Schrager outlines plans for Henry Hudson Hotel.

The redevelopment by hotelier Ian Schrager of the Henry Hudson Hotel has all the trappings for a deal of the year contender: four different office condos, an auction, two options to purchase, re-sales, leases, relocations, student housing, rent stabilized hotel tenants, and redevelopment.

These are the kinds of transactions that take time, thought, persistence and creativity.

While Schrager and his architect Phillipe Starck begin to assault the grime and guts of the brick lady for a sleek update and repositioning as an inexpensive and trim urban fitness spa for business travelers, it's the last year of wheeling and dealing that is notable for the real estate industry.

Through the diligence of city brokers, two not-for-profits, the original owner and Schrager, there will soon be a new life for the West Side behemoth of 475,000 square feet and 1,000 keys located on 58th Street near Ninth Avenue.

It was originally activated into its 1928 ladylike existence by GPA Morgan's daughter, Sarah, and the Guggenheim family. The building was created as a safe and proper place to house the newly emerging independent American woman, and was dubbed the American Women's Association Clubhouse. Designed by architect William Morris, he ensured it had a huge swimming pool and gymnasium in the basement, which is now a basketball court.

There were also meeting rooms, an auditorium and dining facilities, most of which have been used for the current D'Agostino's space along 57th Street.

During World War II, the property was taken over as a military barracks, and when the United Nations was founded, its temporary offices were located here until its East Side home was constructed.

But the building fell into hard times and was taken back by Met Life, who sold it to Irving Schatz. "He always envisioned the building as health and education," said Philip R. Weiss, the managing director of Insignia/Edward S. Gordon who represented Channel 13/WNET in this transaction.

Schatz partially converted the building into office space that was leased to Channel 13. They began in 1973 with about 70,000 square feet in the base of the building and later grew to occupy 240,000 square feet. Schatz continued to operate the top as a hotel until St. Luke's Hospital signed a lease for the tower.

As the city's property taxes increased and escalation clauses were mounting the tenants' lease payments, Schatz worked with the non-profits to convert the building into an office condominium. That got them out of paying real estate taxes and effectively reduced their occupancy costs, while Schatz was able to obtain the net present value of the building.

St. Luke's controlled the upper hotel portion and had originally used it for nurses' housing and medical facilities, although there were SRO hotel tenants and students in many of those rooms. As the medical market changed, the hospital realized the facility was outdated and was no longer needed.

Part was rented to Educational Housing Services (EHS) for local college dormitory space. In 1995, EHS chief George Scott said 340 of the 507 apartments were occupied by college students, some of whom are still in place but will vacate by the end of the school year.

St. Luke's hired Julian J. Studley Senior Managing Director Mark Teitelbaum, Vice Chairman Don Schnabel and Managing Director Michael Gargano to market the hospital's condominium interest.

"We had gone to Channel 13, but the timing was not right for them," recalled Teitelbaum last week. "We went out to the marketplace and marketed the condo interest in a C-class hotel, subject to two rights of first refusal."

Channel 13 had the right to match the offer first, and if they did not exercise it, Irving Schatz had another right of refusal.

"We had our hands full," said Teitelbaum. "The condo was run down and there were 155 SRO tenants. But we found out that once everything was conveyed in a clean manner, we had a great deal of interest and had a bidding war that ended in a sealed bid auction."

With about 15 groups vying for ownership, a hotel group from overseas that does have a presence in the city and knew they had the risk of being "sideswiped" nevertheless took their chances and signed a contract for $24.3 million.

"If we hadn't put it to Channel 13 this might have dragged on," said Teitelbaum. "It was a poker game and we put it to them." So they turned to Channel 13 and said, "Your move."

"Once we sold our piece, Channel 13 was forced to step up to the plate or really get hurt," said Teitelbaum. While the first right went to Channel 13, Schatz also ended up making a deal with the station.

Meanwhile, aware of the St. Luke's marketing, Channel 13 had hired Weiss of Insignia/ESG to pull the site together.

Weiss and his team worked with Channel 13 to determine whether they should stay in the building, or move and sell the condo they owned.

"I recognized the whole was worth more than the parts," he said.

Weiss pitched most of the city's hotel elite, but just as Goldilocks had trouble finding the perfect fit for her food, chair and bed, the various hoteliers worried the building was too big or too much work. Most also wanted just the top 200 to 500 rooms and the Hudson River views.

But Schrager saw the building for what it was - a simple place to sleep and workout.

"This seemed like Schrager's type of property because the Paramount and others were of the same design and age, and he had had similar problems with SROs," said Weiss. "By convincing Schrager we could deliver the entire property, he expressed an interest."

Through the summer, Schrager and WNET developed a structure whereby they would exercise their right and deliver the top of the building to him. WNET then exercised its option and flipped the building to Schrager.

"The building was divided into four separate condos and we had to make arrangements with Channel 13, St. Luke's Hospital and Irving Schatz," said Schrager.

Schrager purchased the entire building in a deal he says worked out to about $50 million. He partnered with Ed Scheetz and David Hammamoto's Northstar investment fund, which is a venture through UBS Securities.

Schatz retains the retail portion of the ground along West 57th Street where D'Agostino's is still located, and two other floors, the 10th and a penthouse. As part of his agreement with Schatz, Schrager will rent the 10th floor, which was a buffer floor between the two condos. Schatz uses the penthouse for his own offices when he is not in Florida.

Channel 13, meanwhile, in a deal brokered by Weiss, last week signed a deal for space at the John Hancock Building at 450 West 33rd Street, where the Daily News moved last year. It will be taking 192,000 square feet in a 21-year deal and plans to update its equipment to new digital systems. While it garnered $10 million in profit on its condo sale, expect more fund-raisers, as it will need another $10 million to purchase the needed technology.

Although it would make sense for the nonprofit not to pay city real estate taxes, the building is completely owned by John Hancock, and a possible change to ownership via an office condo "has not been determined."

Its still current home at the Henry Hudson Hotel is located at 356 West 58th Street, just down the street from Columbus Circle, where the Coliseum is about to be developed and Donald Trump has added new cachet to the left side of Central Park.

Millennium Partners has redeveloped the nearby Lincoln Center area into a hip but chic film, music and book arts center, while the Brodskys have added to the residential mix with a bevy of recently-graduated young Wall Street employees who occupy One Columbus Place.

The city is also working to redevelop the area's Hudson River piers and turn a concrete truck parking site into an oasis as part of the Hudson River Park Conservancy and Route 9A projects.

"We saw that pushing east and the Coliseum moving west and we seem to be right in the middle," said Schrager.

Now, he is trying to "get his arms around the deal," and will be working with architect Philippe Starck to transform the old biddy into a hip, sleek enclave for artsy, but fit, visitors.

Renovations will be made around the expiring leases of the students, and deals will be cut where possible with the SRO tenants.

While the Nike store across 57th Street was inspired by the classic old public school, Schrager is inspired by the idea of a classy YMCA.

"It was originally run like a woman's YMCA," he notes, with some satisfaction.

This hotel won't become wall-to-wall beds like a hospital ward or an old dorm, nor is it envisioned as an upscale youth hostel either.

When it opens in a year or so, the Henry Hudson should appeal to the music industry crowd and top athletes for its basketball court as much as the Malibu and Hollywood folks will enjoy the pool. Schrager plans to devote most of what would become another hotel's meeting rooms and public space into an urban spa and fitness center, adding squash courts and the latest in fitness equipment.

And every room will have its private bathroom, as well as today's usual business tools like phones and faxes to the max.

Rather than the $150 and up prices for his other city hotels, Schrager plans to charge somewhere between $75 and $125 a night.

"It is intended to be a luxury hotel, but at affordable prices," he said. "It will be like an urban spa, but we want it to be less expensive. It will be simple, but hopefully luxurious and glamorous, functional and accessible, and never before seen."

Eventually, it may compete for its fitness theme with the 1,000-room sports hotel that is being repositioned out of the former Hotel Pennsylvania. And while that is being themed to attract the Madison Square Garden crowd and the interest in athletes as stars, the fitness emphasis there is expected to be on the visitor's credit card and not their bodies, with a decor of sports pictures and equipment.

At the Henry Hudson, however, "It will be very stylized and original and fresh, and [you will] have a less expensive room on top of extensive fitness facilities, so you don't have to leave your physical regime behind," Schrager said.

Weiss notes, "His people are smart, bright, aggressive - and very busy."

The hotelier is keeping urban minimalist designer Starck, whose first baby is just five months old, working on other building projects. He is now updating the original cheap chic design at the Paramount in Times Square. They are installing lots of high-tech equipment and creating a multi-media nightclub in that building's Billy Rose's Diamond Horseshoe, which will open next year. Pino Luongo has already opened Coco Pazzo Teatro there.

The Murray Hill-situated Morgans has reopened on Madison Avenue after a soft-goods lift; the 44th Street Royalton retains its city writer cache; South Beach's Delano has already become the hippest destination hotel in Florida; and Schrager is completing a deal for the nearby DiLido and its Venetian gondola logo.

There are also three hotel conversion in London underway and another in San Francisco.

With the addition of the huge Henry Hudson to his stable, Schrager will double the size of his holdings. He expects to keep its name, as he has with his other ventures, although a fitness through sailing experience or tie-in with a marina has not been contemplated so far.

But while the other New York City hotels are Midtown with few glamorous views, the Henry Hudson provides a dazzling outdoor palate full of sunrises, sunsets and watery views of its namesake river.

"There are many, many roofs and 360 degree views of New York," said Schrager, who admits to dreams of rooftop restaurants. "It's a very sexy building with an incredible amount of potential, and we love the location."