Stifled by corporate cage, Mendik flies from Vornado.

It took less time for Bernard H. Mendik to join and free himself from the cage of corporate structure than it did to lobby and pass the law to get him there. That's one of the ironies of his decision to no longer work for Steve Roth's Vornado or lead its Mendik Realty Division.

"I have nothing but the highest regard for Steve Roth and Michael Fascitelli, and I got along with them great," Mendik declared in a telephone interview last week, describing his relationship with Vornado's chairman and president respectively. "But that corporate structure is not for me. I feel stifled."

It was the multi-layered corporate decision-making structure of the public real estate investment trust that finally got to Mendik, who has been a major metropolitan real estate owner and developer for the last 40 years.

"Being an entrepreneur and being the head of a company - it's very hard for me not to sit there and make the last decision," he explained.

But as he says, his timing was "impeccable."

In the 1990's, when there were no loans available for even tenant improvements, and private owners of real estate became illiquid, Mendik started researching how to take advantage of the capital markets by organizing his portfolio of major office buildings into a real estate investment trust or REIT, which could be traded as stock on Wall Street.

As chairman of the Real Estate Board of New York (REBNY), he and the organization lobbied successfully to eliminate the onerous "Cuomo" tax on capital gains that took ten cents on each dollar, and obtained the passage of state legislation that reduced the 3 percent transfer taxes on properties that were merely being exchanged for stock and not cash.

Without the legal changes, a transfer of properties to a REIT structure would have created a 13 percent "transaction expense.' When investment bankers Merrill Lynch surveyed the then $125 billion REIT industry, they found the industry's average transaction cost for converting to a REIT was a mere .33 percent, which became a selling point for the politicians who were struggling to bring business to the city's ailing economy.

REBNY President Steven Spinola said they explained to the lawmakers - then Mayor David Dinkins and Governor George Pataki - that they were really not selling property or buying stock, and just transferring holdings from one entity to another. "Don't have a disincentive to investments by REITs," he recalled they told the political leaders. Two years ago, the statutes were passed.

Mendik and David Greenbaum, who has been president of the Mendik companies for he last eight years, began preparing for the Mendik Company public registration statement in September 1996, organizing each of the building partnerships through the roll-up process. When the Mendik offering was imminent in January of 1997, Steven Roth, Vornado's chairman, hired Fascitelli, a well-known real estate deal-maker and an old friend of Greenbaum, away from Goldman Sachs.

Within days they were meeting to discuss combining the portfolios into a multi-billion dollar debt-free company, shaking hands the deal on Tuesday, January 20, 1997.

"My timing was impeccable," said Mendik. "I protected my back end, and the company has prospered a lot faster than if I had done it myself. It's tripled in size."

Mendik's holdings eligible for the REIT included about 4 million square feet in seven Midtown properties: Two Penn Plaza, 11 Penn Plaza, Two Park Avenue, 330 Madison Avenue, 909 Third Avenue, 1740 Broadway and 866 U.N. Plaza.

These were for the most part contributed to the so-called Umbrella Partnership that was created when Vornado converted to an UPREIT status, essentially layering a holding company over the REIT. The Mendik management and leasing business, as well as its personnel, also joined Vornado.

At the time, Vornado paid Mendik and his partners about $269 million in cash, $168 million in privately placed Vornado UPREIT limited partnership units, and took on $217 million in indebtedness then held on the properties.

Although giving up personal control of his properties, Mendik became co-chairman of the board of Trustees of Vornado and was involved in the deal-making.

By the end of 1997, according to information from the National Association of Real Estate Investment Trusts (NAREIT), the Vornado Realty Trust owned more than 22.9 million square feet of property, of which about 8.3 million square feet was office, with the rest in strip centers, regional malls, industrial and other properties. They now own 30 percent of the refrigerated warehouses in the United States, and this year, purchased the Chicago Merchandise Mart.

Through the past two years, the powerful Vornado was a probable bidder on most important offerings. They purchased other city portfolios and office buildings, adding portions of the Riese restaurant portfolio, a 40 percent interest in the Hotel Pennsylvania, several other properties in the Penn Station area, 640 Fifth Avenue, a piece of 825 Seventh Avenue, the nearly million square-foot 770 Broadway from the Helmsley portfolio, and 40 Fulton Street.

Vornado, the company created out of the former Two Guys retail holdings, also owns the Alexander's site at 59th Street and Lexington Avenue, which is finally being demolished and has been a source of speculation and head-shaking over lost opportunities for several years.

For the last six months, however, as the office market sales took on a frenzied pace, Mendik said he began thinking about leaving, and doing some deals himself.

"The public scrutiny is very difficult, and every decision is made with the whole world looking to see what we do," Mendik noted of the REIT. "The stock goes up and down and has nothing to with what decisions are made. It's a very different world from the world of an entrepreneur."

He realizes that a lot of people who have stuck with him are "disappointed," and if the economy weakens, it might be a good time for him to be around - but he is retaining his office and will be there if needed.

"I don't know if we're going into a recession, but it's not a boom time, and then you need management to watch the properties," he said, thinking out loud.

Mendik Realty President David Greenbaum now becomes Chief Executive Officer of Vornado, taking on an additional title that had been held by Roth. He is among those wistful over Mendik's decision. A tax lawyer involved in structuring financings and joint ventures, he became outside counsel in 1977, joining Mendik in 1982, and was appointed president in 1990.

"Bernie and I have obviously been together a very long period of time, and he has been my mentor for over 20 years," Greenbaum said. "The integrity, the judgment, the entrepreneurial skills which he taught everyone in the industry - I had the great fortune of not seeing him sporadically, but the extraordinary fortune of working with him on a day-to-day basis over a 20 year-period."

During the last few months, Mendik's own path became clear. The corporate structure was restraining his intuitive passion for deal-making. He was antsy and wanted to do deals again - buy, sell, trade and basically "just do it."

He spoke with Roth, telling him he was thinking of resigning about week before the Insignia/ESG State of the Market breakfast on October 6th. Roth, an original investor in that company, was the featured speaker, and both Mendik and Greenbaum were among the many industry leaders who attended.

"He knew I was thinking about it then," said Mendik. After ribbing Mendik from the podium, we watched as their eyes met across the room, and Roth declared, "I love you, Bernie."

Vornado issued Mendik's resignation after the stock market closed on October 13th.

"I'm one of the largest stockholders and I can't think of anywhere else I want to put my money," Mendik emphasized. "All I wish them is to prosper. I'm going to keep my eye on them."

While he doesn't have immediate plans, deal-making will be a focus.

Since 1957, Mendik has been involved as a principal in more than 30 acquisitions of major office and residential properties which included, aside from the buildings, the acquisition of the MacArthur portfolio that encompassed 45 buildings, along with Lincoln Towers, the GE Building at 575 Lexington, and 1740 Broadway, and others in Darien, CT; Ridgeway, South Carolina; Lodi, New Jersey; Scarsdale: Mamaroneck; and Norfolk Medical Center.

Vornado, under the terms of an agreement with the partners of Mendik Real Estate Limited Partnership, approved last week by a state court but appealable until November 6th, expects to now purchase the Saxon Woods Corporate Center in Harrison; the remaining 60 percent interest Vornado does not own in Two Park Avenue; and the 675,000 square-foot office building at 330 West 34th Street, for an aggregate purchase price of $139 million, including debt of $39 million it will assume on Two Park. Initially some of Mendik's investment partners did not want to transfer their holdings to a REIT, and the agreement ties up another loose end.

Mendik has also now given up his name, which is the company name that Vornado will continue to use to operate its New York City office business, and so will have to think of a new one.

While his non-compete clauses "run out in good time," Mendik doesn't think Vornado would stop him from doing something that wasn't competitive.

"I don't think anyone is buying anything for six months or so anyway," he observed. "The one thing we've learned is that the cycles come with repetition, with suddenness and with a huge impact. We are affected by forces that are beyond New York City. For this downside, we don't have a big stock of empty buildings, there is no surplus, and there are good tenants out there looking, and although there is a great deal of dominance by Wall Street, it's not the only business in New York. We have a great administration and hopefully, we'll be through this, and maybe we'll get another mayor with this philosophy," he added, thinking ahead to next year when Mayor Rudolph Giuliani cannot run again.

Along with his work with the Real Estate Board, Mendik is active in dozens of charities and civic associations that are focused on New York City and real estate issues. Mayor Rudolph Giuliani has appointed Mendik to several advisory posts, and conferred upon him the Fiorello H. LaGuardia Award for Civic Achievement in 1996.

Mendik was recently appointed chairman of the Grand Central Partnership and is a Trustee of the Realty Advisory Board, the Realty Foundation, the Fifth Avenue Association, and the 34th Street Business Improvement District. He is a director of the Downtown-Lower Manhattan Association, and a partner of the New York City Partnership. He was recently appointed to the board of New York University Medical School, and is a trustee of the Montefiore Medical Center, the Bronx High School of Science Foundation and the City College Fund. An attorney, he is a trustee of another of his alma maters, New York Law School, and plans to help with its current expansion. He will be speaking on "Reminiscences in Real Estate" as part of its City Law breakfast series there on January 22nd.

Perhaps it's somewhat karmic that Mendik is departing the world of REITs that he helped bring into New York at a similar time of dried up capital, during a season when not even REITs can raise money.

The REIT provisions that Mendik helped bring about also sunset on September 1, 1999, and REBNY is gearing up to see that they are extended, and is focusing on reducing transfer taxes overall.

REBNY President Spinola says as the second largest shareholder of Vornado, Mendik will remain "a triple A owner," and the board of governors has already asked him to continue as chairman through 1999.

"But now he's going to be looking around for his next accomplishment," said Spinola. "In the end, he probably made a smart decision [to join Vornado], and he's probably making another one now."