Rock Center on market.

Board unanimously approved efforts to seek bids for its sale

One of city's most visible landmark properties is up for grabs, and the industry is buzzing with speculation on its eventual purchasers.

For Jerry Speyer, chairman of Tishman Speyer Properties and of Rockefeller Center Properties, Inc. Trust, the investment group that now owns the properties, the decision to sell was not his alone.

The investment group that took control of the property on July 17, 1996 includes Goldman Sachs' Whitehall Fund V which owns 50 percent; a David Rockefeller-led group that owns approximately 45 percent consisting of his entity, Prometheus Investors, LLC; the Agnelli family's Exor Group S.A.; Troutlet Investments Corporation controlled by Stavros Niarchos; two Tortola-based companies, Gribble Investments and Weevil Investments; and Rockprop, LLC consisting of Tishman Speyer and members of Chicago's Henry Crown & Company that own approximately 5 percent.

According to filings made with the SEC the investment group contracted with Tishman Speyer to manage the properties for a fee of 1.5 percent of gross revenues plus a one-half standard commission override. The initial agreement was for one three-year term with two successive one-year renewal periods.

The property could not be sold, however, prior to the third anniversary, without the consent of 75 percent of each of the Class A (four or fewer members selected by Whitehall having a total of four votes) and Class B directors (four members designated by the other investors).

After July 17, 1999, any investor could transfer their interest in the property if they met conditions that included offering their interest to the other non-selling parties, before offering it to the Whitehall Investors.

After that, the interest could be sold to a third party at a price no less than 95 percent of that offered to the investors and on terms no more favorable. The third party would also have to be approved by the other investors.

But Tishman Speyer could not transfer its interest before the fifth anniversary without the unanimous consent of the board.

According to sources, the board voted unanimously to seek bids for the sale of Rockefeller Center.

The dozen landmarked buildings comprise 7.4 million square feet on 12 acres in Midtown bounded by Fifth and Sixth Avenues, and running from 48th Street to 51st Streets.

NBC owns 1.6 million square feet, about 19 percent of the entire Center and primarily in 30 Rockefeller Plaza, which it purchased for $440 million at the same time the new investor group took over, and that portion is not for sale.

Buildings with approximate square footage include portions of the 2.8 million square-foot 30 Rockefeller Plaza that are not now owned by NBC; 610 Fifth Avenue, 130,000 square feet; 620 Fifth Avenue, 130,600 square feet; 1 Rockefeller Plaza, 550,000 square feet; 630 Rockefeller Plaza, 1.3 million square feet; 50 Rockefeller Plaza, 513,000 square feet; 1230 Avenue of the Americas, 710,000 square feet; 1270 Avenue of the Americas 461,000 square feet; 10 Rockefeller Plaza, 400,000 square feet; 600 Fifth Avenue, 675,000 square feet; and miscellaneous retail in the sunken plaza, subway concourse, and the new Citarella restaurant in the former Hurley's.

When the bankruptcy was filed by the two partnerships that controlled the Center; vacancy was at 12.8 percent. That quickly dropped as the bankruptcy filing made it impossible to sign leases. By the time the investors took over, vacancy had dropped to 26 percent and is now at 1 percent.

Since taking over the Center, many changes were made.

A new address was given to 20 Rockefeller Plaza, a 305,000 square-foot building created from former garage space and portions of another building and leased to Christies.

About 72 leases were signed, including J. Crew, Banana Republic and Sephora.

The Cipriannis took over the operation of the Rainbow Room; a lease to Madison Square Garden/Cablevision prompted the restoration of Radio City Music Hall; and new restaurants are open and getting decent reviews.

Capital improvement projects included the renovation of the retail concourse and the cleaning of ten of the historic buildings.

But other elements in the mechanical systems "need tender love and attention," say real estate sources.

The windows are landmarked and since they have not been replaced, they may not have the weather and sound protection desired by some of today's tenants. There are also ceiling heights and column configurations can't be changed, and might not be ideal for certain types of companies.

Goldman Sachs has been retained to explore a sale or possible recapitalization of the property and to evaluate alternatives and potential purchasers.

In 1994 there were gross revenues of $220.851 million. But operating expenses were $161.89 million and interest of $117.328 was paid to the REIT, so there was a loss of $58.367 million. The constant losses had been funded by Mitsubishi Estate and they eventually pulled the plug, forcing the bankruptcy filing of the two partnerships that owned the Center and were paying the REIT on its mortgage, along with other debt on zero coupon bonds, certain debentures and a loan from Goldman Sachs that the same investors say ensured the investment bank's fund remained in the current deal.

Former stockholders say if the REIT had taken over operations - and at one point they even had Jerry Speyer committed to manage the Center - it would have had a positive cash flow.

The current investment group reported 1999 income at $45.3 million to the SEC, others say the income stream is now approximately $140 million.

That means any buyer has to look long and hard. Earlier SEC filings showed approximately 3.8 million in leases expiring after 2001.

While this is now considered a stabilized asset, there is future upside on older leases that turned over around the time of the bankruptcy when the market was in the $30 range.

Leases now on top tower floors are fetching $70 a foot, real estate sources say.

Peter Hauspurg, chairman of Eastern Consolidated Properties, said, "Jerry has a terrific sense of timing and this is a time to take your assets off the table."

He does not believe this is an asset for a "value added guy going in," like Sam Zell, who lost the last time around to the current investors, but did walk away with an $11 million break up fee.

"These are spectacular assets for a consortium of pension funds," predicted Steven Siegel Chairman and CEO of Insignia/ESG. "They could provide sufficient equity to raise sufficient debt. The combination of the Center and its prominence in the world and the enhancements they have brought and the health of the city and the real estate market in general, makes it a spectacular asset."

Since any recapitalization or sale would be in the 2 to 3 billion range, there are only a limited number of buyers. Most of the city's real estate experts say it will require a consortium of buyers similar to those that own it now.

Woody Heller, who specializes in selling large buildings for Jones Lang LaSalle said, "I see it as being a deal involving a lot of marriages."

He said the Government of Singapore is still active, as are those from the Mideast. "This is so extraordinary and syndicatable," Heller added of the Center.

Larry Ackman of Ackman-Ziff Real Estate Group who finances properties, believes if the price bears anything to the cash flow they should be able to finance it with a single asset securitization.

"This time you will have tradable securities backed by mortgage, just like you had tradable shares backed by the Rockefeller Center REIT," he said. "One is a REIT that owns the mortgage and the other is a security backed by a mortgage."

Despite the perception that there is no financing, Ackman believes for this asset, it won't be a problem at all.

Goldman Sachs, for instance, could create another securitization or single asset REIT and sell shares in the stock market.

There is a consensus that German investors would be among those interested.

Jerry Speyer himself has a track record with the Germans, having constructed numerous large buildings in Germany. So while Germans are pulling back from making certain U.S. investments, his relationships and track record could override those concerns.

Speyer could also stay in the deal if a new consortium of pension funds decides to buy into the property.

David Rockefeller is likely to team up not with Speyer, with whom he has a high regard, but with Mortimer Zuckerman of Boston Properties. That company recently purchased the Embarcadero Center in San Francisco from Prudential and Rockefeller with stock, and he has been very impressed by their operations sources say.

Stocks or operating partnership units in a REIT such as Boston Properties could also keep current partners from worrying about certain tax issues, too.

Rockefeller also tends to invest with other members of the Trilateral Commission, a semi-secret economic group that includes Agnelli, Niarchos, all of the presidents at least since Jimmy Carter, and many high ranking government and banking officials from all over the world. He also introduces many of his favorites into that fold.

There is RGI, still owned by Mitsubishi, which owns some of and manages the West Side buildings. They have a familiarity with the "bricks and sticks" of Rockefeller Center, and sources say they are eager to also organize an investment group and return to managing the property.

One person concentrating on other deals is Donald 3. Trump, "It's a magnificent job, and Jerry has done a wonderful job on bringing it back to life."

A spokesperson for David Rockefeller said1 "It's Mr. Rockefeller's view that the buildings have been improved and have been enhanced, and the quality has increased of the buildings. He's very pleased at that. It's the top of the real estate market in New York and sensible to put it up to sell. He is adamantly interested in the quality of Rockefeller Center being maintained and it's fair to say that at this point, anyone purchasing it understands the jewel that it is, and would improve the quality."

One thing to watch out for: there's still a lawsuit alive in a Deleware courtroom, charging that REIT officials were aware of the deal to sell NBC its space, thus recapitalizing the Center with $440 million of its own money, and did not properly inform the shareholders.

Michael Donovan, a partner with Donovan Miller who is representing the shareholders, said, "A month ago a renewed motion to dismiss was argued and we're waiting for a decision. In connection with that motion, the defendants referred the court to testimony from an NBC official, Lawrence Rutkowski, in which he admitted there had been discussions concerning the transaction between Goldman Sachs and NBC before the shareholder vote, which discussions had never been revealed to the shareholders."

Additionally, Donovan said the sale agreement refers to the right of NBC to assume control of the systems in a letter dated Februrary 20th, 1995, which was well before the shareholder vote.

"They have an $800 million investment that is turning around to be $2.5 million," Donovan said.