage and negotiate the best deal with a lender. When your risk is to go from having a nonrecourse loan to a full-recourse loan with undervalued property, that changes the whole ballgame. So a huge amount of what filled the bankruptcy courts back in the 1990s didn’t even happen in 2008, 2009 and 2010.

On the other hand, I am doing a significant amount of work coming out of the Residential Capital bankruptcy. I represented a group of class action plaintiffs who had hundreds of millions of dollars of claims coming out of truth-in-lending violations. I got involved on the creditor’s committee in that case and am now general counsel for one of the borrower-claims trusts that was created out of it.

When someone comes to you and wants to file for Chapter 11 bankruptcy, what are some of the biggest misconceptions they typically have?

I’m going to be a little broader than just real estate, because really the more interesting types of bankruptcies are in operating businesses. What I’ve heard since I was a young lawyer is that “if we file for bankruptcy, all our customers are going to leave.” That has never happened in any case I’ve been involved in.

People [also] have a misconception about how radically you can treat a lender in a bankruptcy. For example, people think the phrase “cram down,” means something that it doesn’t. It doesn’t mean you can cram down debt [from a lender] and make debt go away. What it defines is under what conditions you can cram a plan down [a lender’s] throat that he doesn’t want to take.

What do you make of all the retailer bankruptcies, like Sports Authority, that we’re seeing today?

First of all, you’re not seeing very many. And you’re not seeing enough for the bankruptcy lawyers, I’ll tell you that much! There are the oil and gas bankruptcies and then retail is in a complete transformation. The one thing that’s just mind-boggling is to see what certain malls are being valued at. I just saw one that when the loan was originated back in the mid-2000s—and there are so many examples of this—it had an $85 million valuation. The foreclosure was $8 million, and there was a 100 percent loss on [the deal]. So-called regional malls are in deep trouble all over the country, and retail itself is in the process of this transition. In one sense, the retail bankruptcies have been going on for a long time and will no matter what just because people get out over their skis.

COMMERCIALOBSERVER.COM | SEPTEMBER 7, 2016 | 27

E PRACTICE

FINANCE: THE LAWYERS ISSUE

The Tax Attorney ANNA-LIZA HARRIS, PARTNER AND CO-HEAD KATTEN MUCHIN ROSENMAN’S STRUCTURED FINANCE AND SECURITIZATION PRACTICE

BY DANIELLE BALBI

A

Commercial Observer: How did you know you wanted to be a lawyer?

Harris: I went to Georgetown University for undergrad.

After I graduated, I stayed in D.C. and was working as a lobbyist for a public interest group. It was during that time period that the Tax Reform Act of 1986 was enacted. I found that really fascinating especially as this was the first time in a generation that tax reform was being done. It really struck home with me how something that was very kind of dry—the internal revenue code—could be so potent and touch every aspect of business and impact how people live.

I started thinking I should go to law school, so I applied to go to Georgetown Law. And that’s what led me from a normal life to the life of a lawyer.

What’s your area of expertise?

Within a structured finance deal of any sort, including 28 | SEPTEMBER 7, 2016 | COMMERCIAL OBSERVER

one with commercial mortgages, there are two types of lawyers—corporate lawyers that cover the securities and regulatory issues, and tax lawyers. Tax aspects of a deal are very important, and my area of focus is as a tax lawyer. Our practice group at Katten is different in that we have as co-heads of the group: a tax lawyer [myself] and Howard Schickler, a corporate lawyer.

What was your first job in the legal world?

I started off at Dewey Ballantine right out of law school.

The very first project that I ever worked on was a REMIC [real estate mortgage investment conduit] deal for Fannie Mae. As a tax lawyer I started learning the REMIC rules early in my career. I was at Dewey from 1989 until the fall of 2010, when our entire practice group picked up and moved to Katten.

How many people came over in the move?

COURTESY ANNA LIZA HARRIS

nna-Liza Harris has been hanging out in the Washington, D.C., area for a while now. After receiving both her undergraduate degree and juris doctorate from Georgetown University, she went on to work as a tax lawyer at Dewey Ballantine. She spoke with Commercial Observer about how (and why) her entire nearly 20-attorney practice picked up and moved over to Katten Muchin Rosenman and how the firm’s structured financing and securitization group has expanded its work in the commercial financing space. Harris also provided some perspective on the tax side of the CRE world’s latest happenings, like risk retention and foreign investment in the U.S. At that time, the group had five partners and 12 associates, and we brought legal assistants and paralegals with us. It was a very large move of a lateral practice group. Dewey Ballantine had merged about three years before that with another law firm, LeBoeuf, Lamb, Greene & MacRae, and we were concerned about the direction that the merged firm was taking.

It went into bankruptcy in 2012, so we left about 18 months before that.

Did you become the co-head of the group after the move to Katten?

Yes. Katten didn’t really have a structured finance practice before we came, and the firm was looking for that. The management at Katten was very supportive of building out the structured finance group, and was also very interested in encouraging members of our group to become involved in firm management.

‘I think in times when there’s a lot of volatility in the marketplace, you see what is referred to as flight to quality. What we’re seeing is a lot of U.K- and Europe-based investment funds, typically private equity funds, looking for ways to invest in U.S.

COURTESY ANNA LIZA HARRIS

real estate. From the tax perspective, we try to be very careful here.’

What does your client base look like?

Our structured finance group is most well known for auto representations and residential mortgage representations. On the auto side we represent Ford, General Motors Financial and a number of smaller noncaptive auto issuers. We are really looked to as a leading firm in the auto space. With respect to residential mortgages, we do Fannie Mae’s MBS [or mortgage-backed securities] work and all of their REMIC deals, as well as their credit risk transfer transactions. We also represent them in their multifamily REMIC program, which started back in the mid-1990s.

As an associate then, I vividly recall working on Fannie Mae’s very first multifamily REMIC. The entire working group, the in-house business people, we all recognized how groundbreaking and important it was for Fannie Mae to start doing multifamily REMICs. We were committed to doing it perfectly and wanted to launch the program with not a wrinkle. It was my first time getting my arms around the different way you had to look at multifamily collateral in a deal versus residential mortgages.

What are some of the differences?

In a residential deal, you’re used to having thousands and thousands of mortgages in a single deal. In a multifamily deal, which is basically a commercial mortgage deal, there would be maybe 10 loans. Having never done one, this was a real eyeopener for me. The tax structure is the same, but the entire outlook of how to evaluate a collateral pool is different.

What is your practice group focusing on now?

One thing we really wanted to do was expand into doing more commercial mortgage securitization work. Katten has a great real estate department—it’s a fairly large department with people in Los Angeles, Chicago, Charlotte, New York and D.C. A lot of our real estate lawyers who are representing lenders or even large commercial borrowers would negotiate and put together the mortgage loan on a shopping mall or an office building. But when it came time to do the follow-on financing—a securitization transaction—the work

would migrate and go to another law firm.

When our securitization group joined Katten, we weren’t really known for doing CMBS work. We needed to figure out how to hang on to these deals and figure out how to represent clients all the way from when they decide they are going to do financing on a property to the term securitization.

There are three or four law firms known for doing the vast majority of CMBS and REMIC work, so we felt that to really get into this segment of the market we were going to have to bring in some laterals from one of those firms to give us that kind of credibility. About six months ago, we brought in a new partner into our Charlotte, N.C., office, Joshua Yablonski from Cadwalader, Wickersham & Taft, and we brought in a senior associate, Mike Shaffer.

We have really jumped in with both feet into doing CMBS deals. We’re doing a lot of hard work to continue building this client base, and it’s happening exactly like we thought. We are doing single borrower securitizations from client relationships that have existed at Katten for decades through the real estate department. We have already done some transactions for big bank clients like Bank of America Merrill Lynch, which is a bank relationship the firm has had, but until Josh came, we hadn’t done any CMBS work for them.

With the different risk retention structures that have been discussed—vertical, horizontal and L-shaped—how will that change the work you do?

Taking a step back, most securitizations of commercial mortgages are done in a structure that is referred to as a REMIC, which is a tax election that allows you to treat multiple classes of certificates that you’re going to issue as debt for tax purposes. You can create classes of debt all the way down through the capital structure from the most senior to the most subordinated, and all of them will be treated as debt. You can also have what is called a noneconomic residual at the bottom, the equity piece. This structure is very attractive because for a lot of investors they like to have certainty about what they’re purchasing; they want to know they’re buying debt.

When we’re talking about a risk retention structure, we’re talking about retaining 5 percent of the risk vertically,

horizontally or L-shaped. For a sponsor who is going to be required to retain this risk, they will keep a percentage of a vertical strip from the senior down to the most subordinated or they will a create subordinate class or classes that are equal to that 5 percent number. From a tax perspective, the analysis is all going to stay the same.

Where I think we’ll see impact on structure is whether or not we actually go forward in creating a more subordinated class that directly equals that 5 percent number or if there’s some desire to create multiple tranches that add up to 5 percent.

For example, in the case of a horizontal risk or an L-shaped risk retention piece, the B-buyer may retain the risk retention piece, or a portion thereof, instead of a sponsor and such risk retention piece may include classes rated BBB or lower or even unrated classes.

Depending on what type of entity you have as the sponsor, the companies or banks will have different capital requirements against how much capital they’ll have to hold against the structured assets they’re retaining.

Are you seeing more global investment here? And how does that affect the work you do?

I think in times where there’s a lot of volatility in the marketplace, you see what is referred to as flight to quality.

What we’re seeing is a lot of U.K.- and Europe-based investment funds, typically private equity funds, looking for ways to invest in U.S. real estate. From the tax perspective, we try to be very careful here. Most of these non-U.S. funds don’t want to embark on an investment program that will end up having them treated as engaged in a U.S. trade or business. If they’re treated as engaged or U.S. trade or business, they become subject to U.S. taxes, which takes a lot of the efficiency out of their transaction. We help them devise structures where they can invest as a senior or mezzanine debt investor, into the property directly through a [real investment trust] structure, or into a securitization. REMICs are great because all classes are treated as debt, so you can invest in a more subordinate class where you’ll get a higher yield and still avoid U.S. taxpayer classification.

COMMERCIALOBSERVER.COM | SEPTEMBER 7, 2016 | 29

FINANCE: THE LAWYERS ISSUE

The ABCs of CMBS CHRISTINE SPLETZER, PARTNER WINSTON & STRAWN’S REAL ESTATE PRACTICE

BY CATHY CUNNINGHAM

C

hristine Spletzer is a partner in Winston & Strawn’s real estate group. With a practice that is focused on capital markets real estate finance and commercial mortgagebacked securitization, she represents loan sellers, issuers and investors in connection with all aspects of CMBS. Spletzer chatted with Commercial Observer about how different this year has been, some of the transactions that she is negotiating, including restructurings and repurchase demands, and how her CMBS clients are keeping busy ahead of risk retention implementation.

How much of your work is focused on the CMBS market?

It varies. This year has been a little bumpy. Issuance was way down in the first half of the year, largely related to market dislocation in the first quarter. By midyear, people seemed more optimistic and spreads had stabilized, but there still seemed to be a lag before borrowers came back to the market; they seemed skittish. There seemed to be some repricing on rates in the first half—so if borrowers had another option to CMBS when the market stabilized they may have taken it.

At this juncture, our clients on the CMBS side are reporting

30

| SEPTEMBER 7, 2016 | COMMERCIAL OBSERVER

PHOTOGRAPH COURTESY CHRISTINE SPLETZER

Commercial Observer: Tell us about your role at Winston & Strawn.

Spletzer: I’m a partner in the real estate group and responsible for real estate capital markets matters. Our clients include financial institutions, real estate funds and other nonbank lenders. I’m involved wherever real estate and capital markets intersect. It could be by way of a public or private offering of debt or equity, anywhere that capital markets are used to facilitate real estate investment. That is where I come in.

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FINANCE: THE LAWYERS ISSUE that there is much more borrower interest and we’re starting to see more deal flow. It’s promising to be a very active fall.

What are some of the challenges your clients have faced this year?

Some of our nonbank clients are having more difficulty in finding a capital markets exit. They have either slowed down or temporarily suspended origination until the exit becomes more viable. The bank originators are in a much better position because most conduit programs are run by large financial institutions that are risk-averse and looking to partner with other financial institutions. There seems to be a perception that the processes and methodologies of nonbank lenders may be less rigorous than a prudentially regulated institution.

I don’t know if that is the case, but that is what I’ve heard.

Are you seeing any trends in the industry?

We are seeing a lot more balance sheet activity this year.

With the balance sheet lenders we’ve seen competition for trophy properties and properties in prime markets. Often a couple of our clients are in the mix competing for the opportunity.

Our clients never stopped originating—it’s just that the mix shifted to balance sheet lending where there is more flexibility. Transactions often take quite a bit longer, however, because there isn’t an impending securitization exit on the horizon.

With regard to smaller CMBS players, there have already been some exits, and it’s likely we will see more. It may be the case that the door will open sometime next year, once a number of risk-retention-compliant deals have been done. Then lenders can get down to the business of originating and securitizing as opposed to working through the Dodd-Frank [ Wall Street Reform and Consumer Protection Act] regulations. Once the risk-retention regulations have been implemented and people understand the cost and have digested it, we’ll have a better sense of where the market is. It’s going to take a while.

What are your thoughts on the Wells Fargo Commercial Mortgage Trust, 2016-BNK1 deal?

I wasn’t involved in this transaction, but this is the first offering that is risk-retention compliant, although the regulations aren’t effective until the end of the year. Once the risk-retention rules are effective and a number of compliant offerings have been done, the market will decide what flavor of risk retention they like—whether it’s what Wells and its partners did on the BNK deal, issuer retention, or whether the B-piece exception is utilized. We may not know what investors prefer until the middle of next year.

And how about the CMBS maturity wall we’re currently moving through?

One of the reasons that most of our CMBS clients haven’t been terribly concerned about originating less this year is that there are a lot more loans to refinance. Once we get through the next couple of years, everyone I speak with in the industry seems to think there will still be CMBS lending. Will we ever get back to the levels we were at pre-recession? Not clear at this juncture.

It’s more expensive, and lenders now have to factor in the costs relating to risk retention. Those costs aren’t entirely clear yet.

Have your clients felt the impact of regulations such as Dodd-Frank?

There is certainly a knock-on effect. Clients say, “I am securitizing the same amount of loans pre-Dodd Frank. Why are you charging me more now?” Well, it’s taking twice as long to do deals, even though it’s the same number of loans, unfortunately. Instead of a one-month window, it’s taking four months.

Can you give us examples of some transactions that are keeping you busy right now?

It has been a very different kind of year in terms of the work I do. In addition to involvement in some loan originations, I’m involved in a couple of restructurings of different securitizations. I’m also involved in a couple of 32 | SEPTEMBER 7, 2016 | COMMERCIAL OBSERVER

‘Once the risk-retention rules are effective and a number of compliant offerings have been done, the market will decide what flavor of risk retention they like; whether it’s what Wells Fargo and partners did on the BNK deal, issuer retention or whether the B-piece exception is utilized.

We may not know what investors prefer until the middle of next year.’

litigations related to repurchase demands that loan sellers have received. In both cases—two different clients, two different types of loans, two different transactions—there was the commonality of the special servicer, which may or may not have bearing. In one case, our client received a repurchase demand alleging a failure to implement a lockbox.

In short order, after speaking with origination counsel and our client, we determined that if this was the basis for the demand, then it was false—the lockbox was in place.

With a repurchase demand, the special servicer is alleging a breach of a representation [within a contract] that was made at securitization closing which materially and adversely affects the interests of the bondholders, the interest of the trust or the value of the mortgage loan or the property. In this case, a very limited investigation discerned that there was no basis for the demand and the demand was withdrawn.

However, that client still has an obligation to report that they received a repurchase demand to the [U.S. Securities and Exchange Commission] and that it was withdrawn. They also need to report it in any public offerings that they participate in over the next three years.

The other repurchase litigation we’re working on also involves a rep breach, allegedly for failure to ensure that post-closing obligations relating to a loan origination were met—again relating to a lockbox account. In both cases, the loans were in default, and that seems to be how alleged rep breaches are uncovered: the loan is transferred to special servicing and the special servicer is incentivized to scour the file in an effort to maximize value to certificate holders.

And they are able to come up with a basis for putting the

loan back to the seller.

My firm has handled a significant amount of repurchase litigation on the defense side. Nobody ever wants to litigate over a $10 million loan. But our clients have felt that their reputation is being unfairly tarnished, and as a matter of principle, they want to stand up for themselves.

Have you added any new client types lately?

I started working with a client that invests in CMBS B-pieces. Since I have been involved in CMBS for more than 15 years, typically on the issuer or loan seller side, it’s a good change of pace to represent the investor who has real money at stake and to assist in negotiating a protective package of reps and warranties and control rights with the issuer.

What do you envision will be keeping you busy in 2017?

It’s difficult to say when 2016 has been such an unusual year! I certainly hope that CMBS issuance settles to a nice, steady hum so that the loan sellers I represent have a more steady flow than they had this year. I’m likely to be involved in some CRE CLOs [or collateralized loan obligations], too.

If you could only perform one kind of transaction for the rest of your life, what would you pick?

I really enjoy it all, whether it’s representing issuers, loan sellers or investors, representing buyers or sellers of loan portfolios or handling intercreditor arrangements. I wouldn’t like to focus on just one type of real estate-related work. I hope my career is as diverse as it currently is because it keeps it fresh and keeps me on my toes.

FINANCE: THE LAWYERS ISSUE

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fi R

International Lawyer of Mystery EDWARD MERMELSTEIN, PARTNER RHEEM, BELL & MERMELSTEIN

BY LARRY GETLEN

34 | SEPTEMBER 7, 2016 | COMMERCIAL OBSERVER

SASHA MASLOV/FOR COMMERCIAL OBSERVER

f w w r

T

he law firm of Rheem, Bell & Mermelstein handles as wide a range of services for high-net-worth overseas investors as one could hope. From the acquisition and sale of residential homes to the refinancing of commercial properties, from construction financing to commercial leases, and from joint venture agreements to commercial contracts, Rheem, Bell & Mermelstein has you covered.

The firm’s development in this area, and the carving of their unique business niche, stems from the colorful background of its Ukrainian co-founding partner Edward Mermelstein, whose peripatetic childhood provided him with a far-reaching worldview that came in handy when settling on a career. Commercial Observer spoke with Mermelstein about how his place in real estate came to pass.

Commercial Observer: Tell us about your personal background.

Mermelstein: I’m an immigrant, originally from Ukraine.

My parents took us out of the Soviet Union in 1974, and we made it to the U.S. in 1976. I went to many different schools.

I went to first grade three times in three different countries— Israel, Germany and the U.S. I grew up for about 10 years in Queens, went to the Bronx High School of Science, then [New York University] for undergrad and Western Michigan University for law school.

How did being uprooted so often and having such an itinerant childhood affect you in the long run?

It teaches you to adjust very quickly, because [you have to] when you don’t speak the language of the country you live in, which happened [to me] three times in a two-and-a-halfyear period. From 6 to 8 years old, starting with Russian as my first language, then moving to Israel, where Hebrew was my second language. German was my third, and within a short period of time, we moved to the U.S. So English was the fourth language I had to learn in a three-year period. Looking back, it was a good experience.

Did you know early on that you wanted to be in real estate?

I always wanted to work in real estate. While my initial law practice was more focused on litigation, the idea was always to go back into the real estate practice. As our practice started to grow and we started working with foreign investors coming into the U.S.—this was in the mid-1990s—we realized that the main interests of most foreigners coming into the U.S. in terms of placing money into investments typically revolved around the real estate world. That was probably the impetus that drew me further back into real estate as we went forward.

SASHA MASLOV/FOR COMMERCIAL OBSERVER

Where are your clients from?

About 60 percent are from the former Soviet Union, and about 30 percent are Asian. The balance is spread between Western Europe and South America.

How did you develop your client base?

Back in the mid- to late- 90s, the former Soviet Union started exporting high-net worth individuals. That started expanding substantially after 2000 and grew rapidly. Our practice started seeing more and more foreign investors coming in, not just from the former Soviet Union but from Asia and, more recently, South America and Western Europe as well. The practice became quite diverse and, for the most part, focused on working with foreigners coming into the U.S. with an interest in real estate.

Was this by design, or was the evolution organic?

When I started the practice, I thought the fact that I spoke Russian and Hebrew and understood German lent itself well to working with foreigners coming into the U.S. Plus, the fact that I didn’t graduate from the top of a class at Harvard Law School limited my practice to what we were able to grow, and that was representing foreigners coming into the U.S. We helped many of our immediate family members that came into the U.S. As time went on, I became involved, through different philanthropies, in helping other families come here. From the nonprofit side, it was very rewarding, but the for-profit side enabled much of what we did in the nonprofit world to work quite well, expanding my business from the law end into other practice areas that support foreigners entering our country. It became a business model that was very hard for someone else to compete with, simply because we, at this point, have been doing it for a long time.

‘Manhattan is still the safest and most attractive [investment] for anyone who understands real estate.’

High-net worth individuals from developing countries typically don’t have any professional contacts in the U.S. So when they’re first entering the U.S., the relationships are mostly either family relationships or close friends that are recommending you. This is as opposed to having someone worth several hundred million dollars entering the U.S. Typically they’ll have a contact, whether in one of the largest law firms or consulting firms, and their first stop is not going to be a boutique law firm geared toward working with foreigners entering the U.S. for the first time. They’ll typically go to either a White & Case, a McKinsey & Company or a consulting firm of a certain size simply because when you’re dealing at that level, you’re directed by other high-net worth individuals to the most prominent businesses covering that sector. We were lucky enough to have the ability to leverage our immediate relationships where someone coming into the U.S. wouldn’t know to look for the top law firm, or if they did know, they were more comfortable dealing with someone who understands their culture and language.

How often do you travel?

Less so these days. I used to travel once a month, eight or nine years ago. At this point, most of our clients know where to find us and prefer to deal with us in the U.S., as opposed to in their own countries. Much of that has to do with economic

and political instability of many of these countries.

Tell me about some of the deals you’ve done.

Going back to where we initially started, in the mid-1990s, we brought a developer from Russia to the U.S., and that developer was looking for investors to do business in Russia.

So we provided a bridge between two developers where both invested in the others’ properties. One was located in the center of Moscow, in one of the most prestigious areas, and the other development was in mid-Manhattan, in the 50s, off Third Avenue. That was the first major transaction for us. The investment was equal on both ends. Both parties had skin in the game, and ultimately, both projects did quite well.

Who were the parties?

One was a fairly prominent developer in New York. I’d prefer not to mention his name. The other was a developer from Russia, no one anyone would recognize today in the U.S. [They invested around] $20 million on each side.

Do you have a few transactions you can talk about in more specific detail?

The names are going to be close to impossible to bring up.

Something that is easy to disclose, because it’s public information, is that we’ve done a large volume of transactions at 15 Central Park West. The building opened in 2007 for sale, and we were extremely active in that building. That has continued over the years. Our relationship with [the project’s developer] Zeckendorf Organization has blossomed quite well as a result of the transactions we started back then. Now, working with [William] Zeckendorf and his brother [Arthur] and their investors on their current projects is quite unusual for a boutique organization such as ours.

Why is there so much secrecy about your clientele?

We represent high-net worth individuals from developing countries that, for most, have a political shelf life of three, four, five years maximum. So anyone coming from these countries with a substantial amount of money is typically not looking to publicize the transaction. The media in their own countries is not going to treat them well.

What kinds of deals are your clients most interested in?

Most of our clients are more comfortable in wealth preservation than income-producing properties, so they are interested in very stable investments. They are comfortable in either buying new condominiums and renting those out, going in as limited partners in major developments, or, in certain cases, buying land in high-profile locations.

Where are the surprising markets your clients are investing in?

We’re still seeing an attraction for the safest and highest profile locations, so Manhattan is still the safest and most attractive for anyone who understands real estate. My clients typically will not go outside of Manhattan, and most will not go above 96th Street. They’re not going to be in Long Island City or in Brooklyn. That’s fairly consistent.

Are the majority of your clients based here, or are they overseas?

Many of them began moving to the U.S. a few years ago, when the economies and political situations started to get shaky. More and more we’re seeing that these individuals that have made their money and are comfortable in just preserving their lifestyle and their investments are now moving their entire family to the U.S. COMMERCIALOBSERVER.COM | SEPTEMBER 7, 2016 | 35

FINANCE: THE LAWYERS ISSUE

The Man About Town JAY NEVELOFF, PARTNER AND CHAIR KRAMER LEVIN NAFTALIS & FRANKEL’S REAL ESTATE PRACTICE

BY CATHY CUNNINGHAM

J

Commercial Observer: Are you a New Yorker, born and bred?

Neveloff: Yes. I was born and raised in Bensonhurst, Brooklyn, and have lived in New York City my whole life. I joined Kramer Levin in 1988, so I’ve been with the firm for 28 years now.

What is your main focus at Kramer Levin?

Transactionally speaking, it’s a lot of buying and selling.

We do a lot of development work, and right now I have a very active foreclosure/ bankruptcy that I have been spending a fair amount of time on. I’m also working on some joint ventures. The market has cooled a little in speaking with some people, but you could never tell it by my office. We’re extraordinarily active.

36 | SEPTEMBER 7, 2016 | COMMERCIAL OBSERVER

Tell us about the foreclosure bankruptcy case that you’re working on.

It’s on the development side at [428-432 East 58th Street], off Sutton Place. We are representing the lender.

I understand that Gamma Real Estate lent $147 million on the project and that the debtor—Bauhouse Group— defaulted in January and filed for bankruptcy in February, delaying the foreclosure sale that Gamma is now seeking.

What’s the latest status?

It’s proceeding. There is a hearing [this week] in bankruptcy court—our client’s motion to end exclusivity. I believe there will be a sale in bankruptcy court this year. The judge hasn’t set the date but has been clear that he wants the sale to occur within this calendar year, so we expect it will be in November.

AMANDA COHEN/FOR COMMERCIAL OBSERVER

ay Neveloff is working on some of New York City’s hottest real estate transactions. He’s representing Related Companies in the transformation of Hudson Yards, the Nederlander Organization in the Palace Theatre’s elevation and renovation and Anbang Insurance Group’s investors in the sale and conversion of the iconic Waldorf Astoria New York hotel. Oh, and he’s also Donald Trump’s go-to attorney for all real estaterelated activity.

Neveloff spoke with Commercial Observer about some of his projects, how additional value is being found in real estate through adaptive reuse of space and why the Big Apple will always be a Mecca for investment.

It’s going to end up being a textbook case on how the debtor and the people supporting the debtor can exploit the bankruptcy laws solely for the purpose of delaying foreclosure. What’s apparent is that they have done nothing to advance the project or protect the property, nor any stakeholders’ interests other than their own. They are using the resources of the unsecured creditors to fund the extensive legal fees the debtor is running up pursuing pointless litigation simply to stall. The debtor has done nothing constructive to help the project.

Does the general lack of restructurings in New York City speak to the health of the market?

Absolutely. New York is a Mecca for investment, and it’s not only domestic investment; it’s foreign investment. We see

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‘New York is a Mecca for investment, and it’s not only domestic invetsment; it’s foreign investment.

We see a lot of factors driving this, including currency and the safety and track-record of New York compared to the rest

a lot of factors driving this investment in the New York market, including currency and the safety and track record of New York compared to the rest of the world. I think Brexit was overplayed, but I think that the issue it caused was another reason for foreign investors to recognize the stability of New York.

Brexit has come and gone—it was an isolated incident that got overplayed in the press. I think the fundamental outcome is how strong and vibrant the New York market is.

Do you see the upcoming presidential election affecting the New York City real estate market at all?

Everyone is talking about the election but in the context of affecting the real estate market? No, not at all.

You represent Donald Trump, correct?

I do, so I’m biased. It’s a terrific relationship—I’ve worked with him for over 30 years on virtually every real estate project he’s done in New York. And that’s a lot of projects. We did the Trump Building at 40 Wall Street, the Plaza Hotel, the General Motors Building—there are so many. We continuously work on small maintenance projects, servicing existing deals. Donald hasn’t developed a building in New York for a number of years, but I’ve done just about all of [his real estate projects].

Who are some of your other clients?

Our client base is across the board. From private equity firms—Westbrook Partners, DLJ Real Estate Capital Partners, CIM Group, Fortress Investment Group—to foreign investors who are representing Anbang Insurance Group in numerous aspects of the Waldorf Astoria hotel transaction. We also represent a lot of developers—Related Companies in Hudson Yards and the Nederlander Organization in the Palace Theatre deal. We also represent the capital source as a lender in that deal [Fortress].

38 | SEPTEMBER 7, 2016 | COMMERCIAL OBSERVER

KAITLYN FLANNAGAN/COMMERCIAL OBSERVER

of the world.’

The Palace Theatre renovation—lifting the theater up 30 feet to allow for a retail component underneath—is pretty incredible, what are your thoughts on it?

It’s emblematic of what’s happening in New York and where the real estate market is, because people are choosing far more complex projects and readapting space to get more value out of it. That is exactly what the Palace project represents. Part of the deal is aggregating signage, and signage in Times Square is like gold.

I love the ingenuity of it, and I think it foretells what we’re going to see happening, that very creative, brilliant people are going to start looking at real estate and say, “O.K., how can I better use this real estate and adapt it in a way that is cost-efficient but reflects changes in the market?”

I’m very excited as it won’t change Broadway, but it will enhance it, and the theater district. A lot of this is Paul’s [Paul Boardman, the New York development principal at Maefield Development, developer of the Palace Theatre renovation] vision, and he’s brilliant.

How are your developer clients finding the construction financing market right now?

The stronger, better-capitalized developers are finding the financing in the marketplace. The less-capitalized, newer developers—who we tend not to represent—are having some difficulty. On the other hand, there are more sources of financing because you see that a lot of the private equity firms who were making equity investments are more willing to provide construction financing. It may not fill the void, but it may fill a part of the void.

What are the trends you are seeing?

Geographically, I’m seeing a lot of emphasis on Long Island

City in terms of development, and I actually think that is the new gold coast. It was Williamsburg, but Williamsburg is very pricey right now, and Long Island City is gentrifying with neighborhoods being created along with the transportation.

I also see the trend that I mentioned in talking about the Palace Theatre, in the adaptive reuse of space in creating value and being imaginative and looking at a piece of real estate and saying, “How can I make this more valuable?” We have the biggest condominium practice in the state; we have people looking at office buildings in the Times Square district and trying to better capture revenue from signage, so we have buildings that we’re creating condo regimes for so that you can segregate the signage revenues and finance it or sell it, or do anything—much like we saw over the past several years with the real estate component.

Which projects will be keeping you busiest as the yearend draws near?

The Waldorf Astoria hotel, the foreclosure bankruptcy

by Sutton Place and Hudson Yards. There is so much going on. Between what Related is doing with Hudson Yards and what Brookfield [Property Partners] is doing [with Manhattan West], the center of the city is moving west. People are thinking about it as only office development, but there is an immense amount of residential that will be built around it.

We are also representing some owners of medium extended-stay hotels who are looking at selling some of the units to individuals as condos. It’s an interesting niche in the market.

You have people who travel to the city for business or pleasure and they want to know that they have their toiletries, their pillow, a change of clothes there. They use [the condo] enough that it makes more sense for them to own here, and then when they are not in town, it is rented out.

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The General of Hudson Yards AMY ARENTOWICZ SENIOR VICE PRESIDENT AND GENERAL COUNSEL, RELATED COMPANIES

BY LARRY GETLEN

A

Commercial Observer: What are some of the most surprising or fascinating things about seeing a mini-city being built?

Arentowicz: It’s amazing to me how many people you need on a daily basis to manage the cost and permitting processes.

It’s unappreciated. The permitting process was eye-opening because we’re not just building one building on a block; we’re building a building connected to an entire platform with buildings that connect to each other. Our project was the first in a long while to get a three-dimensional tax lot. It’s one building from the Department of Buildings standpoint, but from a financing standpoint, it’s a condominium with two separate condo units that were collateralized separately. There’s so much to plan and think about, from the aesthetic to the legal.

Related recently closed on a $690 million loan for 30 Hudson Yards. How did that deal come about?

The incredible feat of Related is that we’ve closed many of these loans in the last four years. I started here in June 2012. The company, along with our partner Oxford Properties Group, has been amazing at being able to capitalize all of Hudson Yards within a four-year span. The latest is this loan we closed on Aug. 1 with Deutsche Bank, but personally, I think the greater story is the ability of our company to keep getting these loans and closing them. Our entire project is now capitalized and under construction.

What is the secret to that success?

I think it’s our track record—we’ve proven ourselves in the market. Plus, everyone at Related inspires you on a day-to-day 40 | SEPTEMBER 7, 2016 | COMMERCIAL OBSERVER

basis to get this stuff done and closed. Everyone who works on Hudson Yards believes that we’re all doing something good for the city of New York.

What’s the story behind that particular loan?

The way Hudson Yards works is each of the buildings is looked at on an asset-by-asset basis. Our deal with the Metropolitan Transportation Authority is [this]: Once you hit substantial completion of a building, you can acquire a fee simple title. There was a 99-year ground lease on 10 Hudson Yards, and once you hit substantial completion, you can get off the ground lease from the MTA and purchase a fee simple title. The thinking was, what’s the best strategy to recapitalize 10 Hudson Yards and purchase the fee simple title from the MTA? There’s a lot of international money coming into Hudson Yards. What countries is it coming from?

It’s kind of all over the place—China, Germany and with Oxford—we can’t forget them, our 50/50 partners—Canada.

Why are foreign investors looking to invest in Hudson Yards?

I think it’s the continued and proven success of Related and that the project itself is intriguing in that we’re revitalizing the West Side of Manhattan. We have credit-worthy tenants signed up and big names—Coach, L’Oreal, Time Warner.

When we close the recapitalization of Tower C [by year’s end], we’re essentially 100 percent leased. I think we can attract a broad spectrum of talent and companies to relocate to the

COURTESY RELATED

s a vice president and the general counsel for Hudson Yards, Amy Arentowicz is not just a lawyer—she’s a full-on participant in the building of what feels like an entirely new city.

Arentowicz, who grew up in Millington, N.J., and currently resides in Chelsea, graduated from Notre Dame in 1998, then worked briefly at Skadden, Arps, Slate, Meagher & Flom as a paralegal. That time helped her realize that her passion would be found in transactional, not litigation, law. After receiving a degree from Seton Hall University School of Law in 2002, she joined Greenberg Traurig, eventually making partner in the real estate group. But fearing the encroachment of boredom, she joined Related Companies in 2012 and has been working there ever since on the development of Hudson Yards—an opportunity she has found exciting, to say the least. Arentowicz spoke to Commercial Observer about her career and what it’s like helping to build a city within a city. yards, and that has a huge impact on our ability to bring in different capital forces.

How complicated does it get with the different tax structures in use for foreign investors?

You can layer that on from day one. Our partner [Oxford] is Canadian, and they have pensioners’ money, so they like to structure things tax-efficiently. But then you throw in other foreign investors, at least for 10 Hudson Yards, and that structuring is very complicated. We rely heavily on our tax team and our general counsel in figuring out the most tax-efficient structure for recapitalization. It’s complicated—lots of tax lawyers in the room.

What’s your favorite part of the job?

I love the deal stuff but also the added elements of being able to work more collaboratively. Sometimes when you’re [working] at a law firm, behind your desk and drafting documents, you do not get to see the full picture on the development side. So the thing I enjoy most is working collaboratively with our development managers on a daily basis, planning the project and dealing with issues that come up daily vis-àvis the construction or leasing sides. I think some of that big team element is there in a law firm, but what’s missing is you don’t get to participate on the other side of it, where you see how a deal goes from start to finish; on top of it, from the business side structuring, from the chief executive officer to the development managers; then outside of that, how the project is run day-to-day, from dealing with our construction guys to the development guys to outside consultants.

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FINANCE: THE LAWYERS ISSUE

The Man Who’s Not Mezz-ing Around JEFFREY TEMPLE, PARTNER THE GLOBAL REAL ESTATE GROUP MORRISON & FOERSTER

BY DANIELLE BALBI

J

effrey Temple came aboard Morrison & Foerster’s global real estate group in 2004, while the real estate market was on the upswing. And while a mere few years later the economy plummeted, he said MoFo’s real estate practice made the most of the downturn, scooping up workouts and restructurings. What’s been a blessing for everyone, he says, is that there was rapid recovery, and shortly after the bust, his clients quickly began working on new deals. In part, foreign capital has been fueling business, and Temple chatted with Commercial Observer about some of his international client’s recent real estate transactions. He also spoke of the rebirth of mezzanine financing in construction deals and shared what requirements senior lenders are asking for now to avoid a repeat from the last downturn.

42 | SEPTEMBER 7, 2016 | COMMERCIAL OBSERVER

Commercial Observer: Tell us about your career path.

Temple: I’ve now been practicing about 32 years. I got out of law school in 1984 and have spent the bulk of my career at two law firms—15 years at White & Case and I joined Morrison & Foerster in 2004. I was primarily attracted to the platform here in terms of real estate because it’s simply a larger, more dynamic and visible platform both externally and internally.

By the time I joined, the group had a very fine reputation on the streets, so to speak, as a top-tier group with a particular emphasis on our real estate finance practice. My practice is a little unusual in that it tends to be divided pretty evenly in [representing] equity investors, doing complex joint ventures and preferred equity investments for them.

The other part of my practice and clients include a number of different finance companies, traditional money center-type banks and what we generically refer to in the market as nonbank lenders.

I understand you’ve been seeing a lot of foreign money coming into the U.S. market. What exactly have you been working on?

We’ve been working very actively with Unizo Holdings, a Japanese public company, which owns office buildings and hotels principally in Japan. They entered the U.S. market three years ago, focused on top-quality, Class A and B office acquisitions in what I would call the gateway cities, which would include New York and D.C. We’ve looked at a number of acquisitions for them in San Francisco but haven’t closed

any. Unizo is a good example of foreign capital entering our market while the opportunities in their market are limited.

People talk about negative interest rates that have existed in the Japanese market, so their ability to generate yields is somewhat limited. I think they’ve been aggressive in the market in terms of bidding on and getting mandates to acquire assets. They’re a capitalized company and willing to execute and move quickly on good deals.

What deals has Unizo been doing lately?

In the last couple of months we closed an acquisition at 1201 Connecticut Avenue [in Washington, D.C.], a building just off Dupont Circle. It’s a nicely maintained stabilized asset, which is 90-plus percent leased up. They acquired another building in a separate submarket in D.C. with an address of 820 First Street from Harbor Group International, and 1100 First Street, which is again, a very high-quality, newer asset constructed in 2011 by Tishman. It was owned by a joint venture that included the Rockefeller Group, which was our seller.

Another example is our good client Gemdale USA. They are a large and substantial company in China that focuses on the development of real estate assets there. They came into the U.S. market several years ago. We’ve only worked with the client more recently, but again, they’re a good example of a China-based source of capital. They have a lot of holdings in China but, like the U.S. market and like other Chinese firms, are interested in the strength and perceived safety of investing in a place like the United States. Gemdale focuses

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FINANCE: THE LAWYERS ISSUE on development deals. We did a very complicated joint venture for their investment in a New York condominium deal, 45 Broad Street, [with] Madison Equities. Madison acquired the site some time ago, and construction hasn’t started, although it’s imminent.

We’re working with Gemdale now on several other opportunities in New York. They’re also active in San Francisco, and one of our other partners is working on a development deal there to do residential. Gemdale has the view that the condominium market still has room to run here in New York and elsewhere, and they’re focusing on the opportunity to do ground-up development They’re interesting because they have a lot of capital and in addition they have an affiliate in China that raises EB-5 capital. They plan to bring in EB-5 capital in the form of a mezzanine loan.

And what international money are you seeing come in through debt investments?

In terms of debt type investments, we have a very active practice representing both bank and nonbank lenders.

German banks are an example of a segment of the finance market that really exited sometime ago, but now we’re starting to see some come back into the market. They’re being aggressive on their pricing. They’ve been successful in winning large mandates in New York and elsewhere.

Have you seen pullback in any German banks in particular?

From what I’ve seen in the market, an example of a bank that essentially had a very major presence in New York and the U.S. but essentially exited the market is Eurohypo Bank, a long-time and very good client of our group. They were very active until about two to three years ago; they had a very large and active New York branch. The branch was closed, and they sold their remaining portfolio.

You deal with a lot of multitiered financings. Are you seeing more mezzanine debt come back into the market?

I would just pull back for a second and talk about four or five years ago: Mezzanine lending was incredibly prevalent at the beginning of the recession. There would be a syndicate of senior lenders and multiple tranches of mezz. [After], we were working out and restructuring [those] transactions. I can think of times when there were 10 tranches of mezzanine debt. There were a lot of people in 2010, 2011 and 2012 who were big mezz players and lost big time, particularly when they held junior mezzanine positions. Some held the view that mezz would exit the market altogether, but there was sort of a rapid recovery. [Lenders] looked back at some of these multitranched structures, looked at intercreditor agreements and asked what worked and what didn’t. There’s been a little bit of resetting of the market in terms of the types of rights that a mezz lender would get, and more and more senior lenders are open to letting mezz be in their deals in the context of stabilized transactions. We continue to see larger deals with both senior financing and mezz financing.

Is mezz being used more in construction deals now?

In terms of the construction lending market, there’s a little bit of a dichotomy. On the one hand, there’s definitely been a little bit of a pullback among traditional bank lenders. New deals are getting financed, and people are still lending in the market, but the banks who’ve been active are just taking a harder look at the projects, the quality of the sponsorship and the quality of the deal generally. They’re being pickier or choosier on who they’re lending to. It’s simply harder for new developers who aren’t dealing with a strong relationship bank when they’re going out, looking for construction financing.

At the same time that’s happening, we’re now seeing mezz come back into construction loans. On development deals we’re seeing senior lenders make a construction loan 44 | SEPTEMBER 7, 2016 | COMMERCIAL OBSERVER

520 Fifth Avenue.

‘There’s definitely been a little bit of a pullback among traditional bank lenders. New deals are getting financed and people are still lending in the market, but the banks who’ve been active are taking a harder look at the projects, the quality of the sponsorship and the quality of the deal generally.’

and EB-5 regional centers are making mezz loans. Even outside of the EB-5 space you’re seeing larger deals being financed with both senior construction financing and mezz financing. In the last year, we’ve represented senior lenders financing 76 11th Avenue for HFZ Capital. The senior lender who led that was J.P. Morgan Chase, and in that deal there were actually four layers of mezzanine debt—two of the mezz lenders in that capital stack included SL Green Realty Corp. and BlackRock. It was a highly structured and complicated deal.

We were also involved in representing J.P. Morgan on [Ceruzzi Group’s] 520 Fifth Avenue. The Fisher Brothers took the mezz loan. That was actually a predevelopment loan, which are viewed to be more risky than construction loans because you’re not even at the point where you’re building a building.

After seeing how mezz played out in the last cycle, what are your lender clients looking for when negotiating with a mezz lender on a deal?

When we negotiate the intercreditor agreement with the mezz lender, we’re going to take a much closer look at what we view to be the experience and presence that the mezz lender has in a development space. One of the key issues negotiated between a senior lender and mezz lenders is [determining if the mezz lender has the ability] to close on an equity pledge and effectively become the senior borrower if the loan defaults.

If the mezz lender doesn’t have development expertise, one of the requirements will insist that the mezz lender would have to bring in a developer that would meet certain criteria and be comfortable taking over the project. Fisher Brothers is an example of a high-quality mezz lender that would fit criteria of replacement developer.

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PROFILE

The Sounds of Cyrus The Manhattan DA takes on one homicide, one crooked contractor and one shady landlord at a time

BY TERENCE CULLEN PHOTOGRAPHED BY SAM ORTIZ

46

| SEPTEMBER 7, 2016 | COMMERCIAL OBSERVER

W

hen Cyrus Vance Jr. came through the ranks of the Manhattan district attorney’s office in his early 30s, the city was rampant with crime. After all, this was the mid-1980s, when Manhattan averaged 600 murders a year.

It’s a very different city since he took office six-and-a-half years ago.

There were 39 homicides last year (still too many, Vance said), and crime has taken on a different cast. Among the high-profile cases Vance has been prosecuting are the case of the immigrant laborer killed in an accident at a construction site in the Meatpacking District, and the busboy and diner killed at an East Village sushi joint when the building exploded.

He’s come down hard on construction safety and fraud cases.

(He’s also tried to reduce the backlog of rape kits, close cold cases and keep the historically low crime levels down.)

“The cases we are bringing reflect some of the unfortunate after effects of radical expansion and growth,” Vance said last week in his office at 1 Hogan Place. “Some folks are not going to do everything they should or are going to hide things that they’re doing.”

The son of the late Cyrus Vance, the former secretary of state and former secretary of the Army, Vance holds an office built up by the legacy of the three men who held the position in the 70 years before he became district attorney. (The three being Thomas Dewey, Frank Hogan and Robert Morgenthau—a fourth, Richard Kuh warmed the seat for 10 months after Hogan’s stroke). Three years into his second term, Vance, a Democrat, has been leaving his own mark on the DA’s office: crime prevention. Vance started his career as a prosecutor focusing on career criminals—repeat offenders for offenses like robberies—which has led him to take a statistics-driven, proactive approach to preventing crime.

He’s now employing that offensive tactic with a construction safety task force—something born out of the East Village explosion in spring 2015 that killed two and leveled three tenement buildings. Having tapped veteran Assistant District Attorney Diana Florence to help lead the group, his office partnered with the New York City Department of Investigations and other city agencies for a citywide approach to protecting workers.

The group’s formation came not long after the April 2015 death of Carlos Moncayo, a 22-year-old undocumented immigrant from Guatemala. He was one of several workers in a 14-foot trench at 9-19 Ninth Avenue—a redeveloped Meatpacking District building that was the former home of Pastis and will become the flagship store for Restoration Hardware. A site inspector at the property found it to be structurally unsafe, according to prosecutors, and told the construction managers to pull its workers out. One of the foremen called for them to get out of the trench. What happened next rattled the city.

As the workers left the trench, its walls began to crumble. Moncayo wasn’t able to escape. The walls came tumbling on top of him, and he was

trapped. The weight of the earth crushed him, and he suffocated. Prosecutors alleged in an August 2015 indictment that the two managers—Harco Construction and Sky Materials Corporation—failed to properly secure the structure of the trench.

“That’s an important case,” said Mark Peters, the commissioner of the DOI, which co-investigated the case with the DA’s office. “I think we’ll see more cases [like that] coming in the future.”

Harco, the construction manager for the project, was convicted in June and sentenced to take part in public service announcements on Moncayo’s death and the need for construction safety. Ron Fischetti, the lawyer for Harco, said at the July sentencing that the company would not take part in the outreach program. Fischetti, who did not return a request for comment for this story, told CO at the time that participating would admit the company’s guilt in the accident, something that Harco continues to believe. He added at the time that the company is appealing the conviction, putting the blame on Sky Materials Corporation—the subcontractor.

“We cannot do that,” Fischetti told CO in July, referring to the public service announcements. “It’s not that we will not do it; we cannot do it. We could just let this go and pay the $10,000 fine. But we’re not doing it because they didn’t do anything wrong.”

When asked what his reaction was to Harco’s rebuff on the sentencing, Vance said he didn’t want to speculate about what went into the company’s decision.

“It might not have been the one that I would have either hoped that they would select or what I would have done if I were the defense counsel,” he said. “But that’s what they did.

At the end of the day, I think it’s a missed opportunity. That being said, they have their own legal strategy; they’re going to pursue it and they have that right.”

The second company charged in Moncayo’s death, Sky Materials Corporation, is slated to go on trial this week.

Safety in the workplace seems to be on everyone’s mind lately. There were 400 construction-related accidents that led to more than 450 injuries in New York City in 2015, The Wall Street Journal recently reported. That came as 92 million square feet was under development in the five boroughs, according to the paper, citing New York City Department of Buildings data.

‘Happily, there’s been a massive decrease in violent crime. Now things like construction

safety [and] corruption are real issues we have to deal with.’—Mark Peters, New York City Department of Investigations

Because the site was a nonunion job, the Building Trades and Construction Council of Greater New York also applauded Harco’s conviction. Gary LaBarbera, the president of the workers’ union, said that 14 of the 16 construction deaths in the city last year were not union workers.

The Harco conviction “sends a very strong message that irresponsible contractors are not going to get away with ‘business-as-usual,’ ” LaBarbera said. “I’m sure there will be more cases coming.”

He added, “We want to see all contractors abide by the law. We’re absolutely tired of seeing workers get exploited.

His office is playing a role in helping us address those issues.”

Vance said he doesn’t want to get into the whole union versus nonunion debate. Instead, he’s tasked Florence and Hildalyn Colón-Hernandez, a community coordinator and native Spanish speaker, to reach out to nonunion workers to inform them of what their (limited) rights are.

Florence, a 21-year veteran of the DA’s office who has spent the last nine years working in construction fraud, said the task force has given presentations to almost 800 workers in the last year.

Working with Colón-Hernandez, she tells the workers— many undocumented and non-English speaking—that they should take note of wrongdoing on job sites. Florence said they tell workers to take photos of hazards at the property, keep information on construction supervisors and co-workers as well as be honest about an injury when going to the hospital. The group also tapped into the immigrant relations department at the DA’s office to create a safe space to meet with these workers, oftentimes at consulates. Photos of safety threats, she said, are especially important because they illustrate how risky a site can be.

“If you look at the photographs of right after the collapse versus before, the aftermath photos don’t look especially horrifying. They’re pretty benign, actually,” Florence said of such sites in general. “Those pre-accident or pre-manslaughter photos really tell the story. If people know that people are watching, they’re going to be less likely to take advantage.”

The district attorney has also worked with Louis Coletti, the president and chief executive officer of the Building Trades Employers’ Association of New York City, the group that represents construction managers. Coletti filed a memo of support for Harco’s guilty conviction and told CO that Vance and his staff had actively reached out to people in the industry to understand its needs. Florence, he said, regularly attends BTEA safety meetings with governmental agencies to understand the tightrope that is construction safety.

“Contractors with good safety records and protocols are conflicted with respect to safety fraud,” Coletti said in an email. “On the one hand, those who do not follow appropriate safety practices should be held accountable. [But] they are not sure about how criminalizing those that don’t, in an industry that has so many moving parts and so much risk that gets COMMERCIALOBSERVER.COM | SEPTEMBER 7, 2016 | 47

PROFILE applied to all contractors, is going to work out and not hurt those that do follow the rules.”

Vance emphasized that he didn’t think of himself as a crusader against the building industry. Rather, he said, an “overwhelming percentage of construction companies are entirely on board with us in terms of shared goals. They want New York to grow. They want the buildings that they make to be first rate, for the projects to be safe and to be completed without accident or injury.”

48 | SEPTEMBER 7, 2016 | COMMERCIAL OBSERVER

CLOCKWISE FROM TOP: COURTESY COSTAR GROUP; WILLIAM ALATRISTE/NEW YORK CITY COUNCIL; TODD MAISEL/NY DAILY NEWS VIA GETTY IMAGES

T

he 62-year-old Vance began his legal career in the early 1980s in a trial bureau and then the career criminals division under Morgenthau. He was one of several notable people to come out of a prosecutorial office that served as the minor leagues for prominent legal eagles and politicians. Others who passed though the halls of 1 Hogan Place include Eliot Spitzer, who would go on to become attorney general and then governor; John F. Kennedy Jr., before he tried his hand at publishing; Sonia Sotomayor, who became the first Hispanic woman appointed to the United States Supreme Court; and Andrew Cuomo, the former secretary of United States Department of Housing and Urban Development and currently the governor of New York State.

Vance was by no means a commoner amongst these scions. His father, Cyrus Vance Sr., was the secretary of the Army for John F. Kennedy and Lyndon B. Johnson. In 1977, Vance’s father became President Jimmy Carter’s secretary of state. As a 24-year-old in 1978, Vance had a front-row seat at the Camp David Accords between Israel and Egypt. At a young age, the diplomat’s son was more interested in where he would play baseball than who was running for office—he recalled volunteering for Johnson as a kid, but “that was a parent-forced decision.” Vance said his parents kept the business of defense and diplomacy away from the kitchen table.

“My parents kept my father’s work life and our family life fairly separate,” said Vance, who was born in New York City and spent a decent part of his childhood in the Washington, D.C., area. “A conscious decision [on their part]. But the [truth] is, it was really interesting.”

So interesting that he eventually followed in his father’s footsteps and got a law degree. (Both Vances went to Yale University undergrad; the son went to Georgetown University for his law degree.) Vance’s six-year stint in the DA’s office ended in 1988, however, when he moved his family to Seattle and became a defense and civil attorney. His father died in 2002, and two years later, Vance returned to New York when his mother and sister both became ill.

Running for Manhattan DA was always on Vance’s mind.

The only thing was he had no plans to unseat Morgenthau, who first took office in 1975. The legendary lawman’s 35-year tenure was one of the longest in the city’s history—inspiring the character Adam Schiff on Law & Order. Murders in Manhattan accounted for 11 percent of the entire city’s statistics in 2008, as the New York Daily News reported at the time with a year left in Morgenthau’s tenure. That share was a significant drop from 1975 when murders in Manhattan accounted for nearly 35 percent of the whole city.

Morgenthau, however, announced 2009 would be his last year as the borough’s prosecutor, opting not to seek re-election that fall. Vance was a private attorney by that point and decided to make a run for the DA’s office. He eked out a victory in a three-way Democratic primary and cruised through the general election. A series of missteps and blunders during his first term, such as the Dominique Strauss-Kahn case— the French head of the International Monetary Fund was accused of sexually assaulting a maid—which fell apart and was quickly dismissed, seemed to have been largely forgotten when he ran for re-election in 2013, easily winning the race.

Some of Morgenthau’s work as DA cleared the way for Vance to focus on other issues, like construction fraud, said Peters, the commissioner of the DOI.

THE CYING GAME: Vance and DOI Commissioner Mark Peters (bottom right) have investigated the East Village blast in March 2015 (bottom left), as well as the April 2015 death of a construction worker at 9-19 Ninth Avenue, a rehabbed site in the Meatpacking District (rendering, top).

“One of the things that a DA has to do is constantly be looking at the city and what are the prevalent issues,” said Peters, who worked for the New York State Attorney General before becoming DOI commissioner in 2014. “Twenty years ago, a DA mostly had to be thinking about violent crime. Happily, there’s been a massive decrease in violent crime. Now things like construction safety [and] corruption are real issues we have to deal with. Cy Vance has done a great job in changing the office’s priorities to meet the new needs of the city.”

To do that, Vance has woven his approach to construction fraud into his broader plan of preventing crime. If Dewey’s legacy as district attorney was rooting out corruption and Morgenthau’s was reducing the homicide rate, Vance’s would be his use of data to predict where crime will happen. His cornerstone to that has been the Crime Strategies Unit, a constantly updated system that tracks repeat offenders and data on where crime is happening.

That prevention approach started to seep further into the construction fraud investigations after the East Village blast in March 2015 that killed two people and sent another 20 to the hospital. Vance indicted the landlords and several contractors this February.

The investigation led by the DA and the DOI revealed an intricate plan by the owners and contractor to provide gas to 121 Second Avenue, although Consolidated Edison did not approve its main lines.

Prosecutors charged two owners, two plumbers and a contractor with setting up a hidden gas supply to the building— this was done to provide heat to the building to get tenants to move in faster.

A building inspector came to 121 Second Avenue on March 26, 2015, to check out the new gas lines, which prosecutors say were approved by a licensed plumber on a date when he wasn’t even in the country. One of the contractors charged— Dilber Kukic—is alleged to have shut off the secret gas and turned the actual line on for inspection.

But the building didn’t pass inspection again, and the supervisor left the property in the midafternoon. Kukic, according to the indictment, ran back down to the hidden gas source to turn it back on. Only he didn’t shut off the actual gas line, prosecutors said, which led to the Thursday afternoon explosion.

The deadly incident played a key role in forming Vance’s task force, which he said has now taken a broader, citywide approach to preventing another such explosion.

Because the case is ongoing, Vance declined to discuss the East Village explosion at length. “Clearly we believe there was criminal misconduct and effort to disguise the gas delivery system that was ultimately used and we believe resulted in the deaths,” he said.

(Attorneys in the East Village case either did not return requests for comment or could not be reached.)

What helps, Peters said, was that the DA’s office has collaborated with DOI in these cases. An ADA will often go out with an official from the city agency to investigate right away.

Peters said that helps because it streamlines the process; DOI doesn’t have to build up a case, present it to the DA and have to explain it all.

“My goal is to play whatever part we can in having a vibrant, safe construction industry,” said Vance, “because that’s good for New York.”

Peters, the DOI commissioner, was more upfront. During the February press conference announcing the indictment, he took particular issue with Andrew Trombettas, the plumber who attached his name to the work. The plumber, he said, had violated the trustworthiness attached to the license he was given.

“That was another example of construction professionals skirting the law, putting people’s lives at risk,” Peters told CO. “The message that I think comes from that case, like Harco, is that we take this very seriously. If you break the rules and take risks and people get hurt, you’re gonna be prosecuted.”

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COVER STORY

Holla, We Want Prenup!

In an industry where family is the prevailing currency, here’s what happens when all is not right with the family

BY DANIELLE BALBI AND CATHY CUNNINGHAM

50

| SEPTEMBER 7, 2016 | COMMERCIAL OBSERVER

S

ix months into 2016, and 57 years into his marriage, billionaire real estate mogul Harry Macklowe reportedly told his wife, Linda, that he would be leaving her for 60-yearold Patricia Landeau, his French girlfriend of two years. Landeau, who Macklowe was allegedly hiding in Macklowe Properties-owned 737 Park Avenue, was also married. For whatever reason, Macklowe decided that then was the time to publicly say “bonjour” to a new life, ruffling socialite feathers in the Hamptons via his appearances with his new amour.

Macklowe, known for building the Apple store at the base of the General Motors Building and for creating the slow-to-rise 432 Park Avenue, has developed more than 13 million square feet across Manhattan since the mid1960s. While some of his most prized possessions, like the GM Building, are no longer under his ownership, the 79-year-old still holds the deed to a slew of properties through his namesake firm, Macklowe Properties, from condominium towers on Park Avenue to the redeveloped One Wall Street.

For better, for worse, for richer, for poorer, Linda, 78, stood by her husband’s side for nearly six decades as he gained the reputation of a high-stakes gambler in one of New York’s riskiest games. She was there during his well-chronicled rise and fall 10 years ago that would have ended most careers. So how much is this $2 billion man worth without the wife who stood by his side for nearly 60 years—or rather, what will he be worth when she is through with him?

The couple’s $1 billion art collection, said to trump their real estate portfolio in value, won’t make their divorce any easier to settle, but one thing is for certain: The Macklowes aren’t the first and they certainly won’t be the last of the real estate world to be trading in their wedding rings for high-dollar settlements. (Harry Macklowe declined to comment through a spokeswoman and his attorney did not return a request for comment. Linda Macklowe was unreachable.)

No outcome is typically the same in these big Manhattan real estate divorces. When Jerry Speyer divorced the daughter of his longtime business partner, the late Robert Tishman, they continued to work together for years after. Tishman told The New York Times in a 1998 profile of Speyer that it was “the most decent divorce” he had ever seen, adding there was no sense in ruining a partnership that had lasted decades.

That isn’t always the case, however. When mogul Bernard Mendick divorced the sister of his partner Larry Silverstein in the 1980s, the development duo soon split up.

While they maintained it was for business reasons, rumors swirled for decades that Silverstein and Mendick, who died in 2001, were ruined by the divorce.

Perhaps it is a coincidence that both the Macklowe children—Billy (who is known to have had a dramatic falling out with his father resulting in the formation of a separate company) and Elizabeth (who married West Coast real estate scion Kent Swig)—have gone through their own respective annulments, but if the daughter’s five-year saga of a divorce is any sign of what’s to come for her parents, the next few years aren’t looking too bright. And absent a prenuptial agreement, Harry and Linda will surely be spending a lot of time in court.

“Matrimonial separations involving major assets, whether real estate or something else, typically are either knockdown, drag-out multimillion dollar legal fights, or they get resolved very quickly because people don’t want their business to be public,” said John Goldman, a partner in Herrick Feinstein’s litigation department, who is not involved in the Macklowe case. “Discretion is the better part of valor.”

The separation of any well-to-do celebrity-like couple is fascinating, and a massive real estate empire—especially one in New York City—is worth a pretty penny. But what’s the biggest problem when it comes to splitting up? That house in the Hamptons and that Upper East Side mini-mansion aren’t liquid and are therefore more difficult to convert into cash. It’d be easier to fly into Switzerland and split your stash of hidden gold bricks than to quickly settle a divorce involving a real estate portfolio.

ILLUSTRATION BY NEIL WEBB COMMERCIALOBSERVER.COM

| SEPTEMBER 7, 2016 | 51

COVER STORY

“[These couples have] all this wealth, but compared to other people with the same amount of wealth, the typical real estate company doesn’t really have cash,” explained Adam Wolff, a partner and lawyer at the recently founded boutique family law firm Adam Wolff & Foley. “There’s not enough cash to sustain the same lifestyle, especially when you’ve used leverage to become that wealthy in the first place. It’s one of the reasons those litigations end up being so tough.”

Indeed, Elizabeth Macklowe knows this firsthand. Her five-year battle with her ex-husband ensued in 2010, shortly after Swig was hunted down by his debtors when the financial markets crashed in 2008. Because Swig was personally liable for his debts, the properties he owned with his then-wife could have been foreclosed on.

“Prenup” is one of the most animosity-filled, begrudged and unromantic words in the English language, but it’s a contract that is essential to execute prior to the big day, if messy legal wrangles are to be avoided further down the line, according to experts.

“To be negotiating a divorce before you even get married is devastating, unless there’s a damn good reason for it,” said Eleanor Alter, also a partner at Adam Wolff & Foley.

T

he prenup is an especially important rite of passage in multigenerational real estate families, said Goldman. These families spend a great deal of time and money planning and creating structures that eliminate or vastly reduce the possibility of quarreling or expensive litigation further down the line. “I’d be very surprised if there is any real estate family of any significance anywhere in the country that doesn’t have a family protocol that everyone who gets married must have a prenup in place,” he said.

This is especially true as time goes on and real estate empires increase in value. “In my experience, prenups are becoming more and more enforceable and commonplace, 52 | SEPTEMBER 7, 2016 | COMMERCIAL OBSERVER

particularly in second marriages when one of the spouses has children or heirs and wants to protect their premarital assets,” said Jeffrey Bogart, a litigation attorney and partner at Atlanta-based Bogart, Hurst & Ference. “In closely held corporations of family businesses, prenups become essential because you should not put a family business at risk in a divorce. Privately held parcels of real estate that have been in families for generations should never be subject to any kind of marital division.”

Take for example Andrew Farkas. The founder of Island Capital Group quietly settled his second divorce, from now ex-wife Sandi, earlier this year. While he reportedly paid her off three times the amount required, it helped that the couple had a prenup, sources told Commercial Observer. If this were 40 years ago though, things would have probably been much different.

Prenuptial agreements in their current form were first introduced in New York in the 1980s. Until then it was thought that women were unable to negotiate for themselves, Alter explained. And the validity of those prenuptial contracts are often challenged in high-profile divorces with high-value assets at stake, said Goldman, with spouses often citing the duress of the wedding or being forced into the agreement last-minute when it comes to the crunch at settlement time.

Prenups are a way of protecting the family assets in real estate dynasties from

DUELING DIVORCEES: (Clockwise from top) Harry Macklowe and Linda Macklowe; Patricia Landeau; Andrew and Sandi Farkas; Elizabeth and Kent Swig.

CLOCKWISE FROM TOP: DIMITRIOS KAMBOURIS/GETTY IMAGES FOR DIOR ; BERTRAND RINDOFF PETROFF/ GETTY IMAGES ; MIKE PONT/GETTY IMAGES; JIMI CELESTE/PMC

‘To be negotiating a divorce before you even get married is devastating, unless there’s a damn good reason for it.’—Eleanor Alter

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W W W . A C K M A N Z I F F. C O M

COVER STORY falling into the hands of spouses who may come and go if it isn’t death that breaks them apart, but things can get sticky if said spouse also works for the family business.

Goldman, who also handles real estate business divorces, gave the example of one of his first cases as a young lawyer, where no prenup was involved—which wrought a great deal of havoc over the rest of the family. (Due to confidentiality reasons, Goldman couldn’t reveal the identity of the client.)

In the case, Goldman said, the patriarch of a New York real estate family owned and led a successful business acquiring properties and creating value within his empire.

He had two children: two boys and one girl.

The girl grew up, fell in love and married a man who came into the business as an equal to his two brothers-in-law because the father felt very strongly about his new son-in-law. This generational real estate family was old fashioned in nature—believing that women were there to be seen and not heard, and it was the man who should be the breadwinner. When the daughter divorced her husband, he remained in the family business. Further, the father didn’t want to see his son-in-law suffer in the separation and so allowed him to take several of the properties, which were technically his daughter’s by inheritance.

“She was born into this family, and he

just married into it, but he ended up with a lot of properties,” Goldman said. “What he received in the divorce launched him into this hugely successful real estate business that 20 years later is worth a fortune. So you do have a complication where you have those old line real estate families where the daughter marries someone who comes into

ry Macklowe, to pay down his real estate-related legal fees. The agreement entitled Elizabeth Macklowe to their home on Park Avenue and East 71st Street and another in Southampton, as The New York Times reported. Kent Swig meanwhile was held responsible for the debt on his properties.

‘Common sense and sensitivity usually work really well in these situations, because they tend to escalate really quickly.’— John Goldman

the business, and then it isn’t just matrimonial because it crosses the line into a business divorce, too.”

Of course, should a prenup not be executed at the time of union, there’s always time for a postnup, which typically is drawn up when there is a significant change in net worth, either through acquisition of real estate or inheritance. In 2009, the Swigs signed a postnup, when Kent Swig borrowed some cash from his then father-in-law, Har-

I

n 1980, New York State invoked the “equitable distribution” domestic relations law, in which fair and equitable property division of assets is the order of the day when a couple divorces. It doesn’t matter what these assets are—whether it’s real estate, cars, marketable securities or cold hard cash. But it’s not always that simple.

“Some people think that equitable is 50/50, but it’s not always 50/50,” Goldman

said. “For example, if the husband has a $200 million real estate empire when he marries his wife and the value stays the same over the course of the marriage, then one would argue that he came to the marriage with separate property, and it should stay separate. It’s a tricky enough analysis that anyone who has significant net worth and assets, whether real estate or other, who then gets married to someone who doesn’t have the same, or even who does, would be foolish not to have a prenup. It would be like entering into a joint venture without having joint-venture agreement.”

Equitable means that assets are shared on both sides, though. “There are other things to trade off against,” Goldman said. “The wife, for example, may come into the marriage with a country club membership that is near and dear to her because it was in her family— so, she would need to buy the husband out of that. Then there are houses and jewelry and all kinds of other assets that are available to horse trade. Usually with the uber-wealthy real estate-based divorces, there’s a mechanism to get enough liquidity flowing back and forth that you can make it work.”

Whether as a marital asset or otherwise, a New York City property is by no means a country club membership or grandma’s pearls; the value usually rises at much higher levels. “If [a property] is in your name at

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a e e n d s h o t e e g

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, a s t

the time of marriage, it happens to be the law in New York—but not necessarily everywhere—that it stays your property,” said Alter. “The question then becomes the income and appreciation of those assets. That’s often something wealthy real estate investors will want to protect.”

Alter recalled a divorce that she and Wolff worked on where appraising made the process more drawn out. “Adam and I had one where the husband had a lot of property in Detroit, right when [its economy] was at the bottom, and the appraisals were impossible,” she said. “The values changed day by day as we sat there.”

Value fluctuation is something that real estate people are very aware of, she said, and “appraising huge real estate interests is impossible. It’s expensive. And it’s often only an educated guess.”

As a means of avoiding the arduous and costly appraisal process, Alter said, some people will try to fix values to a property or money in lieu of getting an appraisal.

That situation is only made worse when one spouse is untrusting or fears getting cheated out of money. Those make for the hardest cases, she said.

“You get cases, once in a blue moon, where people will agree on a number without doing the appraisal, or the nontitle spouse really knows the properties and

doesn’t feel like they’re being snookered,” she explained. Alter referred to a case that she had where a husband and wife of 50 years operated “a whole bunch of real estate properties jointly.” The husband oversaw the operation and the properties and the wife managed the books and the records, so she felt she had a good understanding of what each property was worth.

In another divorce Alter worked on, the husband owned a number of shopping centers but did not have enough money to pay off his soon-to-be ex. The solution there was to let the wife retain an interest in some of the properties but with no voting rights. In the instance that the man were to sell his properties, he would be selling his ex’s as well, but she would still be entitled to the income from the sale.

But when it comes to a real estate empire, most families don’t necessarily own the properties outright. In many cases, the bigger the building or the bigger the portfolio, the more equity partners are involved. Lawyers not only have to delve into the multiple properties but also the multiple partnerships involved, said Wolff. It’s also difficult for the nontitle or non-owner spouse to understand all the layers of ownership on an asset.

“All they know is they were driving down the street, and their spouse said, ‘That’s one of our buildings, and that’s one of our shop-

ping centers.’ It becomes hard for them accept the fact that [the spouse] only owns 2 percent,” he noted.

In the absence of a prenup or postnup, but in the presence of co-investors or business partners, things can get a little tricky. “If there are multiple investors in a project, and one gets divorced without a prenup and without an operative document that would govern the assets, what will happen is that the investor will have to acquire that asset [from their spouse],” explained Goldman. “They can’t split it, they can’t give it to their spouse, so they will have to buy the spouse out of it.”

Bogart gave the example of a hypothetical limited liability corporation scenario, again where the spouse would need to receive his fair share while protecting other partners in the deal. “There is an LLC, which has a managing partner and a number of limited partners. One limited partner is getting a divorce. It is advisable to draft a protective order, so only that person’s interest will be disclosed during discovery, protecting the privacy of the other limited partners. There are frequently limiting corporate documents which prohibit transfer or assignment. The marital property interest is valued, and if subject to equitable division, whatever that equitable portion is valued at is then paid to the other spouse,” he explained.

Alter actually had a real estate devel-

oper client who would give small pieces of his properties to very key employees. “If they got divorced, he didn’t want his employees’ wives going into his business,” she said. Before he gave an employee a piece of property, he drafted an agreement where the employee had their respective spouse waive any interest or discovery in the property.

While Alter said she hasn’t seen that since, a few of the man’s employees actually ended up getting divorced, and those agreements protected the company’s assets.

A

divorce is never going to be a pleasant experience, but steps can be taken to ensure a “War of the Roses” type of situation doesn’t ensue. “If not a prenup then get a postnup, and be sensitive if you have investors and you’re just one of many in a property,” advised Goldman. “There might be a requirement in your organizational document that you do certain things with your asset to protect other investors. I like to think of myself as a human being before a lawyer, so common sense and sensitivity usually work really well in these situations because they tend to escalate really quickly.”

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COMMERCIALOBSERVER.COM | SEPTEMBER 7, 2016 | 55

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COLUMNS

CH-CH-CH-CHANGES!

What’s New and Different, and What Isn’t Every year the Practising Law Institute offers a two-day seminar on commercial real estate finance for lawyers and others.

Looking back over the 20 years in which we have participated in that seminar (Joshua chairing, Richard presenting), commercial real estate finance has gotten more complex, but also smarter. CMBS has imposed unusual measures and discipline. Federal law has played a role, too.

If you just look at mortgage loans, the April 2017 seminar won’t vary much from the first one, in 1997. Every transaction still starts with a promissory note, an interest in real estate and a package of promises to protect the collateral. Traditional rights and remedies remain, as do ancient and often impractical legal principles and the New York mortgage tax.

But many other things have changed in major ways.

Sept. 11 spawned federal concern on terrorism and money laundering. The results: new due diligence requirements and delays and new verbiage and disclosures.

The 2008 financial crisis led to lots of new legislation, still working its way through the regulatory and deal-burdening process. That’s not necessarily bad, because the federal government remains the ultimate bagholder for the banking system.

Remember TARP? Dodd-Frank, its progeny and today’s risk retention regulatory environment have led domestic banks to tighten their purse strings and reduce their risk tolerance.

That now suffocates credit decisions on a macro and micro basis, as never before. It also creates an opening for less regulated— shadow—lenders to make first mortgage loans, a business the banks once owned.

Alternative lending sources, shadow banking and (mostly) private equity didn’t noticeably exist in real estate 20 years ago.

Now they’re here to stay. They don’t fear regulators or a possible bubble bursting or (soft?) landing. Their investment committees are nimble and competitive. This makes them a “go-to” source for acquisition and development capital, even at higher though still unthinkably low interest rates.

Unlike traditional institutional lenders, these players don’t fear owning their collateral. It’s simply one of two possible and equally acceptable outcomes when they make a loan.

Hedge funds, private equity funds, mortgage REITS and real estate developers’ 56 | SEPTEMBER 7, 2016 | COMMERCIAL OBSERVER

lending affiliates—regulation-free, risk tolerant and opportunistic—have spread like wildfire through real estate finance.

The financial crisis also led to risk-based capital reserve requirements for high volatility commercial real estate (HVCRE), starting last year. Those rules affect construction and development loans monumentally. If a loan counts as HVCRE, it’s extraordinarily expensive for any traditional institutional lender to make. That lender probably won’t make it at all.

To dodge HVCRE classification, the borrower must invest in cash at least 15 percent of the “appraised as completed” projJoshua Stein ect value, before the lender advances anything. If the borrower paid $3 million for a site now worth $50 million, that counts as only a $3 million investment toward the 15 percent. This runs totally counter to the usual logic of construction lending.

HVCRE regulations also say the borrower must keep its cash investment in the project “for the life of the loan”—whatever that

this December, are changing how we view CMBS, and its pricing and profitability, every day. New CMBS transactions have new ways for the originator to “hold” on its balance sheet 5 percent of the debt.

In 1999 and 2000 we started to see full recourse guaranties if a borrower filed bankruptcy or committed other “bad acts.”

That destroyed the most important tool in every defaulting borrower’s toolbox—their magic weapon to stop foreclosure or receivership, often for years and very painfully for lenders.

We now see a nonrecourse car veout guaranty in virtually every commercial real estate loan.

Richard Fries Though the carveouts are negotiated, sometimes heavily, full recourse for a voluntary bankruptcy is sacrosanct and rarely negotiated.

Because courts enforce that full recourse, the “bad boy” guaranty has virtually eliminated single asset real estate bankruptcies.

Sponsors in 2009 knew where to find the bankruptcy courts. But they steered clear

‘Dodd-Frank, its progeny and today’s risk retention regulatory environment have led domestic banks to tighten their purse strings and reduce their risk tolerance.

That now suffocates credit decisions on a micro and macro basis, as never before.’

means (completion? maturity?).

To the extent that traditional lenders remain players in construction finance, the loans themselves don’t change much, except the loan documents have grown by a few pages to respond to the new laws mentioned above.

After the financial crisis, we heard that CMBS 2.0 would be more rigid and conservative. New risk retention rules, effective

then, since then and now. Even in distress, borrowers and lenders typically hobbled along rather than going to war. Things turned out okay.

Outside of full recourse for bankruptcy, carveout guaranties have seen more change in the last 20 years than any other area of mortgage documents and negotiations.

First they ballooned as smart lawyers came up with new carveouts. Then those

balloons blew up in guarantors’ faces when opportunistic loan buyers asserted entirely uncontemplated theories of carveout liability, often successfully. Many lenders have trimmed the carveouts to a more sensible level.

We’ve also seen new developments involving European “bail-in” requirements to deal with bank insolvency (more magic language for loan agreements) and property assessed clean energy “PACE” liens (a new prohibition). We have also seen wider use of swaps and more complex prepayment formulas.

Many major real estate finance transactions today include layers of debt far beyond traditional first-mortgage loan documents. Even though the wounds of the financial crisis have not entirely healed, many tranches of debt—subdivided, packaged, rated and sold—are often the norm.

Any stall on this front five years ago has dissipated, especially when conservative first lien lenders won’t give sponsors the proceeds they want.

Equity interests in the sponsor entity are likewise sliced and diced and pledged. Any major deal has co-lenders, with complex contractual relations among them.

That universe has seen major changes in the intercreditor agreements among capital sources. Once, the first mortgage lender would control everything. The other lenders, if lucky, could bid at the foreclosure sale. If they wanted to do anything else, they would have the “opportunity” to buy out the senior lender.

This changed massively after the Stuyvesant Town litigation, where the court decided—erroneously, we think—that the mezzanine lender couldn’t foreclose unless it fully repaid the mortgage loan. In response, newer intercreditor agreements make it absolutely clear that the junior lender can enforce its rights and control enforcement.

Beyond mezzanine loans, preferred equity has become way more common than it was 20 years ago, with its own intercreditor issues.

Mark your calendar for the 2017 seminar on April 11 and 12. For details, visit pli.edu.

Joshua Stein is the sole principal of Joshua Stein PLLC and Richard Fries is co-leader of Sidley Austin’s global real estate practice.

This article reflects only their views and is not legal advice.

Delivering on the Assignment

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FINANCE

The Takeaway Data courtesy of

The total amount of commercial mortgages filed with the New York Department of Finance plunged to 908 in July from 1,263 the month prior. Accordingly, the number of mortgages originated fell across every asset type. Debt deals on multifamily and co-op properties decreased to 418 from 624, and the number of financings on office, industrial, garages, condominiums, hotels and healthcare properties contracted, each falling below 50. On the other hand, mortgages on vacant land still saw some action, totalling 68 for the month of July, down from 98 in June.

Refinances vs. Purchases Both refinances and purchases decreased in July.

Top Lenders J.P. Morgan Chase, Signature Bank and New York Community Bank remained the top three origination contenders in New York for the month of July, while Flushing Bank jumped into fourth place.

BANK

JUNE

BANK

110

J.P. Morgan Chase

JULY

89

J.P. Morgan Chase

Signature Bank

91

Signature Bank

79

New York Community Bank

52

New York Community Bank

37

Investors Bank

40

Flushing Bank

28

Capital One

33

Santander Bank

25

Dime Savings Bank Of Williamsburgh

31

Dime Community Bank

22

Ridgewood Savings Bank

26

Bank United

22

Banco Popular

24

Investors Bank

20

Valley National Bank

24

Capital One

19

M&T Bank

22

Wells Fargo

19

Wells Fargo

21

Ridgewood Savings Bank

16

842 590 421

Most Active ZIP Codes—Financing 318

M

The most active ZIP codes for financing were nearly all in Brooklyn with one in the Bronx, one in Manhattan and one in Queens.

ZIP CODE JUNE JULY

JUNE JULY

REFINANCES

PURCHASES

Total Sales by Borough Sales fell across every borough, and the Bronx and Queens saw their numbers nearly cut in half (Staten Island is not tracked).

744 429 331 200 127

85

124

162

JUNE

11221

47

11233

ZIP CODE

JULY

A

11226

23

33

B

10019

23

11222

31

C

11385

18

11216

31

D

11206

18

10452

26

E

11211

17

11201

26

F

11238

17

11238

24

G

11216

17

11211

23

H

11213

15

11237

23

I

11221

14

11385

23

J

11220

14

11207

23

K

11232

14

L

11237

14

M

10456

14

B

14T

HS T

E

I L

F

K A

87

57

JUNE JULY

JUNE JULY

JUNE JULY

JUNE JULY

JUNE JULY

ALL

MHTN

BRONX

BKLYN

QUEENS

58 | SEPTEMBER 7, 2016 | COMMERCIAL OBSERVER

In July, J.P. Morgan Chase lent $400 million to Wharton Properties for 720 Fifth Avenue in Midtown Manhattan.

C

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Lawyers Behind the Top Deals in NYC January 2015 to July 2016 A close-up look at the top deals in NYC by asset class, zooming in on the firms and attorneys who did all the paperwork.

Data courtesy of *The data presented pertains to the NYC market, with data from January 2015 to the present.

Top 5 Multi-Family Deals Law Firm

Lawyer

Client/Originator

Loan Amount

Property

Date

Borrower

Black Rome

Deborah Franzblau

NYC Housing Development Corporation

$2,700,000,000

Stuyvesant TownPeter Cooper Village

Dec. 18, 2015

Blackstone Group and Ivanhoé Cambridge

King & Spalding

Sheryl Kass

Annaly

$480,000,000

114 East 40th Street

Nov. 6, 2015

Blackstone Group

Schulte Roth & Zabel

Julian Wise

15 West 33 Funding LLC

$325,000,000

The Olivia (315 West 33rd Street)

Dec. 16, 2015

SL Green Realty Corp.

Schulte Roth & Zabel

Julian Wise

Blackstone Group

$248,600,000

420 East 54th Street

Jan. 28,2016

Greenoak Real Estate Advisors

Loeb & Loeb

Jeffrey Fried

Deutsche Bank

$232,500,000

1347 First Avenue

March 9, 2016

Stanley Wasserman Real Estate

Top 5 Office Deals Law Firm

Lawyer

Client/Originator

Loan Amount

Property

Date

Borrower

Cadwalader Wickersham & Taft

James Carroll

Bank of America Merrill Lynch

$1,400,000,000

MetLife Building (200 Park Avenue)

March 11, 2015

Tishman Speyer

Hunton & Williams

Donald Simone

Morgan Stanley

$1,035,000,000

1211 Avenue of the Americas

July 10, 2015

Ivanhoé Cambridge

Skadden Arps Slate Meagher & Flom

Audrey Sokoloff

Deutsche Bank

$1,000,000,000

Crown Building (730 Fifth Avenue)

April 17, 2015

Jeff Sutton and General Growth Properties

Sidley Austin

Charles Schrank

Deutsche Bank

$900,000,000

Bankers Trust Building (280 Park Avenue)

May 11, 2016

SL Green Realty Corp.

Katten Muchin Rosenman

Andrew Jagoda

National Union Fire Insurance

$785,000,000

Helmsley Building (230 Park Avenue)

May 5, 2015

RXR Realty

Law Firm

Lawyer

Client/Originator

Loan Amount

Property

Date

Borrower

Cleary Gottlieb Steen & Hamilton

Michael Weinberger

Goldman Sachs

$650,000,000

9 East 56th Street

Sept. 23, 2015

State Teachers Retirement System of Ohio

Riemer & Braunstein

Richard Lefkowitz

U.S. Bank

$580,000,000

Manhattan Mall

July 28, 2015

Vornado Realty Trust

Morrison & Foerster

Jeffrey Negron

Bank of America Merrill Lynch

$527,900,000

42-15 West Street

Dec. 7, 2015

Tishman Speyer

Kaye Scholer

Warren Berenstein

Credit Agricole

$450,000,000

697 Fifth Avenue

Dec. 21, 2015

Vornado Realty Trust

Cadwalader, Wickersham and Taft

James Carroll

Morgan Stanley

$205,000,000

150 West 34th Street

June 2, 2015

Vornado Realty Trust

Top 5 Retail Deals

Top 5 Deals by Foreign Lenders Law Firm

Lawyer

Client/Originator

Loan Amount

Property

Date

Borrower

Sildey Austin

Charles Schrank

Deutsche Bank

$1,125,000,000

1095 Avenue of the Americas

Jan. 15, 2015

Ivanhoé Cambridge and Callahan Capital Partners

Sherman and Sterling

Robert Fagiola

Landesbank BadenWurttemberg

$1,050,000,000

Paramount Plaza (1633 Broadway)

Dec. 2, 2015

Paramount Group

Cadwalader, Wickersham and Taft

Steven Herman

HSBC

$325,000,000

1334 York Avenue

July 1, 2015

Sotheby’s

Troutman Sanders

Simon Cices

Bank of China

$240,000,000

61 Broadway

April 21, 2016

RXR Realty

Cullen and Dykman

Galete Levin

Santander Bank

$50,700,000

11 Broadway

June 1, 2015

Housing Partnership Development Corporation

60 | SEPTEMBER 7, 2016 | COMMERCIAL OBSERVER

$37,000,000 Permanent Financing West Village, New York City A 14-story apartment building containing 69 units and approx. 5,500 square feet of commercial space

Paul Greenbaum, Managing Member, arranged the financing for this transaction

GCP Capital Group , LLC 60 Cutter Mill Road, 6th Floor • Great Neck, NY 11021 • Phone: 516-487-5900 • Fax: 516-487-5944 • www.gcpcapitalgroup.com Principals: Paul Greenbaum • Matthew Classi • Alan Perlmutter • Adam Brostovski

FEATURE

n w g el n o r

r r

GARY HERSHORN/CORBIS VIA GETTY IMAGES

62 | SEPTEMBER 7, 2016 | COMMERCIAL OBSERVER

Fifteen Years Later How the World Trade Center staged an incredible comeback after the most devastating attack in U.S. history

BY TERENCE CULLEN

F

ifteen years ago this week, two airplanes struck the Twin Towers, which killed more than 2,600 people. (The number gets closer to 3,000 if you factor in two simultaneous attacks in Pennsylvania and Arlington, Va.) The assaults set off a series of world events that led to war, seismic political change and hundreds of other things (small and large) that have been incorporated into our modern life.

But the aftermath is as much a real estate story as it is one of security, elections or culture. The loss of the two towers, and thousands of innocent lives changed how buildings are constructed in New York City and how landlords have to protect workers. The hulking 1 World Trade Center, completed in 2014, was sent back to the drawing board at one point to ensure the base of the building could resist any future copycat strike.

Elected officials, victims’ families, civic groups and developers squabbled for about a decade about what to do with the 16-acre site and who would rule the land.

Developer Larry Silverstein spent years in court wrangling insurance money in the wake of the attacks, which would help finance the reconstruction.

Despite the very public back-and-forth, reconstruction of the World Trade Center site is nearing its zenith; in total, three out of four planned towers at the site are either finished or en route to completion (not to mention 7 World Trade Center, which is across the street and was finished a decade ago). The long-delayed World Trade Center PATH station opened earlier this year, as did the shopping concourse below the streets. All that’s left on the drawing board is a performing arts center and 2 World Trade Center, for which the developer is still in search of an anchor tenant.

To commemorate the event that changed New York City and the country forever, we took a look at some of the key years and milestones since that fateful day.

COMMERCIALOBSERVER.COM | SEPTEMBER 7, 2016 | 63

FEATURE Ground Zero.

Larry Silverstein broke ground in May to build 7 WTC on part of the original building’s footprint.

Despite criticism that he was building too soon, Silverstein declined to delay on that particular tower because the original was home to a Consolidated Edison station that powered Lower Manhattan. “[Silverstein] already knew from both Con Ed and the public authorities that there was a need to get 7 WTC going very quickly because of the electrical power substation in the base of the building, which had been destroyed,” said John

In May, Silverstein Properties opens the 1.7-million-square-foot 7 WTC with asking rents averaging $55 per square foot, despite charges by the city that the rents were too high to lure tenants back to Lower Manhattan. By that point, the developer was the sole occupant, but leases were signed with Ameriprise and the nonprofit New York Academy of Science.

After years of fighting between the Port Authority of New York

m

The Port Authority, grappling with construction of the Freedom Tower, declared in January it was looking for a managing partner to build and lease the planned 3-million-square-foot tower.

2001

2002 2006 2010

York. “That meant that we didn’t expect that anybody [in the industry] would be taking advantage of the terrible disaster that took place.

Brokers stepped up and tried to help tenants find space.”

“Janno” Lieber, the head of World Trade Center development for the developer. “We believe that, in a positive way, this project pioneered core attributes and values that ultimately did inspire a lot of the good stuff that has taken place on the rest of the site.”

At a December presentation at the Winter Garden (now part of Brookfield Place) across the street from Ground Zero, Polish-American architect Daniel Libeskind unveiled what would become the winning bid for the project. The plan called for a memorial, a museum, a reintroduction of Fulton and Greenwich Streets and a series of buildings whose centerpiece would be a 1,776-foot tower. Although Silverstein Properties executives had hired David Childs of SOM to design its properties, the company embraced the master plan. (Gov. George Pataki would later name the tallest building—1 WTC—the “Freedom Tower,” a name that received mixed responses and was later abandoned.)

Daniel Libeskind.

64 | SEPTEMBER 7, 2016 | COMMERCIAL OBSERVER

& New Jersey and Silverstein Properties, the two sides came to a new agreement on who would control which parts of the 16-acre site.

Silverstein Properties handed over the rights to develop the Freedom Tower to the Port Authority, along with insurance money from the attacks.

The developer would have the right to develop three office towers between Church and Greenwich Streets (which became 2, 3 and 4 WTC). Silverstein Properties was given a timeline to develop a plan for the three buildings, recruiting Fuhimiko Maki, Sir Richard Rogers and Lord Norman Foster to design them. New renderings were released in early September, just days before the fifth anniversary of the attacks.

“We were thrilled because now, for the first time, there was a schedule,” Lieber said. “We set up a design studio on the 10th floor [of 7 WTC], which was much larger than it is now. We basically said everybody has to come in and design there.”

After another battle between Silverstein Properties and the Port Authority, the two sides reached a new agreement on the terms of the ground rent for the site. Silverstein got a rent reduction for the under-development properties—slated to increase once the buildings were finished and leased—in exchange for federal tax-exempt Liberty Bonds to help finance the project.

1 WTC.

FROM LEFT: CHANG W. LEE-POOL/GETTY IMAGES; COURTESY COSTAR GROUP; SPENCER PLATT/GETTY IMAGES; TIMOTHY A. CLARY/AFP/GETTY IMAGES

The Twin Towers.

FROM LEFT: GETTY IMAGES; ROBERT GIROUX/GETTY IMAGES; FRANCOIS LOCHON/GAMMA-RAPHO VIA GETTY IMAGES; MARIO TAMA/GETTY IMAGES

A Silverstein Properties-led venture signed a 99-year ground lease in July to take over the World Trade Center for $3.2 billion.

On Sept. 11, a plane struck the North Tower, followed by a second hitting the South Tower as part of a coordinated terrorist attack on the United States. Both buildings, known as the Twin Towers, collapsed soon after, along with the fully evacuated 7 WTC. In total, 2,606 people died in New York City that day, nearly 500 of whom were uniformed first responders. The entire 10-million-square-foot World Trade Center complex was destroyed by the attacks.

As a result, the real estate community worked together to find tenants temporary space usually free of charge, as well as make sure that Downtown was open for business.

“We kept saying let’s just get it open again so that people know that Lower Manhattan is going to work,” said Steven Spinola, the then-president of the Real Estate Board of New

FROM LEFT: CHANG W. LEE-POOL/GETTY IMAGES; COURTESY COSTAR GROUP; SPENCER PLATT/GETTY IMAGES; TIMOTHY A. CLARY/AFP/GETTY IMAGES

FROM LEFT: GETTY IMAGES; ROBERT GIROUX/GETTY IMAGES; FRANCOIS LOCHON/GAMMA-RAPHO VIA GETTY IMAGES; MARIO TAMA/GETTY IMAGES

9/11 memorial.

9/11 Museum.

Media colossus Condé Nast, the publisher of The New Yorker and Vanity Fair, agreed in May that it would move to 1 WTC. Condé Nast ended up signing a 1.2-million-square-foot lease to occupy the base of the build-

Silverstein completed 4 WTC, the 2.3-million-square-foot tower that became the first property to open on the World Trade Center site. The Port Authority and the City of New York, along with several media and financial companies, occupy the property.

Following the installation of the 400-foot spire at the top of 1 WTC, the skyscraper officially became the tallest building in the Western Hemisphere at 1,776-feet. (This fueled some controversy: The Willis

The 9/11 museum opened in May, nearly three years after the memorial was completed. The center’s executives were immediately criticized for hosting a black-tie cocktail party at the site.

In November, Condé Nast began moving its offices to 1 WTC, marking the opening of the tower. It became one of the most prominent media companies to move Downtown.

2011

2013

2014

ing, leaving behind 4 Times Square in Midtown. (By this point, 7 WTC was almost fully occupied.)

The Durst Organization in June officially became the Port Authority’s equity partner for the building, taking over the tower’s completion and leasing. Durst, which owns 4 Times Square, wound up paying $100 million for an ownership stake in the skyscraper, which was then being built.

“We are thrilled to be part of 1 World Trade Center,” Durst Chairman Douglas Durst said in a statement via a spokesman. “The Trade Center site is better than we could have imagined.”

That September, just in time for the 10th anniversary of 9/11, the memorial plaza opened first to victims’ families and then to the general public. The long-stalled, often-controversial commemoration featured two draining pools, where the towers once stood, and was lined with the names of the thousands who perished.

Tower in Chicago has six more stories than 1 WTC, but the 408-foot mast on the top of 1 WTC was ruled part of the skyscraper’s height by the Council on Tall Buildings and Urban Habitat.)

4 WTC.

World Trade Center PATH Station.

After months of negotiations, Rupert Murdoch’s News Corp. and 21st Century Fox in January backed out of a deal with Silverstein Properties to occupy the yet-to-bebuilt, Bjarke Ingels-designed 2 WTC. The fate of the building was left in limbo because it did not (and still does not) have an anchor tenant to secure financing.

After 11 years of construction and a $3.9 million price tag, the Santiago Calatrava-designed World Trade Center PATH station opened in March to mixed reactions over the design and cost overruns on construction.

In June, Silverstein topped out 3 WTC. The building is slated to finish in 2018 and will be anchored at the base by advertising company Group M. “The story of 3 [WTC] to a great extent is that we planned for a financial services tenant in the base,” said Lieber, the Silverstein executive. “And who came and leased that space? Group M—a branding and marketing company. That is hugely

2016 symbolic to the change Downtown.”

Later that month, the Port Authority finished the single-acre Liberty Park, a green space atop the complex’s vehicle security center. The Port Authority commissioners also voted to move Fritz Koenig’s “The Sphere,” a bronze sculpture that survived the 9/11 attacks, to the park—marking the first time the artwork would return to the World Trade Center in nearly 15 years.

Westfield World Trade Center, the 365,000-square-foot shopping concourse that’s part of the transit hub and beneath the buildings, opened in August following its own set of delays, and features a massive Italian market curated by Mario Batali called Eataly (the second in New York).

“This year, the site’s master plan was realized, Westfield opened, the connections between the buildings and transit center have been made and [1] World Trade Center has leased more than 2.1 million square feet,” Durst said in the statement.

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POWER PLAYER

It was born in a moment of horror, but after 15 years, Larry Silverstein is nearing completion of a great masterpiece: the World Trade Center

66 | SEPTEMBER 7, 2016 | COMMERCIAL OBSERVER

CLOCKWISE FROM TOP: DBOX; COURTESY COSTAR GROUP; COURTESY SILVERSTEIN PROPERTIES

The Day Of

ERIKA KOOP

BY MAX GROSS

CLOCKWISE FROM TOP: DBOX; COURTESY COSTAR GROUP; COURTESY SILVERSTEIN PROPERTIES

ERIKA KOOP

W

hile Larry Silverstein was still in the process of acquiring the Twin Towers in early 2001, the then 69-year-old was walking along Madison Avenue when he was struck by a vehicle, breaking his pelvis.

He called his team into the hospital and asked his doctors to cut the painkillers.

“Because he was bidding on the World Trade Center, he had to be lucid,” remembered Mary Ann Tighe, the chief executive officer of the tri-state region of CBRE. It would be difficult to think of a more troubling omen of what was to come. Only six weeks after Silverstein’s company, Silverstein Properties, took title to the 10-million-square-foot World Trade Center, Al Qaeda terrorists staged the worst assault in United States history on the towers, killing over 2,600 people.

It has taken the city 15 years to semi-recover. But if there was ever a moment for Silverstein to take a victory lap, it is now.

When Commercial Observer sat down with him last month at his office at 7 World Trade Center, he had just come from the opening for Eataly, the big Italian market on the third floor of 4 World Trade Center. A few months earlier, Santiago Calatrava’s Oculus transportation hub opened. And looking out 7 WTC’s window one could see Tower 3, the 80-story tower that Silverstein is currently constructing which topped out this year, as well as the Robert A.M. Stern-designed Four Seasons hotel and condominium set to open this month.

To the south is a new raised park and a planned performing arts space, which got a $75 million infusion of funds from Ronald O. Perelman in June. (The design is being revealed tomorrow.) And, of course, 1 World Trade Center stands proudly in the middle of it all, next to the two footprints of the Twin Towers that serves as the harrowing, understated memorial to the victims. (Silverstein is responsible for building all WTC

buildings but 1 WTC.) This is his painkiller.

“The last piece of this entire puzzle will be Tower 2—the final linchpin in the rebuilding of the Trade Center,” said Silverstein, referring to the Bjarke Ingles-designed building, whose fate remains uncertain after a deal to anchor the building with News Corp. and 20th Century Fox went south. “When that building is done, which will be about 2021, my job will be finished here.”

The recovery extended well beyond the World Trade Center; to a large extent, the rest of Lower Manhattan glommed onto this remarkable (and seemingly never-gonna-happen) decade-and-a-half march forward. According to figures from the Alliance for Downtown New York, in the last 10 years, 213 technology, advertising, media and information, or TAMI, tenants have taken some 6.8 million square feet of space in Downtown Manhattan; law, management consulting, design and other professional service companies grabbed another 3.26 million square feet and financial services accounted for another 2.53 million square feet of space leased. In total, a whopping 17.1 million square feet of space has been leased since 2006.

One cannot help but wonder about one of the key players in this whole drama: a now 85-year-old, compact, bespectacled, always immaculately dressed man who grew up in a Brooklyn walkup.

S

ilverstein was born into real estate; his father was a broker leasing manufacturing space in Soho, and Silverstein started working with his him while he was still a student at New York University.

(Two of Silverstein’s three children also followed their father into the business at Silverstein Properties.)

“It became obvious with time that the

TRADING DAY: While it’s still a dream, Silverstein hasn’t forgotten about 2 WTC (top left), even though he doesn’t have the financing lined up. In the meantime, he opened 7 WTC (top right) and 4 WTC.

best thing to do was to become an owner as opposed to a broker—because the owners were making the money,” Silverstein said.

“The brokers weren’t.”

Silverstein looked to what Harry Helmsley and Lawrence Wien had done with the Empire State Building as a model to wheedle his way into ownership.

Helmsley and Wien bought the building “with 5,000 investors contributing $5,000 each into the ownership of the building,” said Silverstein, “and somehow they made it work. That’s something we looked at very early on as a means to put our hands around some capital.”

Silverstein started with a derelict building at 220 East 23rd Street that he picked up for $600,000 in 1957, according to Crain’s.

When the first project was successful, “We acquired a second one, and a third one,

a fourth. As time went on the buildings got bigger—and suddenly we found the banks were calling us…It was just a matter of time until we gravitated into [constructing] the entire building from the base to the top.”

Silverstein started acquiring land on the Far West Side, near the Port Authority Bus Terminal (where Silver Towers now stands); he picked up properties along Fifth Avenue; and in 1987 he finished construction on a 47-story tower named 7 World Trade Center.

“When he finished 7 World Trade Center, he saw the transportation—the tremendous infrastructure that was already there,” William Rudin, the head of Rudin Management Company, told CO. “And he saw an opportunity to reimagine Downtown.”

A few hundred feet away stood the Twin Towers, for which he acquired a 99-year lease in 2001 at $3.2 billion.

COMMERCIALOBSERVER.COM | SEPTEMBER 7, 2016 | 67

POWER PLAYER

“I

EATALY HERE NOW: This has been a banner year for Silverstein (bottom) and the World Trade Center, which has seen brand new retail like Eataly (left).

FROM TOP: EUGENE GOLOGURSKY/GETTY IMAGES FOR EATALY DOWNTOWN; JOE WOOLHEAD

didn’t want to get involved,” said David Childs the chairman emeritus of Skidmore Owings & Merrill.

“But Larry kept pestering me.”

Silverstein had just bought the World Trade Center, and he contacted Childs about any ideas he might have to spruce up the Twin Towers, which Childs hated. The two agreed to meet at the towers, where Silverstein had spent almost every morning since acquiring the property, breakfasting at Windows of the World and meeting with tenants.

On Sept. 10, Childs got a call from Silverstein. The developer couldn’t make their meeting the next day—he had an appointment with the dermatologist that his wife, Klara, wasn’t letting him get out of.

“I got lucky—my life was spared,” Silverstein told CO. “The lives of my children, too, who were on their way to the temporary offices we had in the North Tower. Fifteen minutes later, they would have been there.” (This stroke of incredibly good fortune has been used against Silverstein ever since in the conspiracy-addled corners of cyberspace as proof that he somehow knew about the plot.)

At around 5 p.m. that day, Tighe was walking uptown in a sea of shell-shocked New Yorkers, when she happened to spot Silverstein, and one of his top generals, Geoffrey Wharton, also trekking up Second Avenue.

“I went up to them and started to cry,” said Tighe.

Silverstein put his arms around her.

“Sweetheart,” Silverstein said, hugging her and trying to comfort her, “we’re going to rebuild.”

Indeed, less than half a day after the attack, Larry Silverstein had a good inkling of what his future would look like.

In many ways, Tighe’s memory of that encounter fits pretty well into two prevailing views that have taken shape about Silverstein since 9/11.

Those who know him and like him speak of a warm, optimistic, comforting presence (always asking about kids or grandkids, always willing to extend a hug to those in need). “He’s got a heart of gold,” declared Childs, who designed 1 and 7 WTC. He’s spoken of as a man of grit and determination, an insatiable optimist—always looking to the future.

But for those who do not care for Silverstein (and they are not just the conspiracy theorists), the same story comes out a different way: He was a man in a big hurry, who made up his mind right away without listening to others, without properly grieving for the victims.

John “Janno” Lieber, the president of the World Trade Center Properties, summed it up best in the documentary “16 Acres” about the rebuilding of the site: “Larry was typecast early on in the process as somebody who was fighting about money.”

For Silverstein, it wasn’t callousness, greed or a mad dash for money. There was a larger issue at stake. “The magnitude of the responsibility down here was such that it became my primary responsibility,” said

68 | SEPTEMBER 7, 2016 | COMMERCIAL OBSERVER

Silverstein. “I felt this was something I had to do—get it done, get it rebuilt as quickly as I possibly could. And do the best damn job that I could.”

But it was probably inevitable that Silverstein was going to be a fraught figure given that he became instantly famous, not just in New York but the world over.

“If I go to China,” Tighe said, “I am asked if I know two people: Donald Trump and Larry Silverstein.”

W

hether Silverstein wanted to rebuild quickly or not, he probably wouldn’t have had much of a choice.

“Gene McGrath, chairman of Con Edison at the time, called me within a day or two [of 9/11] and told me that he had a terrible problem,” Silverstein recalled. “The Con Ed substation—which provided all the power to Lower Manhattan—was at the base of my building at 7 World Trade Center.” On 9/11, 7 WTC was the last building to fall (and had long been evacuated when it came tumbling down).

“He said we can’t function this way; we’re providing power now with emergency generators. There’s no telling how long that will last, but it’s unreliable and prone to fail…I

need you to rebuild that substation quickly.”

Within two weeks of 9/11, Silverstein Properties had its first organizational meeting with architects to rebuild 7 WTC. (It would open in May 2006.)

All the while, Silverstein had his sights set on the whole complex—but he never seemed to abandon the essential sweetness that those around him admired.

The Pritzker Prize-winning architect Jean Nouvel was invited to Silverstein’s office to give his pitch for one of the buildings and found the industry titan not behind a big, imposing desk or hovered over majestic architectural plans. He was on the floor sitting next to Lieber’s 3-year-old daughter, making a paperclip chain.

“Have a seat in my office, Jean,” came the raspy voice of Silverstein. “I’ll be with you in a minute.”

The public witnessed little of this. For anyone who lived in New York City from 2001 to 2006, following the reconstruction of the World Trade Center site was a little like sitting through an extremely long Samuel Beckett play. Nothing happened. Or, at least, very, very little.

It’s true, architectural contests came and went (winner of the master plan: Daniel Libeskind); the various politicos appeared at flag-draped ceremonies at Ground Zero with the families of the victims; and news dribbled out about sniping between Silverstein and the Port Authority of New York & New

Jersey, or the governor’s office. All the while, progress at 1 WTC, the then so-called “Freedom Tower,” was hopelessly stunted.

Part of the reason was no two sides could agree on the same vision for the World Trade Center; families of the victims, the mayor’s office, the governor’s office, the fire department, the business community and average New Yorkers all had different agendas.

Silverstein’s toughness served him well during these years—because even his biggest admirers acknowledge that the avuncular Silverstein is hardly all there is to the man.

“Contractors would come in [for World Trade Center work], and he would say to them, ‘This is such an important project—I think you should do it for free,’ ” Childs told CO. “And he was serious.”

“Larry Silverstein is one of the toughest negotiators that I ever met,” said Steven Spinola, the former head of the Real Estate Board of New York and the New York City Public Development Corporation. “Because when I was with the city, I negotiated a deal with him. We never made the deal because both of us refused to budge. But he understood what he needed to do, and he did it.”

The attack begat a multibillion-dollar war with Silverstein’s insurers over whether the two planes hitting the Twin Towers constituted one act or two. (The latter would mean billions more for Silverstein Properties.) And he fought ruthlessly for his side.

“We needed two events,” Silverstein said in the documentary “16 Acres”—almost indifferent to whether his claim was meritorious or not. “Because to rebuild the Trade Center—the cost to rebuild the Trade Center would require not just $3 billion, $3.5 billion—we required more like $7 billion.”

Silverstein’s payout amounted to $4.6 billion in the end, and by 2006 Silverstein came to an agreement with the Port Authority in which he ceded control over 1 WTC in exchange for the right to develop three other skyscrapers. (Silverstein and the Port Authority wound up negotiating again in 2010 to bring down rents, and the Port Authority wound up bringing in the Durst Organization to finish the building and the leasing.)

However, in a crowning touch of irony, Zurich American Insurance Companies, one of the insurers that fought Silverstein tooth-and-nail over his 9/11 claims, wound up taking three floors at 4 WTC this August.

“When we first heard they were touring we said, ‘Uh…Oh-kay,” recalled Tighe with a suspicious lilt in her voice. “When we heard they loved it, we said, ‘Uh, Okay.’ ” As Silverstein himself will acknowledge, his work is not done. The deal that blew up for 2 WTC was a heartbreaker. Rupert Murdoch’s media conglomerate was “going to take about half the building,” Silverstein said.

“Two weeks after the beginning of 2016, I got a call from Murdoch. It was a Monday. And he said he was concerned about the state of the world and was not comfortable going ahead with the transaction.

“Was it a disappointment?” Silverstein asked. “Of course. Did we quit? No. Because we never quit until this is done.”

With reporting provided by Terence Cullen.

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972-976 Leggett Avenue, 820-822 Jackson Avenue, 949 & 953-957 Anderson Avenue & 951 Woodycrest Avenue, Bronx, NY A five building portfolio consisting of two 6 story elevator apartment buildings, two 5 story elevator apartment buildings and one 5 story walk-up apartment building.

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38762_Rosewood_CObserver_9.5x11.indd 1

9/2/16 12:58 PM

9/11

n w g el n o r

Rise and Shine

r r

Safety soars in post-9/11 buildings with fresh ways to get down

By Brady Dale

70 | SEPTEMBER 7, 2016 | COMMERCIAL OBSERVER

ANDREW BURTON/GETTY IMAGES

W

hat’s the first thing we learn about evacuating tall buildings? Use the stairs, not the elevators, right? But in the post-Sept. 11 era, engineers, government regulators and skyscraper safety experts have reevaluated that conventional wisdom.

After terrorists took down the World Trade Center towers in 2001, New York City realized that its tall buildings needed far more evacuation capacity. The most obvious way to accomplish this: Add another staircase so that first-responders going up won’t get in the way of evacuees coming down.

But skyscrapers in Asia have started relying on elevators for evacuation, as Ambrose Aliaga-Kelly, a principal at Gensler, explained in a recent phone interview. “When you have a super high-rise building, in order to make an elevator journey efficient, you develop a system of local and express elevators.”

After 9/11, New York City adopted the occupant-evacuation elevators approach, which guides occupants to the correct evacuation elevators on the appropriate gathering floor using signage and lights. Prior to Sept. 11, a very old building code governed the development of commercial buildings, pointed out Aliaga-Kelly, who oversees the technical aspects of Gensler’s designs, insuring that plans meet all relevant regulations. “We were really building from a code that was initiated in 1968,” he said.

Buildings designed around using elevators in an escape, Aliaga-Kelly explained, have what are called “sky lobbies,” or large common areas, which are yet to appear in New York. For day-to-day use, these usually feature some kind of amenity such as a coffee shop or atrium. Going up, people ride express to the nearest landing floor and then local to their final destination.

But in an emergency, building occupants walk down to the nearest landing floor and then wait for one of the designated express elevators to evacuate them. A New York City Department of Buildings spokesman confirmed that its staff has not yet seen a building design that proposes the approach.

“The other recognition from 9/11 was we’d made all these allowances to get disabled people into buildings, but we’d done virtually nothing to get them out in an emergency,” said Steven Edgett of elevator consulting company Edgett Williams Consulting. Edgett has consulted on some of the largest buildings in the world, such as the 2,044-foot-tall Shanghai Tower. Besides people with permanent

BANKING ON A SAFER TOWER: The elevator banks at 1 World Trade Center, where the lifts were designed to function during an attack. disabilities, some people have temporary mobility issues, like injuries. In a large commercial building with thousands of daily visitors, there’s likely to be many impaired people on any given day.

Reliance on elevators for evacuation raises new issues, such as the effect of smoke and water from fire-suppression.

In case of fire on one floor, it’s important to keep smoke from spreading to others. In smaller buildings, elevator shafts can evacuate smoke through a flue at the top, but that doesn’t work for skyscrapers. Above 10 stories, smoke in the elevator shafts seeps into other floors, Edgett said. Pressurized elevator shafts keep smoke out, which is especially important if the lift will be in use during an emergency.

According to a fact sheet from Skidmore, Owings and Merrill, which designed both 7 World Trade Center (the first to go up) and 1, the first-responder elevators in towers 1 and 7 have both been pressurized.

Water from sprinklers can also get into shafts, causing elevators to stop working.

Edgett commends developers for new designs that divert water away from shafts or allow continuous operation even if some water gets in.

Despite the advances in skyscraper

design, “You can’t design a building to withstand a hit from a 767 loaded with fuel,” Edgett warned. But he added that the cores of buildings are vastly more resilient than ever before.

The internal structure of many new buildings also better protects evacuation routes.

For those who have watched tall buildings rise since Sept. 11, many will notice that this thick concrete core goes up first. Nicole Dosso, director in the technical group at SOM, said, “There was a real concerted effort to make sure that all the infrastructure for life safety and for egress was sitting behind a protected core.” World Trade Center buildings have gone up with a high-strength concrete never before used in New York City buildings. Their cores are protected by extremely strong walls ensconcing the most essential functions of a building, including mechanical escape routes and stairwells.

And, like the sky lobbies, the core has day-to-day benefits for building occupants above and beyond its advantages when events become dire. That super-strong core has made it possible for architects to design vast, extremely open spaces with views unobstructed by support columns.

“You have a wall of glass and a wall of light going out,” Aliaga-Kelly said. Adding that with

“daylight penetrating a lot deeper into the building,” developers are able to better contribute to overall sustainability.

These cores ultimately protect systems that haven’t changed much for a very long time.

Elevators themselves are largely the same technology that they have been for the last hundred years, though the ones designated for escape may come with backup power and safety sensors. Those are features, though, not a paradigm shift.

That could come, too. For example, large buildings have begun adopting ThyssenKrupp’s TWIN elevator system, which puts two smaller elevators in the same shaft, one above the other, each with its own mechanical system and counterweight. So, you could show up in your lobby, just miss an elevator and then see the same doors open when you hit the button for up. This allows one shaft to manage more people movement in less time while using less floor space. If that isn’t a fundamentally new elevator, it’s getting there.

“I think it’s quite a positive and optimistic story. I think we’ve really come a long way,” Dosso said. “Buildings are really being better designed to manage any kind of emergency than ever before.”

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111 WEST 33RD STREET

PHOTOGRAPHS BY AARON ADLER/FOR COMMERCIAL OBSERVER

The Plan

WHO’S WHO FOR 111 WEST 33RD STREET ARCHITECT: ARCHITECTURE + INFORMATION (A+I) GENERAL CONTRACTOR: L&K PARTNERS BROKERS: THERE WERE NO BROKERS FOR ESRT SPACE, BUT BUILDING BROKERS ARE KEITH CODY OF ESRT ALONG WITH SCOTT KLAU, ERIK HARRIS AND NEIL RUBIN OF NEWMARK GRUBB KNIGHT FRANK MEP ENGINEER: WSP | PARSONS BRINCKERHOFF

THE EMPIRE STRIKES!: When they couldn’t find space in the Empire State Building, ESRT went a block away and brought the ESB motif to 111 West 33rd Street, which includes 27 multipurpose rooms with the Art Deco design either etched in glass (left) or on the walls (above right); it is poised above Herald Square (bottom right) and features and features an audit room (bottom center).

By Max Gross Just how difficult is it to score an office at the Empire State Building?

Ask Anthony E. Malkin, the chairman and chief executive officer of Empire State Realty Trust, which owns New York’s most iconic skyscraper. When Malkin was looking to consolidate four ESRT offices under one roof at its most famous property, he ran into a problem.

“We kept leasing the goddamn floors,” Malkin said.

It’s a good problem to have—but over the course of two years, ESRT still hadn’t completed its relocation.

“There were four different floors to which we determined we would move,” Malkin, 54,

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told Commercial Observer last month, a few days before the public company moved into its new headquarters. “We ended up saying, ‘OK, screw it—we’ll just go to another building.’ ” But if you can’t bring Mohammed to the mountain, you bring the mountain to Mohammed (sort of).

Its new home is a block away, at 111 West 33rd Street, the 62-year-old building between Avenue of the Americas and Seventh Avenue, another in ESRT’s 10.1-million-square-foot primarily commercial portfolio.

The renovated, 37,000-square-foot fullfloor office (the rent in that building is in the mid- to high $60 per square foot range, according to ESRT) is equipped for 165 employees (140 were included in the recent move) and

features Art Deco etchings on the walls and in the glass of the conference rooms that were taken from the Empire State Building.

“We’ll have access to the fitness center [in the Empire State Building], which is tenants-only, but we’re a special exception,” Malkin said.

ESRT has given itself a big, clean space with 27 conference rooms, multipurpose rooms (think: kitchen) and meeting spaces—and zero private offices. “There are only three rooms that are closed off,” Malkin said. “The server room, the IT room and the audit room.”

Malkin sits at the end of a row of desks that includes ESRT’s president, chief financial officer, general counsel and head of property operations and leases.

Paper is largely seen as the enemy at this office: Filing cabinets are few. (Yes, there is a handful because check stock needs to be kept somewhere.) There’s a modest bit of storage space at every desk. There are a few stray printers, but they are the exception.

Commercial Observer saw one lone printer between accounts receivable and branding.

“The printing system is that you send a print job and you have to take your fob to the printer,” said Malkin. “If you don’t pick it up in five minutes, it’s automatically erased.”

On a more ominous note, Malkin added, “We’re going to track every single person who prints—and people who print a lot have to have a reason.” (While committed to eco-friendly real estate, Malkin is also an

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PHOTOGRAPHS BY AARON ADLER/FOR COMMERCIAL OBSERVER

MALKIN CREST: ESRT’s Tony Malkin (top left) wanted to keep the office paper-free; the multipurpose rooms (top right) feature no arms on the chairs; the conference rooms (below right) all have names for the company’s guiding principles (except one named after Malkin’s grandfather, and another named for a Grateful Dead song); the new digs feature no offices (bottom left). unapologetic critic of LEED, insisting it’s a glorified scavenger hunt rather than a serious plan to reduce a carbon footprint.)

The various conference rooms feature chairs with no arms (to encourage leaning in, in the literal, non-Sheryl Sandberg sense), and the rooms take their names after ESRT guiding principles like “Team” and “Honesty”— with two notable exceptions.

There is a boardroom named “Wien,” which is Malkin’s great-grandfather’s name—as well as the German name for Vienna.

“When [my great-grandfather] came through the Battery—‘cause Ellis Island wasn’t open then, in like 1882 or 1880—they asked him…‘What’s your name?’ ” Prior to making his journey to America, his

great-grandfather (who spoke little English) had been told that the first question he could expect was “Where are you from?” So when the first question came, he answered, “Wien.”

He was then asked where he was from. He answered Pinsky.

That was how Joseph Pinsky, from Wien, became Joseph Wien, from Pinsky. When this was brought to the attention of the immigration agent, he was met with a shrug. “ ‘I already wrote it down,’ ” the agent said, according to family lore. “ ‘That’s your name.’ ” As the largest shareholder at ESRT, the closest concession Malkin gets to privacy is the conference room next to his desk, which is the other one whose name doesn’t fit with the others; it’s called “Beggar’s Tomb.”

What is this named after?

Malkin looked directly at us when asked this question, as if the representatives of CO were off their rocker.

“I live in a silver mine, and I call it beggar’s tomb,” he said, evenly. “I got a violin, and I beg you call the tune, anybody’s choice, I can hear your voice; what I want to know is how does the song go.”

He looked disappointed with our Grateful Dead ignorance. (He was reciting the lyrics to “Uncle John’s Band.”)

Unlike the other conference rooms, Beggar’s Tomb is outfitted with chairs with arms and a couch.

“I wanted a place to take a nap,” Malkin joked.

The walls were still white, and the art that was planned hadn’t been put up during CO’s visit (the company only moved in on Aug. 22). There are two pieces of hanging art, which will be put up: a portrait of Malkin’s grandfather and another of his father, both at age 70. A more contemporary piece expected is a massive collage and painting by identical twin artists, Doug and Mike Starn.

“It’s going to be the skyline of New York, and it’s all on album covers of great rock bands of the ‘60s and ‘70s…and even better than that you can actually take them off the wall and play them.”

Will there be a record player?

“In Beggar’s Tomb!”

COMMERCIALOBSERVER.COM | SEPTEMBER 7, 2016 | 73

DATA

ChartLease/Sale  Lease charts reflect deals closed or announced from August 15 to September 1.

Information on leases, sales and financing deals can be sent to Max Gross at mgross@commercialobserver.com.

Office

SQ. FEET

TENANT

LANDLORD

BROKERS

Related Companies, Mitsui Fudosan America and Oxford Properties Group

CBRE’s Brad Gerla represented the tenant in the deal; Robert Alexander and Howard Fiddle, also of CBRE, brokered the transaction on behalf of the landlords with Related Companies’ Stephen Winter in-house.

55 Hudson Yards

83,000

MarketAxess

4 World Trade Center

44,000

Global Atlantic Financial Group

Silverstein Properties

Jeremy Moss represented the landlord in-house along with a CBRE team led by Mary Ann Tighe and Steven Siegel; Erik Schmall and Michael Mathias of Savills Studley represented the tenant.

4 World Trade Center

24,489

Validus

Silverstein Properties

Camille McGratty of Silverstein represented the landlord in-house with a CBRE team led by Mary Ann Tighe and Steven Siegel; Eric Deutsch and Jonathan Cope of CBRE represented Validus.

44 West 18th Street

22,669

Ronald Jonas Interiors

Forty Four Eighteen Associates

Adams & Co.’s James Buslik represented the tenant and the landlord with colleague Alan Bonett.

260 East 161st Street

22,070

Legal Aid Society

Acadia Realty Trust

JRT Realty Group’s Greg Smith represented the landlord with colleague Ellen Israel; Craig Reicher, Chris Mansfield and Greg Maurer-Hollaender of CBRE represented Legal Aid Society in the deal.

25 West 39th Street

20,000

Spark Labs

Thor Equities

Dan Harroch of Thor Equities represented Spark Labs in the transaction.

253 36th Street (Brooklyn)

19,000

EverGreene Architectural Belvedere Capital, Arts Jamestown and Angelo Gordon & Co.

355 Lexington Avenue

15,882

Wealth Advisory Group

Rudin Management Company

David Berkey of L&L Holding Company represented Wealth Advisory Group in the transaction; Robert Steinman, a vice president at Rudin Management, represented the landlord in-house.

1407 Broadway

13,797

Gettry Marcus

Shorenstein Properties via a ground lease

CBRE’s Gregg Rothkin brokered the deal for Shorenstein Properties with colleague Peter Turchin; Cresa New York’s Vincent Tuminelli and Richard Plehn represented Gettry Marcus in the deal.

TENANT

LANDLORD

BROKERS

Retail

SQ. FEET

Industry City’s Kathe Chase, Jeff Fein and Brett Harvey brokered the deal directly with the tenant.

1829 Pacific Street

3,300

Brooklyn Spirits

Atlantic Properties II

Grant Dolgin of Kalmon Dolgin Affiliates represented Brooklyn Spirits; Jeffrey Unger, also of KDA, represented Atlantic Properties II in the deal.

612 Eighth Avenue

1,300

Gray’s Papaya

Hata Realty Corp.

Independent broker Thomas Lee represented both sides in the transaction.

Sale

BUYER

SELLER

SQ. FOOTAGE

AMOUNT

BROKERS

25 West 51st Street and 40 West 45th Street

McSam Hotel Group

Rockwood Capital

N/A

$155 million

JLL’s Jeffrey Davis negotiated the sale for McSam Hotel Group and was the sole broker in the transaction.

85 North 3rd Street (Brooklyn)

Midwood Investment and Development

Howard Hershkovich and Jordan Wexler

20,000

$42 million

N/A

211-215 Schermerhorn Street

GPB Capital Holdings

Nicholas Cammarato

7,556

$30 million

TerraCRG’s Ofer Cohen represented Nicholas Cammarato with colleagues Melissa Warren, Dan Marks and Peter Matheos.

74 | SEPTEMBER 7, 2016 | COMMERCIAL OBSERVER

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