Deals of the Century: Part II.

(The following is Part 2 of a two-part series on the greatest New York City real estate deals of the 20th Century).

Before moving on to Midtown's Deals of the Century, one final Lower Manhattan deal deserves recognition - the development of the World Financial Center.

While Battery Park City had its residential section kicked-off with Gateway City, its entire commercial section of 17 acres was dropped into one RFP.

Although not the highest bidder, the Reichmann family's Canadian powerhouse, Olympia & York, claimed it could develop it faster than any other speedy developer - in a mere six years. Thus the bonds could be paid off in half the time claimed by the other proposers, which made its plan a better financial deal.

Then-CEO Edward S. Minskoffshepherded the creation of what became the World Financial Center - one of the largest privately financed commercial developments ever created.

The construction involved a tremendous underground infrastructure, a river water-cooled heating plant, 7.5 million square feet of stunning Class A commercial space and a distinctive glass atrium - all connected by two long and wide pedestrian bridges across West Street to the World Trade Center.

When Minskoff stepped down as CEO on December 31, 1986, six years later, it was 100 percent complete, and except for a few retail spaces, fully leased to top credit tenants, including American Express and Merrill Lynch.

Columbia University and the Rockefellers created Rockefeller Center with the hopes of luring the Metropolitan Opera uptown. When that effort failed, they managed to snag RCA for the tower that is known as 30 Rock.

No department store would take a chance on the central piece of the site, as they worried their day trade would never give up Ladies Mile. A persistent salesman, however, convinced the developers to take a chance on a new fangled way to allow ice skating without a pond, and they let him install it for the winter.

The ice rink was an instant success, and the Rockefellers never rented to a department store. During the Depression, recalled attorney Jesse Weiss, John D. Rockefeller went to tenants around the city, promising them cheaper rent and buying out their more expensive leases at other buildings. Thus, the Center survived, even as other building owners did not.

Rockefeller Center also brought art into buildings. "They brought in Diego Rivera and then they had a fight over what he put on the murals," laughed Julien J. Studley, explaining "They covered some of it up because there were depictions of communist leanings."

During the 1980's, when the Japanese investors were buying one Midtown building after another, the city was shocked when the Rockefeller family decided to partially cash out, selling a piece to Mitsubishi, and also creating a publicly traded real estate investment trust whose only asset was the mortgage, thus allowing small investors to invest with the Rockefellers.

The Center's owners projected increasing incomes and $50 and $60 rents, as nearly all the leases were designed to turn over in September 1994 - but it soon became obvious that rents would come in closer to the $30 range and the Center would be unable to pay its mortgage.

That led to the bankruptcy of the two Rockefeller/Mitsubishi entities that had to pay the mortgage. But rather than letting the administrative REIT take over operations, David Rockefeller convinced Mitsubishi to give up its interests completely, and the bankruptcy court to confirm his new investment group's plan to continue operations.

The new investment group included Goldman Sachs, already a lender to the Center, and Tishman Speyer. Tenant NBC, the successor to RCA, through its parent General Electric, also purchased its floors at 30 Rock and in the nearby studio building for $440 million, thus recapitalizing the Center with its own assets just as the real estate recession ended.

Richard Baxter of Insignia Capital Finance Advisors, the investment sales arm, declared "The deal of the century was Tishman Speyer's buying of Rockefeller Center. It's been such a great thing for New York, and [in the past Rockefeller Center] was a great thing for New York. It's not only good for the city, it's good for their investors."

Alan Simon, preisdent of Goodstein Realty Commercial, who also cited the development of Rockefeller Center as one of the deals of the century, recommended the change of Park Avenue from a residential neighborhood to a world class office district as being an important event for the city.

First, the railroad tracks leading to Grand Central Terminal were covered over so that part of the city below Harlem was rebuilt entirely on a higher level, with no train tracks to impede development.

After World War II, Alan's uncle Adolph L. Simon, a developer, served on a committee that recommended the rezoning of Park Avenue to commercial use.

"That change of zoning and putting the tracks underground led to Park Avenue becoming one of the preeminent locations for office buildings," said Simon.

"Of course, taking down the El on Third Avenue in 1955 opened up the whole East Side," recalled James L. Levy, MAI, president of Appraisers and Planners, Inc., whose family business has been involved in city real estate for 110 years.

Between Third and Lexington avenues, Studley and Don Schnabel were involved in the creation of the Citicorp Center.

"There was a church for sale and we went to Citicorp and said to buy the next block," Schnabel recalled. "Then they controlled other blocks and three or four buildings got built," thus securing Citicorp's neighborhood and saving it from a slide into a pornography center.

Another important brokerage deal allowed the construction of 1114 Avenue of the Americas, with its namesake tenant WR Grace. "I was president of Brown Harris Stevens and Steve Riker was senior vice president in charge of the commercial department," said Joseph J. Grotto, Sr., chairman of J.Grotto & Associates. "We got the 'Most Ingenious Deal of the Year' for that one."

Grace leased 540,000 square feet, but there was also a tax-free/tax-deferred exchange of Grace's property at 3 Hanover Square for a 10 percent interest in what became the Grace Building. "That's how that got done," said Grotto.

In terms of residential development, Trump Tower was the Deal of the Century, asserted Louise Sunshine, president of The Sunshine Group, which markets luxury condominiums. "It was the most creative real estate deal that was ever made, and I was very much a part of that deal."

In 1972, Bonwit Teller was on a land lease at 56th Street and Fifth Avenue. Trump and Sunshine bought out the lease and then approached Equitable and created a joint venture for the land that enabled them to build Trump Tower.

"We got prices exceeding $1,000 a foot," said Sunshine. "There was no super luxury condo to get those prices. Before that there were a few buildings, Olympic Tower and Museum Tower, but they didn't achieve the prices. They didn't really set the tone for the super luxury market that was going to exist in the years since 1974, since Trump Tower was built."

The West Side had its own deals that served to change neighborhoods.

Madison Square Garden moved several times during the century, most recently ending up on the site of the old Pennsylvania Station. The station's destruction forced preservationists to band together to protect and preserve Grand Central Terminal, which was recently restored, and landmark other prominent and not so prominent city structures.

Across from Madison Square Garden, Grotto recalled a very large transaction for 1 million square feet he brokered along with Riker for the Electric Bond and Share Co. known as Ebasco, that kicked off a new first class office locale.

"It gave birth to One Penn Plaza for Harry Helmsley," he said. Ebasco rented 1 million square feet and put up $40 million and received a 40 percent equity stake.

"The building went ahead and got built, based on that investment," said Grotto. But Ebasco was purchased by Boise Cascade and never took its entire space. "They had a different agenda and that was not to move into the building."

The building was constructed on land owned by Sarah Korein, as were many prominent city structures all around town.

Further north, "The development of Lincoln Center totally changed the West Side," said Studley, who is on its board. "It stabilized it, brought it an important cultural center, and is very much involved in the area."

Nearby, the creation of Lincoln Square by Millennium Partners carried the industry through the early 1990's. No one could build because there was no money, but a team was assembled and a mixed-use project was conceived and designed.

The retail leases for Bames & Noble, Sony theaters and a Reebok Sports Club carried the project. Blocks of condominiums were pre-sold to JP Morgan and other partners, and all the consultants worked for a future pay day.

To date, there have been three successful Millennium Partners projects in the Lincoln Center area and an extended stay hotel, with others in the development pipeline.

Their success made General Electric look for a partner to figure out what to do with the old Paramount Building, which was last known as the Gulf & Western Building. The site had been developed over a rag-tag group of buildings that brought Beatle-maniacs to the door of Murray "The K" Kaufman and his employer, then the all-music WINS.

Trump convinced GE they would get more for a Trump-sponsored condo, and they did. The Trump Intemational Hotel and Tower is the "most successful condo" said Trump, achieving more than a $1,000 a foot sell-out when other new luxury buildings were getting half of that.

It also allowed Related to project more than that as the sell-out price for the new condos it will construct as part of the 21st Century Columbus Center project across the Circle.

There are still two West Side areas under construction that will change the face of the city for the next Millennium.

First, the approval and first two residential buildings at Trump Place, a/k/a Riverside South, and earlier Trump City, on the 74-acre West Side rail yards has kicked off a residential building boom in the area, with close to half a dozen other developers planning projects.

"I paid $300 million; bought the bank out for $82 million; and now the one condo has made $168 million net," said Trump. "That was a good deal."

He also managed to get it re-zoned "after 75 years of people trying," Trump said.

A rental building is full, another one is going up, and Trump has approvals for 14 more buildings, plus another 1.8 million square-foot commercial or residential project on the south end of the lot. There is also a 21-acre park partially completed.

Another development that will affect the 21st Century is Times Square's transformation in the 1990's from a notorious crime-infested red light-style district to a family entertainment mecca.

Conceived of decades earlier, the redevelopment of many blocks could not have happened without the intervention of government, said Studley. "It's the vision [by the people] and the officials that are not even recognized, that made it possible," he said.

Times Square needed money, time and patience, and the private developers "kept running away." But New York State officials and the institutional executives ready to tear down the old porn theaters and put up new office buildings thought all the new construction should have the same drab corporate look.

"The joy we have today is that the buildings are all different," said Studley. "They have lost the institutional look."

That's because many people in the government, local preservationists, Broadway theater world and others, such as Tama Starr, president of Artkraft Straus, the signage company that built most of the world renowned displays, fought to maintain the unique character of Times Square.

They won the passage of a zoning resolution that actually now requires the spectacular signage on area buildings that is so unusual that it brings millions of visitors in person each year, and millions of viewers to television screens each New Year's Eve to watch the lighted ball drop at the Crossroads of the World.

"The private developers fought the signage. Morgan Stanley thought it would destroy the value of their building," said Studley. It was only when the then owner of One Times Square, Jeffrey Katz of Sherwood Equities, recognized its value as a signage tower, installed numerous signs, and sold it to German investors for over $1,000 a foot that the investment community understood the value of Times Square signage.

"Life doesn't happen the way we plan,' said Studley.

Studley also praised the large subsidy - more than $30 million - provided by the city and state to Disney for the restoration of the New Amsterdam Theater. "The deal they made with Disney was heavily criticized. They gave them a really good deal, but that break helped everyone."

The residential development on 42nd Street and Ninth Avenue called Manhattan Plaza was originally built and programmed as a Mitchell Lama middle-income housing project.

It ran into a declining market and the government wanted to stop funding the job right in the middle of construction, said Daniel Rose, chairman of Rose Associates. "They called it 'a presumptive default.' Why keep building something where the market numbers won't work?"

Rose Associates had already been called in as the managing and leasing agents for the building.

"My younger brother Elihu was in charge of management at the time - we are all developers, managers and consultants," Rose continued. "Elihu said, 'We are renting and managing agents for a building they are stopping construction on? What are we going to do?'"

Daniel Rose came up with the idea of designating Manhattan Plaza as housing for the performing arts. He started "proselytizing it" and worked with Actors Equity and the Screen Actors Guild so their union members could become qualified for the units. Rose also argued the case before the City Planning Commission, where there was "violent opposition."

"Some were truly afraid that it wouldn't work," Rose explained. "It was an act of faith that the Planning Commission had in our ability to carry it off." They would be using the Federal Section 8, typically reserved for the lowest income level, to qualify apartment applicants and it incited fear in the neighborhood.

"People feared it would become a massive destructive dumping ground for the ultra poor right in the heart of Manhattan and it would be nightmarish," Rose said.

"My argument was that by having a professional group of actors, theatrical people and connected musicians - all union members - variety artists and so forth, it would show they were not dysfunctional poor," Rose said. "They could qualify as middle class psyches" but would probably have no income.

"And I think it's fair to say," said Rose, "that Manhattan Plaza housing for the performing arts has been a huge boon to the theatrical industry in New York City."

The gentrifying of Times Square was also given a huge boost several blocks to the north when the Zeckendorfs bought out several porn theaters along Eighth Avenue and built Worldwide Plaza.

They enticed the prestigious white shoe law firm Cravath Swain & Moore to move in, thus paving the way in the 1990's for Proskauer Rose, Bertlesman and Morgan Stanley to take a chance on other empty new buildings in the upper portion of the Times Square Bow Tie.

"Worldwide Plaza really changed the whole West Side," said Levy.

The success of the Worldwide Plaza residential and commercial portions, and the activity around Times Square, most recently led the way to the development of Harry Macklowe's Longacre and the Resnicks' Gershwin rentals just across 50th Street.

Those buildings, and Related's upcoming Bertlesman Building at 56th Street and Columbus Center at Columbus Circle, have also benefitted from the creation of Lincoln Center.

"Rockefeller gave the original grants for Lincoln Center," said Studley. "It's really interesting what a great eye they had for property."

But for the best deal of all, Peggy Carnegie, senior vice president of Simon Rudd Associates, nominated quite a different kind of transaction. "It was Leona marrying Harry," she said of 20th Century real estate's First Couple.