Gov.'s Island plans discussed.

It isn't often that a 175-acre parcel of land comes up for grabs in the middle of New York Harbor, but that is what will happen when the Coast Guard officially leaves Governor's Island at the end of 1996 and hands the keys to the General Services Administration.

Bills pending in Congress would allow the island's de-acquisition to be expedited, jumping over mandatory steps that require it to be offered to the city for a jail, dump, sewer treatment plant or other such municipal use, and after that to homeless advocacy groups for housing.

Assuming those steps are skipped, the city and state of New York would then get to squabble over the fate of Governor's Island or arrange for its sale to a private developer. Those investors, real estate sources say, are already lining up behind the scenes for their chance to play with the newest toy on the block, and hoping the price is right.

For budgeting purposes, the U.S. Government has assigned a minimum of $500 million as the price for the island that contains 225 buildings, including a PX, housing for 4,000, a school, piers and other infrastructure, along with a 9-hole golf course that also acts as a parade ground.

Real estate industry executives agreed that while the island would make a luxurious retreat for the wealthy, its lack of convenient transportation might inhibit such use. As Richard LeFrak, president of the LeFrak Organization put it, "It's a lot of romance but a long walk to Chanel. If your client is the Bergdorf Goodman crowd, are they going to want to live out there and wait for the ferry in the dead of winter in their evening gowns?"

Most pointed to possible use as a destination entertainment area and not surprisingly, after its current dedication to New York, the Disney name surfaced several times. Other suggestions included casinos, themed entertainment and retail, a Roosevelt Island type middle-class development utilizing existing housing structures, and a hotel, convention and conference center.

The most sensible way to develop it, several people agreed, would be for the city and state to form a Battery City-like authority to create a master plan that would allow any housing or retail plans to help support publicly accessible park areas.

James Mazzarella a spokesperson for Rep. Susan Molinari of Staten Island and parts of Brooklyn, said the Congresswoman sits on House Transportation Committee. The Coast Guard had notified them they were leaving Governor's Island so the Committee, for accounting procedures, voted to see the land would get a "minimum" of $500 million.

"It really has no bearing on what the fair market value would be," admitted Mazzarella. "The Committee was going to expedite it by selling [directly] to developers and the Congresswoman felt it was very important that the City and State have the right of first refusal for the property."

The sale will still be expedited, but will skip what are known as the McKinney steps - after Connecticut's Stuart B. McKinney. That bill allows the homeless to have a chance to obtain housing in decommissioned government buildings.

Mazzarella said the Congresswoman felt community involvement in what becomes of the Island is critical. "There will be a process developed for the development of the land," he said. "The General Services Administration will still determine the fair market value and the actual plan, and if the city and state choose to compete against each other, that is their right."

The cost of the Island is worrying H. Claude Shostal, president of the Regional Plan Association, who wondered why the government has merely handed over the keys to military bases to other municipalities around the country but is expecting to sell this one.

"I don't understand why the State and City of New York are being extorted here," wondered Shostal. "They have the capacity to turn it over."

Shostal also believes there needs to be a thorough planning process. "This is a onetime event to do the right thing," he said. "It's a Central Park type of thing. Never again will we have this kind of [opportunity] that could enrich the region enormously, and to just see it squandered by the thought of generating some short-term money for the Federal government [is appalling.]"

The Regional Plan Association would like to be involved in the planning for the Island, but Shostal noted that unless they are funded by a grant, they do not have the resources available to launch a major land study of the Island.

Several people worried that greed would take over the planning process and the various governments would want so much money for the land that any development there would be doomed to failure. They pointed to the Coliseum at Columbus Circle, where a high land price necessitated a building that became too large for the community, generating lawsuits and protests and a steady stream of down-scaling both in size and price. And today, the very same Coliseum is still sitting there; the developer, Boston Properties, is out over $100 million; and the government gained nothing.

Currently, the City carries the Governor's Island property with a real estate market value of $189 million, valued through the land assessment of $47,250,000 and a total assessed value of $85,150,000. But the property is currently fully exempt from paying real estate taxes that would otherwise total about $9.3 million a year. That number is expected to rise substantially the minute the property is sold and goes on the tax rolls, unless a prior arrangement can be made with government officials.

Marty Levine, senior vice president of Koeppel Tenet Real Estate Services in the appraisal division, said he wouldn't be surprised to see a government agency set up to do a master plan to have residential and commercial development and retain some parkland much in the way Battery Park is being developed.

The Giuliani administration has already set up a Task Force headed by Deputy Mayor Fran Reiter to keep watch over what becomes of the Island and work with members of Congress to see what kind of legislation is in the best interest of the City.

John Melia, a spokesperson for the New York State Empire State Economic Development Corp., said they will take a "keen interest" in the fate of Governor's Island. "Right now, the city and state have the right of a first refusal," he said. "Chairman [Charles] Gargano pointed out there are budget issues," Melia said, and those would inhibit the State's ability to purchase the coveted island outright.

Nevertheless, Melia said the agency would be hovering in order to fulfill its mission to create jobs and foster economic development. "The approach would be what is best for New York," added Melia.

The Corcoran Group's president, Barbara Corcoran, quipped that while she is a broker, her first thought was to wish Disney would buy Governor's island and establish it as a new theme landmark.

The access to all New Yorkers would become a political issue, she explained, if luxury housing was built, but a Disney park "would add excitement to the city."

LeFrak agreed, "It would be a wonderful place to make a park and a wonderful recreation opportunity. So maybe Disney will come there and build Disney part III."

Actually, Governor's Island has come up in conversations around the Disney company, admitted Michael Johnson, a spokesperson from the California headquarters. But creating any Disney park is not something they take lightly. "There is a formula and an approach and something we have to do without a lot of scrutiny [from the public]," he explained. "The Governor's Island question has come up before."

Shedding his official mantle, Melia agreed, "If anyone could develop it, it would be Disney. Water taxis going from the Battery and Brooklyn. It would be pretty cool."

The land costs would just be too high for a theme park, Levine explained, noting that most are created far from cities where land costs are cheap. "There is no way of ball-parking what it is worth because it is so unique," he said. "The only way to value it is to have a master plan and do a development approach."

Political savvy and development credentials will be important for any potential investors, said Cushman and Wakefield's William Shanahan, director of financial services for the commercial brokerage, who coincidentally just returned from a family trip to Disney World. "To whoever sells it, the state or the city, the investor's credentials will be very important in taking something on like this," he said.

Shanahan noted the key to any development will be the capital markets and whether the deal is done with equity or debt. Just the debt service on $500 million at 5 percent would be $25 million, Shanahan explained, and at 8 percent, a more realistic figure, the carry would come to $40 million a year before anything is constructed and before paying real estate taxes.

"Just the reaction in the capital market would drive this deal," he said. "It's a once-in-a-career opportunity for an investor and anybody who has deep access to the capital markets is going to be very interested, especially if they have the expertise to pull off a large scale development."

But the price will be a major obstacle, Shanahan believes. "If you get free reign to do whatever you want, it will increase the value," he said. "But if the State or City get involved, what will they want for that pound of flesh?"

Levine said the closest comparables would be to the 74-acre Penn Yards site where Donald Trump is developing Riverside South; the 77-acre Davids Island, where Trump hopes to develop luxury mansions but there is no infrastructure; Roosevelt Island, which had a bridge and other public access; and Battery Park City.

One good point for Governor's Island is that docking facilities are already in place both on the island as well as in Manhattan. "Getting the Army Corps of Engineers permission to build along a shoreline is next to impossible," said Levine. "Here, you already have the docking facilities."

Those facilities would also help with construction, said Michael J. Minella, senior vice president Tishman Construction. "We do a number of projects in and around the water and by ferry terminals," he said. "Water just gives you another opportunity to build or use another methodology for supplies."

In fact, he explained, barges are generally cheap transportation and many steel facilities are near water and barges, so there might actually be economies in building on the island. The docking facilities would also provide staging areas for the construction supplies, something that is hard to arrange for in the middle of cities.

"The renovations at the Statue of Liberty and Ellis Island were done with a lot of water type transportation," Minella added.

Commercial broker Debrah Lee Charatan is captivated by the Island's vistas and beauty. "Private houses would be a great idea," she said. "I could see people with their boats there."

Boats were also on Century 21's new CEO, Robert Pittman's mind. When the former head of the MTV networks and Six Flags Great Adventure Theme Parks was asked if Century 21 would now develop homes on Governor's Island, Pittman said, "It sounds like a good idea. We can have a marina down there... and a theme park."

As a New Yorker, Minella said he too would think of Governor's Island in terms of residential, entertainment, and hotels. Since there has been an increase in ferry operations around the city, the Island could also become another stop.

A conference center could also work, he thought. "Getting away inside the city is a positive aspect of the site," said Minella. "I'd hate to see the golf course torn up. I'd like to see the features augmented and retained as unusual things in the City."