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Can Tiffany Building yield gem of a price?

Can Tiffany Building yield gem of a price?

The Tiffany Building has been put up for sale by its Japanese owners and skeptics say, based on current market conditions, its owners may not even get what they paid for it.

The Daiichi Real Estate Company of Japan is asking $160 million, which would include the retail lease for Tiffany & Co. Based on the income arrangement of the Tiffany lease, analysts say, an investor paying anywhere near the asking price might only realize about a 4 percent return on his money, making the property unattractive to most potential buyers. Published reports said Daiichi was attempting to raise $888 million to satisfy bankers by selling properties.

To complicate Daiichi's finances, a source said, Daiichi also contracted with the RTC to purchase the Landmark Land holdings about a year ago for somewhere around $750 to $800 million. That sale's "go, no go" date was last Friday.

The Landmark holdings consist of many golf courses throughout the United States along with other properties in Oklahoma and Louisiana. Analysts said the lure of the golf courses might have been too much for the Japanese concern to pass up, but wondered if that deal is now also dead due to the firms' financial problems. Neither RTC nor Daiichi spokespeople would comment on its status.

The Tiffany Building is a 10-story office tower at 727 Fifth Avenue which was purchased for $94.35 million in 1986, according to Eiichi Shirai, a spokesperson in Daiichi's Tokyo office. New York City records indicate the price was $96.6 million. Contrary to other reports, Daiichi is now asking $160 million, said Shirai. "That price is negotiable," Shirai said. "We are reducing our debt by selling oversees assets because of the financial difficulties involved in the recession."

Rumors at the time of the initial sale indicated that Daiichi believed it was also purchasing the air rights which had already been sold off to develop Trump Tower. Shirai declined to comment on the air rights issue.

Daiichi is also attempting to sell other holdings around the world, Shirai said, including the 15-story 1 East 57 Street, known as the Daiichi Fifth Avenue Building, on the Northeast corner across from Tiffany's. That was purchased from the late Sol Goldman in 1987 for $67.5 million Shirai said. City records indicate that sale price to be $55 million. The building housed a now vacant Manufacturer's Hanover Bank branch and is for sale for $130 million Shirai said.

According to information, supplied by Tiffany & Co., the rent paid by the renown jeweler for the 124,000-square-foot building is currently $5.96 million per year. Other sources said the rentable space amounts to 97,552 square feet and includes three floors of retail space. That lease expires on Oct. 31, 1994 but has five renewal options of five years each, said the Tiffany spokesperson. At the option, he said, the rent is subject to renegotiation based on the greater of a fair market appraisal or a consumer price index escalation.

Avon owned Tiffany & Co. from 1979 to 1984, however, in 1984 it was purchased in a management buyout, and in May of 1987, the company was made public with an initial offering on the New York Stock Exchange.

Analysts questioned the volatility of the rental market and said the value of the lease and building will be dependent upon the value of the retail space which could command $200 to $300 per square foot. They said a value would be assigned to each portion of the building in determining a fair market rent.

The building was sold in 1985 for $66.3 million and again in December of 1986 to Daiichi. The property is currently assessed by the city at $31 million. The owner would be paying approximately $280,000 per year in taxes based on the smaller billable assessed valuation of $28,500. The taxes would probably change with any new sale.

Real estate sources said it is rare that prestigious properties are offered for sale but what is more remarkable is that so many of these are now turning over, including the three corners of the intersection at Fifth Avenue and 57 Street. The 26-story Crown Building, diagonally across the street, at the Northwest corner, sold for $93.6 million or $267 per square foot, along with its retail space, in a bankruptcy auction in February. That building is primarily office space and had a 50 percent vacancy factor. The CrossLand Savings Bank building, just North of Bergdorf Goodman, on the West side of Fifth Avenue, recently went on the market in the $200 per square foot range. The French retailer, Galleries Lafayette is also preparing to open its first American store in the space formerly occupied by Bonwit Teller, just east of Tiffany.

Bill Parker, a director of Jones Lang Wooton, who is in charge of valuation, said, "It's the best retail location in New York if not in the country."

The original purchase price for the Tiffany Building, worked out to over $900 per square foot. An asking price of $160 million, if achieved, would result in a price of $1,640 per rentable square foot or 1,290 per square foot for the building. Ralph Lauren paid more than $1,000 per square foot for the Rhinelander Mansion on Madison Avenue some years ago and industry experts wondered if the current real estate market would support something so high now. "The price of the Tiffany Building was an astronomical price at the time," said one real estate analyst who asked not to be identified," and if they were to sell it for just that price today, they would have an enormous foreign exchange loss." Today's yen is worth 135 per dollar, he said, while at the time the building was purchased it was worth 220 per dollar. "There is potentially an enormous loss," he added.

The asking price was not a function of the rental payments but based on location, said Abraham Wallach, senior vice president of First Capital Management. The facade is landmarked, he noted and the building has already been built up, and cannot be torn down or added to. "The market being what it is," Wallach said, "it would be awfully difficult to rationalize a number even close to what was paid."

About a year ago, Wallach investigated the purchase of 1 East 57th Street and was told it was going to be torn down and rebuilt as condominiums. That process was never begun.

"They would be really do better trying to sell the jewelry and silver," quipped Leslie W. Himmel, a partner in Himmel & Meringoff Properties, who is concerned that the investors are pulling out. "The Japanese came into our market with the perspective of owning real estate for a long time, just as we did, she said, referring to her own property ownership.

"If real estate is a long term investment and it goes through historical cycles, the recent recessionary environment is part of that cycle and should not shock the investors, whose original philosophy was to buy and hold for the long term."

PHOTO : The Tiffany Building
COPYRIGHT 1991 Hagedorn Publication
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Copyright 1991, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Author:Weiss, Lois
Publication:Real Estate Weekly
Date:Sep 18, 1991
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