Closing deals in troubled buildings.
With the majority of office buildings in reorganization or in danger of being foreclosed, brokers are finding, more and more, that consummating a deal requires the approval of not only tenant and owner, but institutional lender as well. Lenders, on the other hand, are coming to grips with the idea that keeping an asset leased relies more on meeting the market not on expected return.
"Historically, nobody knew who the lender was," said the executive vice president of Harper-Lawrence, Inc. "And the lender didn"t care ... all he cared about was getting the mortgage.
Solomon learned of this revolution first-hand. He negotiated a new long-term 135,000-square-foot lease for a major Manhattan tenant with a building ownership that was in the midst of a bankruptcy proceeding. Compounding the complexity was the fact that the bankruptcy filing, initiated by a general partner was being contested in court by the lead lender and the limited partners.
Over a two-year period, Solomon hammered out an arrangement that satisfied the tenant, landlord, lenders and the bankruptcy court. Tbe broker also managed to get paid.
In Februaty of 1990, Solomon accepted an exclusive assignment from Frederick Atkins, an international retail merchandising and marketing cooperative that occupied floors 45 through 48 at 1515 Broadway in the heart of Times Square. Frederick Atkins' wanted to obtain a new 15-year lease at its current location. After months of fruitless conversations with the ownership, Solomon found out Equitable Real Estate Investment Management (ERIM), one of the general partners, was about to declare bankruptcy and they did so in October of 1990.
The ownership of the building consisted of ERIM (general partner), Tishman (General Partner and Leasing/-Management Agent), which eventually relinquished its share of the building to ERIM, and 27 limited partners syndicated by Bear Stearns & Co. Inc. Manufacturers Hanover Trust held a first mortgage of approximately $300 million and Equitable Life, parent of ERIM, guaranteed a $122 million credit line.
The limited partners threatened to file a lawsuit against ERIM for seeking bankruptcy without their permission. MHT claimed fraud and sought to overturn the bankruptcy and filed a $600 million civil suit. The bank claimed it had never been approached to restructure the mortgage.
At that point, the ownership did not want to negotiate any leases and Atkins was wary. But for the next 16 months, Solomon worked to keep the deal alive through several lapses in negotiations. He continuously analyzed the events and the alternatives to be sure this was the best location for the tenant. He also had to convince ERIM and MHT thqt they would lose a valuable tenant if they did not continue to negotiate despite the building's troubles and eventually settle their differences. He attended all the bankruptcy hearings to become familiar with the concerns of ERIM and MHT and the reaction of the bankruptcy court. After a settlement between ERIM and MHT was reached in March of 1991, he had to again reconfigure the deal to correspond to the requirements of the reorganization agreement and the impact it would have on the tenant.
The result was a transaction that maintained the tenant's existing below-market rental through the first five years of a new 15-year lease. The deal was closed in March of 1992.
Solomon also managed to get the lender to guarantee payment of the brokerage fee and the deal was nominated for the Real Estate Board's "Most Ingenious Deal Award." Atkins has since leased an additional 15,000 square feet with Solomon as its representative.
According to Solomon that precedent-setting deal was eventually completed because the lender agreed to meet the market. But, he said, many institutions that now find themselves in the field of asset management are not as flexible in pricing because they want to preserve their equity.
"The lender must understand the sophisticated broker must be heard as to what the lender can get for his space," he said. " ... The point is keeping the building occupied and alive,"
And many brokers, he said, are just beginning to learn there is a new party in the deal making process to be satisfied who has very different interests and requirements.
"A broker cunt be a professional for long if he doesn't guide both sides," he said.
Negotiating deals in these troubled buildings, Solomon said, has added a significant amount of time to the process and made payments of commission les certain. He said he has received a number of calls from friends and former apprentices in the field who want help in getting paid for their deals. The broker would not reveal his secrets to REW but, he said the two key elements are timing and getting a guarantee from the lender in writing.
During his 27-year brokerage career, Solomon has represented such high-profile tenants as: Aetna, Equitable Assurance Society, J.P. Stevens, Dean Witter Reynolds, Infinity Broadcasting and Montgomery Ward.
Solomon was with Edward S. Gordon Company from 1984 to 1988 as senior vice president. While there he created the office of Leasing Director and created a training course for entry and mid-level sales representatives.
For 14 years, he was with the brokerage firm of Sutton & Towne where he rose to the positions of executive vice president and principal. In 1980, he was instrumental in the sale of the company to Coldwell Banker.
Institutions, Solomon said, could take a lesson from some of the successful entrepreneurial owners in the city like the Dursts, the Rudins and the Kaufmans.
"They take advantage of an up market and the bullet in a down market."
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|Title Annotation:||Harper-Lawrence Inc.'s David Solomon|
|Publication:||Real Estate Weekly|
|Date:||Apr 14, 1993|
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