S.L. Green triples building's value.

When S.L. Green Real Estate took over the management and leasing of 145 West 45th Street from a Receiver in January of 1994, the downtrodden commercial office building had an estimated value of approximately $1.5 million or $17 per square foot.

"That's what we were being offered at the time, and there weren't too many prospective buyers even at that price," admits a senior officer of Greater West 45th Street Corp., a subsidiary of a metropolitan New York savings bank.

On March 23, 1995, approximately 14 months later, a local New York investor acquired 145 West 45th Street for $5.1 million. Both buyer and seller agreed that the purchase price of approximately $60 per square foot represented the fair market value of the property.

How did S.L. Green Real Estate revamp a building that was in total disarray and triple the asset's value in such a brief period of time?

Stephen L. Green, chairman of S.L. Green Real Estate, notes that "a project with the amount of critical problems that 145 West 45th Street encompassed had to be dealt with creatively yet rapidly."

That type of challenge is nothing new to S.L. Green, which has consistently maximized the value of languishing office buildings all over Manhattan, including most recently 432 Park Avenue South and 417 Fifth Avenue. In the case of 145 West 45th Street, it was instructed by ownership that the building was to be sold within one year, and therefore maximum value had to be created as quickly as possible.

145 West 45th Street, a building that has long catered to the jewelry manufacturing trade, was in desperate need of a complete rejuvenation and repositioning in the marketplace. Through its marketing, leasing and management efforts, S.L. Green turned this tainted jewelry building into a hub for general office users while simultaneously maintaining credit-worthy jewelers as tenants. To accomplish this, S.L. Green created an intensive and elaborate renovation program aimed at marketing the property to prospective office tenants.

The first step was to stabilize the existing tenant base. Gary Green, the building's leasing agent and vice president at S.L. Green, met with the existing tenants to reinforce that S.L. Green was there to assist them.

"To successfully begin the process of maximizing the property's value, we felt that personal contact with each tenant was necessary regardless of their size. I had to persuade each one that there would be a vast improvement in services," he said.

Tenants were skeptical at first, but 30,000 square feet comprising 22 lease renewals were negotiated within six months. Green felt that the tenants "were finally convinced that the services and the quality of this office building had been elevated to acceptable standards."

Addressing another issue, a number of tenants had illegal leases that exceeded the one year length of transaction that a court order had authorized the prior Receivership to make. All of these leases were written at rentals that were well below market value.

S.L. Green commenced legal proceedings to have these leases invalidated. These proceedings were successful, and 80 percent of the leases were then renegotiated to market rentals, which were two to three times the original rent levels. Additionally, tenants who occupied space without leases or without paying rents either signed leases, were sued, or were evicted. This was the final stage in "the clean-up process" at 145 West 45th Street.

At this juncture, it was time to initiate an aggressive marketing plan to attract new corporate users.

In October 1994, a breakfast was hosted at the building for over 100 commercial real estate brokers. The building's new position in the marketplace and funds available for work allowances and brokers' commissions were highlighted. The event proved to be a tremendous success. By March 1995, over 20,000 square feet of new leases had been signed. The vacancy rate at the building was lower than it had been in years and 145 West 45th Street was well on its-way to becoming a desirable location in Midtown Manhattan for the small space user.

An aggressive advertising strategy was not the only reason for the building's successful leasing campaign. The renovation and modernization of the property was equally important. The building's neglected physical condition was immediately addressed by S.L. Green's management division, which quickly targeted all corridors, elevators and facade for a complete upgrade. Corridors were painted and carpeted, elevator cabs were renovated, all vacant space was painted and the facade and roof were upgraded. The security system was also modernized and improved through the installation of cameras in the elevators and lobby.

Additionally, 145 West 45th Street experienced a substantial expense reduction thanks to S.L. Green's management team. Payroll was reduced by 20 percent, rubbish removal by 35 percent and plumbing expenses decreased by approximately 20 percent. In addition, electricity issues were clarified, which helped to generate additional income by accurately sub-metering tenants. "Objectively, we looked to reduce expenses as much as possible without reducing tenant services. We were successful," says Linda Lucerino, S.L. Green's Vice President of Building Operations.

However, even with expenses dropping and vacancies decreasing, there was still more to accomplish to enhance the value of this asset.

Violations had been neglected by prior management and needed to be immediately addressed in order to avoid future charges. Eleven of the twelve violations were cured within 12 months. Local Law 5 and legalization of the boiler and elevators were issues that were quickly resolved and violations were dismissed.

In January 1994, when S.L. Green first took over the property, the arrears had escalated to $886,000; by December of the same year under S.L. Green's legal strategy, they had been abated to $214,000. Three months later, a fully stabilized 145 West 45th Street - a building that had been successfully transformed into a desirable center for the small space user - sold for more than three times what it was worth just 14 months earlier.