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55 Water Street deal is done.

The purchase of the 3.6 million square foot 55 Water Street was completed by the Retirement Systems of Alabama last Tuesday. In an unusually worked deal for New York City brokers, Jones Lang Wootton has been named property and leasing managers and will also oversee renovations.

Around 87 percent of the outstanding stock was tendered to the fund in a complex transaction arranged by the bondholders committee overseeing the disposition of the former Olympia & York property.

The pension fund already owned 20 percent of the building at a cost of about $90 million and paid another $100 million for the 68 percent they did not own, along with another $19 million for preferred stock. A corporate entity called New Water Street Corp. was formed and the fund will be the majority shareholder. The building is owned free of debt.

Thomas Milne, assistant director of fixed income for the pension fund, said in terms of value, 'For our books, it's uncertain how we will handle it.' An appraisal will be made this year.

'This is an entrance for us into the market and will be the core of a portfolio that will be expanded over time if other opportunities come up,' he said. The fund had avoided real estate equity interests - other than in this building and-a few in Birmingham, Alabama by lending to single tenanted buildings where the lease ran longer than the obligation. "We avoided the equity but made some mortgage type investments," Milne explained.

Milne said there is about $70 million in cash on hand to begin renovation work at 55 Water Street. They expect to spend $70 million on asbestos removal alone over the long-term. Other items on the immediate punch-list are elevator renovation and a full sprinklerization of the entire building.

The pension fund is negotiating with Kohn Pedersen Fox to take a longer term look at the property with an eye on plaza, lobby and concourse renovations and reconfigurations.

They will also be looking at the on-site underground garage to decide if it is to be closed to the public, and should it be opened to tenant's visitors. "It will depend on whether they want security or an amenity for visitors."

Unlike most owners, Milne said they will "attack" any asbestos they can get to now, rather than waiting for a deal to be signed with a new tenant. In current tenant areas, the new owners will offer to remove it, but if the tenant wants to be left alone, it won't be touched until the tenant asks for it, undergoes a renovation or moves out.

According to Barry M. Nealon, managing director of JLW's Project Management Services division, the asbestos was common on all the tenant checklists. JLW will act as both leasing agent and managing agent and will be coordinating the project management of the renovation work. "We have a fairly extensive role," he acknowledged.

JLW was acting as advisors on the disposition of 55 Water Street and Milne said they became very impressed with their personnel. Since they are "somewhat outsiders" in the leasing activity of Downtown Manhattan, Milne said JLW would work very hard for the building. "We think they are doing an excellent job," he added.

The deal that was cut with JLW is also unusual in the New York City marketplace, but could be the start of a trend. "We didn't like the idea of an asset manager and a leasing manager accepting full commission and an override," Milne explained. "It's hard to get comfort that we are getting an honest opinion," he added, when the person bringing in the tenant was also advising them whether or not to take the tenant. "It didn't make sense to us. Why would we ever do that?"

So JLW will not receive a commission on leasing deals, other than 50 percent going to its own agent if that agent brings in the tenant.

Agents from other companies will get their full commission based on a standard schedule, Milne added.

Milne said some of the large tenants on the market, including Lehman Bros., had come to them months ago but did not believe the Retirement Systems renovation work would be undertaken or that the 'time frame would fit their schedules. Milne added that Lehman Bros., reported to be looking for 700,000 square feet, had wanted to sign a deal by July, and was already behind their own schedule.

Dr. David Bronner, director of the pension fund, is a "real personality," observed Nealon, and a big Alabama booster.

Bronner was intimately involved in the Mereedes Benz decision to locate its new plant in that state and together with the governor, is wooing Burt Reynolds to make his next film there. Milne said the pension fund had offered to help fund the Mercedes Benz factory.

The Retirement Systems of Alabama has approximately $12 billion in assets and 225,000 members.

Nealon said, "They have the entrepreneurial spirit that the building needs. David Bronner's style is to show them what he does, not what he says he will do. He wants to invest ahead of the market."

"We're going to go in and start doing it and when the market turns we will have a building that is ready," Milne agreed. "We will have a clean building with amenities that can be offered to the market."

With a 40 percent vacancy factor, Nealon said they want to talk to any substantial tenant, but a leasing campaign as such, is unlikely to be launched until they have plans for the building.

"First, we have to get to know our tenants well and get to know the building well," said Nealon. "We have to do a due diligence period and convert that to a plan for the building. The driving force behind this is to create a working environment that is healthy and happy."

The building will probably qualify for industrial and commercial incentive program (ICIP) real estate tax abatement benefits for renovation work. Pottish & Freyberg has been hired to handle tax certiorari claims. Partner Joel R. Marcus had been counsel to the owners of One New York Plaza in its successful suit against the city based on the asbestos in that structure.

Nealon did not think it likely that the name of the property would be changed. Chemical Bank, which has about a third of the space, has a restriction in its lease that gives them some say in the matter.
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Title Annotation:Retirement Systems of Alabama acquires commercial building in New York, New York
Author:Weiss, Lois
Publication:Real Estate Weekly
Date:Oct 13, 1993
Words:1076
Previous Article:Security lawsuit prevention is BOMA topic.
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