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Coliseum lawsuit likely.

Boston Properties is likely to sue the City of New York and the Metropolitan Transit Authority if a 90-day closing notice is sent out on the Columbus Center project, a spokesperson said last week. The city and MTA have been spatting all summer on whether or not to send such a notice, while at the same time intermittently negotiating with the developer on a smaller project.

A New York City Council oversight hearing aired many of the viewpoints on what should happen to the current Coliseum and office tower, located at 59th Street at Columbus Circle, but did not lead to any conclusions. What was left unasked and unanswered, however, were the motives behind the city officials' latest actions and the apparent hiccuping on the Boston Properties' development proposal now on the table.

After surviving nine years of lawsuits filed against the project, the loss of its joint venture partner and tenant, Salomon Brothers, and a real estate market in shambles, Boston Properties proposed a smaller two-phased project earlier this year.

The first phase would comprise a 900,000 square foot office tower for which it would pay the city $62 million. The rest of the project would be resolved at a later date and the developer has proposed that the payment to the city and MTA would be based on a valuation made at that time. Presumably, the parcel would be worth more because of the new office tower and over time, general real estate values would have recovered.

Sources say the powerful law firm of Weil, Gotchal & Manges has agreed to lease 650,000 square feet in this first building. This structure could be wrapped around the current Coliseum convention center, allowing it to be used for any of the proposed interim uses, and the developer is willing to look at that scenario.

Meanwhile, the Council Committee on Economic Development was shocked to learn there had been no meetings since August, when it was left to State Urban Development Corporation chairman Vincent Tese to schedule a meeting. No one could confirm that he ever did schedule any, but he may have had some conversations with Boston Properties' chairman man, Mortimer Zuckerman.

Tese did not come to the hearing and the question was not posed to Carl Weisbrod, president of the Economic Development Corp., who spoke on behalf of the city. He was described by onlookers from all camps as being "uncomfortable" about several issues after trying to explain the city's position.

At one point, he noted the project might not generate a full compliment of real estate taxes because it was being funded by IDA bonds and would be exempt from sales tax on tenant improvements.

The city's role in deciding the fate of the Coliseum is also of some contention. Officials feel they should be a 50/50 partner in determining the usage of the site, while the MTA is looking for the city to have some role, as yet undefined. They are still in talks on this matter.

Nasty letters were sent all summer between the MTA and city officials who were trying to hold off the issuance of a notice to close the deal and instead work something out with Zuckerman. Weisbrod now indicated some willingness to unite with the MTA and send a 90-day notice.

This would force Boston Properties to either purchase the property at the 1989 price of $338 million, or have the MTA and city cash in the $33.8 million letter of credit they have been holding for nine years.

The city's position, sources say, is a result of the Daily News -- owned by Zuckerman -- endorsing the subsequent winner of the mayoral election, Rudolf Giuliani, as well as the placement of a new printing plant in New Jersey. Zuckerman has told friends that he wasn't the only one "underwhelmed" by Dinkins' entire performance as Mayor. Additionally, mayoral officials had told insiders they were just "toying" with Zuckerman until after the election and wanted what was best for the city.

What is "best for the city" is a matter of who's talking. Council Member Ronnie Eldridge, whose district offices are located in the Coliseum tower that is slated to be torn down for the new offices, is leaning privately towards a television studio. This is vigorously opposed by Queens Borough President Claire Shulman, whose borough houses both the Kaufman Astoria Studios and the Silvercup Studios. In fact, some say, it was her disapproval of new Manhattan television space that helped Council Speaker Peter Vallone carve out the television studio proposed by Donald Trump at Riverside South from development approval.

Other officials, with the backing of the Restaurant Association and the Convention and Visitors Bureau, are pushing for a convention facility. While this might provide the least amount of face rent, they envision dollar signs coming in the form of visitors' hotel rooms and meals, not to mention the revenue to the city from taxes on both of these items. The MTA, one could argue, might also see increased revenues from fares generated by those going to the Coliseum attractions.

Other proposers have come up with retail and children's entertainment solutions and many have politicos jockeying for position.

"The hearing reinforced our belief," said an Eldridge spokesperson, "that the notice of closing should be sent and the city and MTA should agree on an interim use for the existing building, improve the physical condition of the Circle and take the next 15 years to plan for a long-term use." Eldridge also questions whether a scaled down proposal will be legal, as only the larger tower has been approved by the land use review process. Others say as long as its smaller and has less impact, it would be legal.

Meanwhile, Boston Properties, in spite of a $54 million payment made by Salomon Bros. to break their joint venture deal, has incurred those costs and more. "It was worst than a wash -- it was negative," said Vice President Robert E. Selsam, describing the settlement of accounts, including payments for stone and steel after the proposal was halted by more lawsuits. They are also out an additional $30 million since the design was scaled down in 1989, plus the encumbrance on their finances of the $33.8 million letter of credit.

"We should not be further penalized," Boston Properties' President, Edward H. Linde, told the City Council committee. He noted they will not be able to recover through this new plan all of the costs "sacrificed" over the past nine years.

It is also being argued by opponents that the real estate market is saturated, and the last thing anyone needs now is another office tower. Real estate executives say that might be true Downtown, but Uptown, inventory is quickly being swallowed by hungry companies.

The 900,000 square-foot building alone will create 7,000 jobs and an estimated $16 million in real estate tax revenue to the city and state each year.

The question now is if the city can find nirvana in any usage, and not just by the grunge band of that name who performed in concert there two weeks ago. As Nirvana's song says, "it smells..."
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Title Annotation:Boston Properties may sue City of New York and Metropolitan Transit Authority over Columbus Center real estate development project at 59th Street at Columbus Circle, New York, New York
Author:Weiss, Lois
Publication:Real Estate Weekly
Date:Nov 24, 1993
Words:1196
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