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Brokers: 55 Water Street 'back on map' after O&Y.

With a deal pending between Olympia & York and noteholders to restructure ownership, management, and debt, city brokers applauded the pact, hoping 55 Water Street can once again become a viable player in the Downtown market.

They are concerned, however, that even if a projected $21 million is made in improvements, the building's large floor plates will not be attractive to today's tenants.

If approved by creditors, the Retirement Systems of Alabama would become the owner of the property, debt free. The pension fund, which holds about $100 million of the $548.25 million in Secured Notes, is also prepared to purchase the shares of any other noteholder at $7.45 per share while $21 million is to go to capital improvements in exchange for shares of Preferred Stock.

Dr. David G. Bronner, CEO of the Alabama pension fund, said last week they did not yet know where they stand because they could end up owning anywhere between 20 percent and 100 percent of the property.

"If everybody sells their bonds to us, we'll have a clearer sense of what we will and won't do," he said.

The fund now manages four buildings in Montgomery, Alabama, while Jones Lang Wootton is the real estate advisor on 55 Water Street.

Bronner said they intend to upgrade the property, including such items as the elevators and the lobbies, both mentioned by brokers as needing a facelift. "We will clean it up and put it back to its top quality status," Bronner said. "It's too drab and it can be such a spectacular piece of real estate. Another aspect of improvements would be the removal of asbestos in tenant spaces.

Joseph F. Harkins, associate director of Cushman & Wakefield, said the pending agreement would seem to position the building to "get it back on the map for bona fide tenants.

William Ilaria, a retail consultant with Garrick-Aug, said the bondholder's settlement will be helpful. Tenants are leery of going into a space with a pending bankruptcy, he said, and they don't want to invest money in improvements.

Robert D. Goodman, managing director of Julien J. Studley in the Downtown office, said "Overall, it is a positive statement because the uncertainty of the Olympia & York situation has prevented people from considering it as a potential alternative."

Because of the debt load and the operating costs, Harkins said, the building could not make any deals recently that would have covered the costs.

"Now an entire burden of debt will be lifted." he noted.

The massive 3.7 million square foot structure has few competitors that can match its 62,000-square-foot floor plates. But brokers said that it would be better if the floors could be cut i [caret] half to be more attractive to tenant needs.

The current vacancy rate is 17 percent, but more than 50 percent of the leases are up for renewal within the next couple of years. That amounts to some 1.7 million square feet, and includes Chemical Bank's vacating of the abutting short building. It will also make up 8 percent of the Downtown market's 22 million square feet of inventory.

These large spaces, built for corporate headquarters in a far more labor intensive environment, are now considered back-office space and 55 Water Street, brokers say, is competing economically with buildings in Brooklyn and New Jersey.

Ilaria said the property has had trouble leasing the restaurant, which consists of 8,500 square feet in the upper concourse. Additionally, a bookstore and drugstore space are both listed. "We've been cooperating with O&Y and showing the spaces," he said.

Goodman said, in the short term, not only has some clear direction been established but there is a comfort level that once the building improvements have been made 55 Water will once again be a factor in the marketplace.

Long term, however, Goodman said it remains a question whether tenants, such as the large financial institutions, will be looking for the large floor plates.

"Until the cosmetic changes are made they won't be able to attract front office users," he added.

"It's tired in the same manner many buildings are," Harkins noted, "It has thousands of employees riding the building hard. It can be resurrected with the kind of investment they are talking about."

Second Largest in City

With the exception of the World Trade Center, 55 Water Street is the single largest building in the city and has the second highest assessment as well at $243,140 million. That assessment is being challenged, together with three prior years, said Isaac Sherman, the certiorari expert with Moroze, Sherman, Gordon & Gordon, P.C. who is handling the matter but declined comment.

The issue of asbestos is sure to come up, since an appeals court recently awarded the neighboring One New York Plaza $40 million in property tax overpayments, much of it based on the cost of the asbestos removal.

The assessment has fluctuated over the last four years ranging from a high of $281,000 million in 1990/91 and paid taxes this year on $243,140 million based on an actual assessment that was lower than the transition.

Other experts pointed to the 29 cents on the dollar being paid to bondholders on the $548 million debt as a reflection of its current value calculated at approximately $155 million. Taking 45 percent of that number would bring the assessment to approximately $70 million for this year and is an indication of what the city would be facing in court if no settlement is reached.

Ilaria said since Solomon Bros. moved to other side of town, the whole neighborhood has been hurt by the lack of people. But now that Prudential has signed a major lease for One New York Plaza, which is undergoing renovation and asbestos removal, it will bring more people to the area.
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Title Annotation:Olympia and York and noteholders to restructure building management and finances of New York City downtown building; Retirement Systems of Alabama may become owner
Author:Weiss, Lois
Publication:Real Estate Weekly
Date:Sep 16, 1992
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