Dealmaker, Siegel, ready to fill city's newest tower.
The groundbreaking took place two months ahead of schedule, an indication perhaps of SJP Properties' eagerness to deliver the new tower at a time when the city's office market has arguably never been stronger. For years, such construction was widely considered by developers to be too risky because enough of a surplus of space already existed.
But now that rents for high-end offices in Midtown are at record levels and fast shrinking vacancy rates have left tenants clambering for the space that remains, 11 Times Square is one among a number of new skyscrapers being built to accommodate the surge in demand.
Yet the building is also different from its peers. Office markets can be volatile and defy the optimistic projections that typically predicate the construction of a building. Because of this, and because buildings take a long time to erect relative to the speed at which the market can change, a developer can break ground when space is at a premium only to finish just in time to see pricing sink.
For this reason, most projects don't get out of the ground without an anchor tenant in place, a space user who agrees to occupy a large portion of the building and who limits the developer's risk by assuring the project some degree of financial security based on the cash flow from that tenant's rent. The majority of new towers have one. One Bryant Park for instance, a 2.2 million s/f glass tower currently being developed by the Durst Organization, is largely leased to Bank of America. The New York Times agreed to occupy half of its new headquarters building on Eighth Avenue, which sits directly south of the former parking lot where SJP Properties is building 11 Times Square. Even Larry Silverstein developed downtown's post-9/11 phoenix, 7 World Trade Center, with insurance proceeds.
SJP Properties however is building 11 Times Square on speculation. Even considering the favorable market conditions, it is among the more confident moves to be made by a commercial developer in recent years and a lot more than just SJP Properties' bottom line is riding on its success. Developers around the city say they're paying close attention to how well the building does because it will be a gauge of how much new space the market is really ready for.
The building's performance also holds strong implications for the far West Side, a neighborhood that the city has tried to reinvent as a westerly expansion of Midtown but where little new development has actually begun. Although 11 Times Square belongs to the burgeoning western end of Times Square, that section is considered a gateway to the West Side and an indication of its viability, which the city has called essential to its future economic growth.
Observers say that the real estate investment trust, Vornado, is also paying a close eye to what happens at 11 Times Square. Vornado, of course, is in talks to build an office tower over the northern end of the Port Authority Bus Terminal, which is directly across Eighth Avenue from SJP Properties' site. If I I Times Square attracts tenants, it would undoubtedly make the opportunity to build above the noisy and crowded terminal seem far more appealing. In addition, there has been speculation that if Vornado does reach a deal to develop a tower, it could set in motion the Port Authority's eventual relocation of the terminal, which could further galvanize the neighborhood as an office stronghold.
Given the building's momentous impact, it seems fitting that SJP Properties has hired Stephen Siegel as its leasing broker. It also shows that, despite his outward confidence, SJP Properties' chairman and CEO, Steven J. Pozycki, isn't taking any chances.
In a business stuffed with prodigious dealmakers, Siegel is widely regarded as one of the most influential real estate brokers and among a select few who have the highest level of clout with tenants and landlords alike. As much as the building's shiny new glass facade and myriad of amenities provide a tremendous boost to its prospects, so too does Siegel's name as its lead leasing broker, given the relationship he is known to have with numerous large space users and the reputation he holds among those he doesn't.
It was Siegel's influence, in fact, that allowed 11 Tunes Square to be built in the first place. The former parking lot on which the building will be constructed had been owned by the well-known New York real estate family, the Milsteins, who for years had postponed development.
"I had visited with the Milsteins for two years to try to convince them to build and understood that they didn't have the appetite to do it," Siegel said. "They were busy with too many things."
Despite their indecision about the site, the Milsteins had refused offers from potential buyers or the process of openly going about a sale for fear of alienating the Empire State Development Corporation--the state economic development agency that has dictated Time Square's redevelopment--and consequently dashing their own ability to build on the parcel should a deal fall through.
"They didn't want to be perceived as sellers for a variety of reasons," Siegel said. "They had the ESDC approval hanging over them and they didn't want to get in trouble with that process."
Siegel, however, was able to convince the family to let him shop the site to a potential buyer that he suspected would be interested and also be willing and able to pay the exorbitant price that the Milsteins wanted. That the Milsteins allowed him to do this is evidence of the kind of trust developers and owners have in Siegel. Without disclosure of just who the deal would be brought to at the outset of Siegel's pitch, the Milsteins couldn't be sure that the site wouldn't secretly be shopped to a number of potential buyers--a risk that they would have been unwilling to take on any other broker.
"The fact that the Milsteins knew when they said 'Don't market this property,' that I wouldn't, made them comfortable to say 'Go ahead and take it to that one client'," Siegel said. "Based on credibility and trust, I was able to tell them that I had a buyer and that we'd get a big price and, at the same time, I was asking SJP if we could build a building there and get in the ground and the answer was yes."
Siegel said that the Milsteins wanted a signed contract within two weeks and an irrevocable hard deposit of $15 million, incredibly stringent requirements that, without Siegel's hand in the negotiations, might otherwise have complicated and strained the deal's negotiations.
"We did the contract in that two weeks working day and night," Siegel said. "I was 100% sure that if the circumstances were correct SJP would buy it and then I was 100% sure that the Milstein's word was good. No one deviated one iota from their word and the deal got done."
Although his experience is anchored mainly in office leasing, Siegel has been able to apply his deal-making expertise to a variety of transactions in a way that seems to transcend the normal specialization among brokers. Last year, for instance, he teamed with Andrew Goldberg, a retail broker at CB Richard Ellis where Siegel is chairman of Global Brokerage, to do one of the largest high-priced retail deals of all time; Gucci's 45,000 s/f lease at the base of Trump Tower, where rents are among the highest in the world.
Goldberg and Siegel--along with Goldberg's brother Jeffrey--also operate a real estate company outside of CBRE that owns and manages affordable residential buildings in the city. The company, named SG2 after Siegel and the two Goldberg brothers, most recently purchased a 51-building Bronx portfolio for $300 million that boosted its inventory of apartments to roughly 5,500 units. The group has been able to avoid the controversy many residential real estate investors have met when trying to acquire buildings in lower income neighborhoods that provide affordable housing for the city's middle class--a property type whose dwindling supply has become a charged political issue.
"We went in recognizing that these building are different, that they're affordable, and our track record is that we upgrade the buildings with things like better security and improving the condition of the buildings," Siegel said. "We raise the rents on turnover, but we don't empty buildings and rush to condo them. I describe it as the tortoise versus the hare, slow and steady wins the race. Our buildings average $814 per month in rent in the Bronx. If we get them to $1000 a month, that's still affordable and we'll do just fine, we'll be very happy."
Siegel's business with SG2 and his managerial-sounding title as chairman of Global Brokerage has led some competitors, he says, to claim that he has become too distracted to handle large deals. In reality, Siegel, long a top real estate executive at the Edward S. Gordon Company and then at Insignia ESG, shrugged off management responsibilities when CBRE purchased Insignia ESG in 2003.