After auction sale, new chance for 40 Wall St.

Another one of the Morcos Properties is on its way to a new life although the price of under $10 million for the greendepression of the Downtown market. Downtown brokers report, however, that client tenants are talking expansion rather than givebacks and consolidation.

At a spirited foreclosure auction held last month, Citibank became the owner of the 40 Wall Street leasehold for $10.8 million. They bid against the Wong family from Hong Kong which is very disappointed they did not prevail, sources say.

Citibank had walked into the auction with a side deal already in place with Kinson Properties, a subsidiary of Ocean Voice Industries Ltd. for at least $5 mill ion plus a commitment, sources say, to expend $25 million in renovations to meet ground lease requirements. "It's certainly to be far in excess of the purchase price," notes Peter Hauspurg, president of Eastern Consolidated Properties.

The Hong Kong based company will use 40 Wall as a world headquarters should the political climate change in 1997 when the People's Republic of China resumes control of the British Colony.

The price per square foot of $9.82 for the 1.1 million square foot leasehold reflects prices not seen in decades in the Downtown market. That ground lease with J. Walter Hinneberg expires in 2059.

Hauspurg deemed the purchase, "another indication of a rock bottom price. These auctions are surprising things and produce remarkable results."

"It shows you can steal property," agreed Joseph F. Harkins, associate director of Cushman & Wakefield in the Downtown office who represents both 30 Wall and 100 Wall.

Real estate experts believe the Kinson deal, made at a floor of approximately $5 million, had to have an "upside" so that Citibank could take advantage of such a bidding war, with increases to Citibank as the auction price escalated. A final price has been reported to be between $ 8 million and $9 million. The additional bidder should not have come as a surprise, either, as sources say the Wong family was actively pursuing the property.

A spokesperson for Citibank, Amy Dates, said, since the lender had a firm deal with Kinson they "went for that," rather than dropping out of the bidding in favor of a higher price. "How do we know the other bidder could actually close?," Dates asked by way of explanation.

Warren M. (Woody) Heller, director of the investment division of Jones Lang Wootton, which represented Citibank was relieved and pleased the process is coming to a close after working on it for 18 months. He said they were glad to see the level of interest. "We're encouraged by the price, and by the numbers who showed up at the auction," he said. "We're delighted that the process is coming to an end and that the building is getting close to being revitalized by renovation."

Harkins believes the location and upper floor plates of 13,000 to 8,000 square feet are perfect for the small law firms and securities operations that have spun off as the larger companies consolidated.

"Everything is going to have to be redone," agreed Howard P. Malloy, senior vice president, Helmsely-Spear Inc. in the Downtown office. He said the floor configurations are not rectangular and the columns are spaced close together so it doesn't lay out quite as well as newer buildings. There is going to be use for the building when the market turns around, but Malloy noted, it's going to be two or three years. "Things are heading in that direction now," he added.

Malloy said the purchase price is going to be a small portion of what the new owners are going to pay to fix the property. "It's great to know that a beautiful building like that will be rehabilitated," he said. "It will be helpful to Downtown and to Wall Street.

Harkins said, "40 Wall has tremendous potential if it is owned and operated properly, with an eye on the future and not on the past. "It's a glorious building that has suffered from neglect."

Late last year, as the Downtown market faltered, Citibank cut off renovation funds to the Resnick Organization which had acquired 40 Wall at an auction of the then Marcos property for $77 million. This left tenants screaming and work uncompleted, a move that caused the appointment of a receiver which triggered a clause in the prime lease.

The clause says that the leasehold mortgagee must expend funds to secure the obligation of the lease. When Citibank did not maintain the building as a first-class property, the owners began termination proceedings and sought a purchaser. Citibank found the Hong Kong buyers first.

Morgan Guaranty was the most recent tenant to leave when it vacated 206,044 square feet in a consolidation of its offices. The building is more than 80 percent vacant.

Certiorari attorney, Jeffrey Golkin, a partner in Herzfeld & Rubin and a 54th floor tenant, said they are looking forward to renovation and modernized elevators in the not too distant future. "We are hopeful that we'll start seeing some improvements," he said.