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Big owner maintains quiet presence.

How can the second largest real estate company in the country maintain a low profile in New York and still rent out its available space?

By letting the brokers know the company is easy to work with, explained Joseph T. Wright, senior vice president of the Chicago-based JMB Realty Corporation responsible for the New York Tri-State region.

In Manhattan, Leasing Representative Steve P. Morrows is in charge of leasing for 900 Third Avenue, 40 Broad Street and helps out with 1211 Avenue of the Americas. The two spoke with REW in a 1211 conference room perched high over Sixth Avenue.

In the four years since JMB Realty purchased 1211, which is the former Celanese Building in Rockefeller Center, the company's profile has been so low, Wright joked, there isn't even a number on the building.

"I promise you by the end of the year there will be a monument outside with the number of the building," he said.

While there will be a plaque identifying it as a JMB Property, Wright added, "We're not looking to have our name everywhere."

That hasn't stopped major tenants from seeking out and renting the space that Celanese vacated. In an agreement welcomed by JMB soon after the building's purchase for $136.3 million, Celanese turned over 500,000 square feet. Of that, 325,000 square feet has already been re-rented at substantially increased rents and leases are out on the remainder.

"We increased the value of the building almost $150 million based on cash flow," Wright said. While he admits it was a chance thing, he said they did a lot of homework and were happy with the purchase based on the value from the original cash flow. "We got a terrific deal on this," he added.

JMB has assets nationwide. The company has had investments in New York City since it became partners with The William Kaufman Organization in 437 Madison Avenue and 767 Third Avenue some nine years ago.

It is also invested with Olympia & York in 1290 Avenue of the Americas, 245 Park Avenue and 237 Park Avenue. The Olympia & York properties are "very healthy," Wright said. Both Olympia & York and the Kaufman Organization are the managing partners of those buildings. "They are only in vestments for us," Wright explained.

Altogether, JMB is involved with roughly 12 million square feet in joint venture and single ownership combined in Manhattan.

The $26 billion firm, which includes nearly $ 10 billion in pension fund assets, was founded 26 years ago in Chicago by three childhood friends. At the time, they relied on syndication deals. Wright said JMB realized the government would sooner or later step in and put a stop to these deals because the benefits were far too great. With great foresight, he said the two remaining partners, Neil Bluhm and Judd Malkin, decided they would focus their attention on pension fund investments with basically no leverage.

Malkin is chief operating officer and runs the day-to-day business, Wright said, while Bluhm is out looking for deals.

Using its own capital and that of pension funds, JMB purchases property and acquires corporations that hold prime property. "We're looking for a cash-on-cash return," Wright said.

The company is very conscious of tax advantages and is creative in both its buying and selling, making it attractive to its investors.

"We structure our deals differently," Wright admitted cautiously.

As the company grew, it acquired the ownership and management of Los Angeles, Century City for $600 million; shopping mall owner Cadillac Fairview for $2 billion; and the Hawaiian land company, Amfac, with 600 acres of undeveloped beachfront, for $920 million.

JMB focuses on shopping malls and prime downtown property where it can compete with new developments by charging more reasonable rents. "We don't flip and we don't get into group investments, Wright added.

"We look for undervalued properties," he explained. "You can pretty much pick the premium projects in any of the major urban areas and JMB is either the owner or a joint venture partner in them."

They also have a very large presence in Washington, D.C., Wright added.

JMB occupies 350,000 square feet in Chicago and Wright jokes they have more accountants and lawyers than Coopers & Lybrand. "We are known for our due diligence," Wright said. "Our reputation is everything we have. We go out and find a good deal for our pension funds and that is why we are the leader in that field right now."

Ameritech, Calpers and MIT, are among its pension fund investors. "We deal with the biggest and the best," Wright said.

While Wright agrees the pension funds have pulled back a little, he said they are just looking to diversify and changing the mix of investments. "Pension funds invest money for the long term," he said. "They are not looking for the five-year turnaround."

When they bought 1211 Avenue of the Americas, he said they had in mind to keep the property for a minimum of 15 years. If pension funds see the opportunity to buy a building today for less than the replacement cost, he added, "it's a good business decision to get involved in it."

When a pension fund comes in with a JMB investment, "they don't put all their eggs into 1211, " Wright explained. The funds put their money into a pool and will take its proportionate share of a mall, an office building, or an apartment complex.

"We don't know where the real estate market is going," Wright noted. "Right now the apartment market is hot." Apartments out West, he said, are being purchased for 20 percent to 30 percent below replacement cost.

JMB is one of the largest owners of regional malls in the country and its 53 shopping centers include the Broward Mall in Florida, Houston Center, and the Dayton Mall. "That is one of the hot topics right now with JMB," Wright said.

The New York local division oversees, in White Plains, The Galleria mall and Gateway Tower, an office building primarily leased to AT&T; and Pickwick Plaza, a 250,000-square-foot Greenwich, Connecticut office project. Wright said the whole market is soft since both Westchester and Connecticut are no longer getting the fallout from the Manhattan market.

Many tenants are making a decision to or move to better space in Midtown and paying a small premium, Wright said, and that bodes well for JMB's Manhattan properties. 900 Third Avenue is 97 percent leased, Morrows said, with only a second floor space available. In recent deals, Avatar Investors nearly doubled its space to 34,400 square feet and NYNEX took 14,700 square feet.

40 Broad Street is 85 percent leased mi* a number of deals pending for vacant space. Morrows said they have signed over 52,000 square feet of deals in that 250,000-square-foot building in the last few months.

"In that kind of environment down there, it's pretty good," Morrows said, knocking on wood.

"The competition Downtown is very tough but we have a quality building," Morrows added. Among the more recent signings are the Public Securities Association which more than doubled its space to 23,400 square feet on two floors, and a new tenant, Chicago law firm Katten Muchin Zavis, which relocated from another Downtown building and tripled its New York City space into another two floors of 40 Broad.

The focal point of their New York holdings, however, is 1211 Sixth Avenue. Located in Rockefeller Center and originally built in together with the Exxon Building and McGraw Hill as corporate headquarters, its leasing activity has been extremely active. There are leases out on every piece of available space, Morrows said.

"We have a deal on the table that will take up all the space that rolls over in this building in the next three years," Wright explained.

Other recent signings include the American Institute of Certified Public Accountants, which renewed its 80,000-square-foot headquarters despite talk of moving to New Jersey. Chicago Title Insurance relocated from Downtown to take the entire 28th floor of 37,500 square feet. Cellular One Telephone rented both retail and office space, while Charles Schwabb located its Northeast Financial Center at the prime ground floor corner at 47 Street. A chemical company owned by the Italian government, the German Westdeutsche Landesbank, 20th Century Fox, and Honeywell-Bull Worldwide -- which is the joint venture with Honeywell and the French company -- also have space in the building. "We've changed the tenant mix from a corporate headquarters to an international corporate mix," Wright noted. He is currently working on a deal with a large foreign financial institution as well as several others.

Rockefeller Center manages the property while JMB handles the leasing. "It's a uniform feel, so if you come out of 30 Rock you'll be greeted by the same people in our building," he noted.

While retailer Au Bon Pain just signed on for 5,000 square feet, another American retailer is about to create its flagship store in 25,000 feet. Of that, 20,000 square feet is below grade on the Concourse Level and will be connected by an escalator. Rockefeller Center buildings are part of a below ground shopping network which includes restaurants, a post office and other service shops that are considered important amenities by tenants' employees.

During Christmas time, the lobby of 1211 is transformed into a veritable toy shop as presents are purchased and gathered for the U.S. Marine Corps Toys For Tots program. For the last two years, the building, including JMB, its tenants and vendors, have been Toys For Tots' largest contributors.

Explaining the success of their buildings is easy for Wright and Morrows. "We are aggressive in our approach and I think we are realistic in our pricing," Wright said.

"We have good relationships with our brokers," Morrows added. "It's much easier to do business with a friendly owner as opposed to the adversarial ones that are out there."

JMB offers tenants stability, Wright said. "Tenants coming into our building don't have to worry about our financial wherewithal," he added. Today, a landlord is guaranteeing that he will give $40 to $60 a square foot in work. "If you're talking about a 20,000-square-foot tenant, you're talking $4 million to $5 million to $6 million dollars and a year's free rent," Wright observed." "When JMB steps up to the plate, the tenant knows he's going to get that money."

Equally important, Morrows added, is that the brokers know they are going to get paid and with JMB they have nothing to worry about.

JMB uses tile same strategy employed when they go to buy a building when it analyzes tenants, Wright noted. "We do a thorough credit review -- a @history of where they have been and try to talk to their old landlord."

New York City is a broker-oriented city, Wright noted and they try to concentrate on keeping the brokerage community aware of what space is available as well as the tenants that are interested in the building. "It's the brokers that attract the foreign tenants," Wright added. color brochure called the "JMB Report", is mailed monthly to brokers and shows the floor plates and the location of the building.

Before coming to JMB, Wright was a vice president of leasing at Swig-Macklowe. Morrows was brought in when, while working at Newmark, he came to Wright with a tenant for 1211 Avenue of the Americas. "He was tenacious, to say the least," Wright said. "He's really done a great job turning 40 Broad Street around,"
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Title Annotation:JMB Realty Corp. keeps low profile in real estate industry
Author:Weiss, Lois
Publication:Real Estate Weekly
Article Type:Interview
Date:May 27, 1992
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