Viacom lease, HIP sale are Deals-of-the-Year.
Scott L. Gottlieb, Michael R. Laginestra and Martin Turchin of Edward S. Gordon Company won the Henry Hart Rice Achievement Award for the Most Ingenious Deal of the Year. They shared this prize for negotiating the Viacom International/Paramount Group lease at 1633 Broadway. These brokers had to conduct nine separate transactions, as well as arrange for a package of city benefits, to consummate the deal.
The father-and-son team of Joseph A. Grotto and Joseph A. Grotto, Jr. of J. Grotto & Associates won the Robert T. Lawrence Memorial Award for the sale of an 80,000 square-foot building at 220 West 58th Street, now occupied by the Board of Education. To make the sale, these brokers had to find a tenant for the property and succeed in laying the groundwork to make future site development feasible.
Viacom International assigned the prize-winning Edward S. Gordon brokers to help consolidate the conglomerate's operations and achieve major savings in business occupancy costs. The corporation's executives sought these economies because the heavy debt Viacom assumed in acquiring Paramount decreased the price of its stock just as the company was planning a subsequent merger with Blockbuster Entertainment.
At this point, the restructured Viacom, its rank enlarged by the Paramount acquisition, occupied space in six Midtown locations. The company was inclined to place most of its operations in two of these buildings, and deploy as many as 2,500 workers to a nearly vacant 450,000 square-foot facility it owned in Englewood Cliffs, NJ. The site across the Hudson River offered economies that even the most favorably priced Manhattan location under consideration couldn't approach, but senior managers worried about coordinating corporate activities over the 20-mile distance between these two sites.
A Viacom subsidiary, Showtime Networks, was located on several non-contiguous, asbestos-laden floors spread over two elevator banks at 1633 Broadway. This fast-growing cable television company's space was covered by four leases directly from the owner and two subleases from an accounting firm whose tenancy was scheduled to expire in 1998. Messrs. Gottlieb, Laginestra and Turchin decided that 1633 Broadway might be the solution to Viacom's consolidation problem if a sufficient number of contiguous floors could be assembled for the conglomerate's use.
Achieving that goal involved a set of complex transactions that included negotiating a rent mutually acceptable to Viacom and the owner for vacant floors in the building, restructuring Showtime's leases, prevailing on the accounting firm to accelerate its transfer to new headquarters (which also involved obtaining the owner's consent), speeding up the schedule for the workletter and the asbestos abatement on floors to be occupied by Showtime and on the floors the cable company would vacate to accommodate a new tenant, and convincing the owner to grant Viacom expansion options even if the existing tenants wanted to renew.
The Edward S. Gordon Company brokers also figured out a way to create additional space for Viacom in 1515 Broadway through relocation and sublet arrangements, and struck a deal for city benefits that eliminated the conglomerate's motivation to transfer 2,500 of its workers to Englewood. In sum, the many transactions successfully carried out by Gottlieb, Laginestra and Turchin kept a total of 4,500 jobs in Manhattan. The long-term $300 million lease for Viacom and the Paramount Group to occupy 500,000 square feet at 1633 Broadway was signed on December 20, 1994.
Joseph Grotto and Joseph Grotto, Jr. had to negotiate one lease on-site and another off-site, as well as reach accords with owners of surrounding properties to make the sale of 220 West 58th Street possible. These brokers promised Devon Properties, interim owner of this building, that they would sell it. Health Insurance Plan of Greater New York (HIP) owned the building prior to selling it to Devon as part of its new lease agreement for space at 7 West 34th Street, another Devon holding.
In 1989, the brokers secured an exclusive agency to represent HIP in its purchase or lease of new headquarters space with a planned simultaneous sale of the building it occupied at 220 West 58th street. These efforts culminated in 1991 when HIP signed a 20-year lease at 7 West 34th Street.
The price for 220 West 58th Street's initial sale to Devon, as set by the brokers, was high at $18 million, which was broken down as $6 million of extra free rent at 7 West 34th Street and a $12 million purchase price for HIP's former headquarters. As its new headquarters were being prepared for occupancy, HIP had a one-year option to sell 220 West 58th Street to a party other than Devon for more than $12 million and pocket the difference, as well as the $6 million in free rent.
During that year, the building for sale was shown 45 times. Of course, the market in 1991-92 was one of the worst in memory and the Midtown vacancy rate reached 18 percent. In a buyer's market, few wanted an older office property. A group of foreign investors, however, expressed an interest in purchasing, but only if a tenant could be found.
In an exceptional burst of good fortune, Paul Davidson of Newmark Real Estate Services, representing the Board of Education, looked at the property and advised that the Board might be interested. The Grottos and Davidson arranged for a 15-year modified net lease with the Board of Education, which approved an expenditure of about $7 million to renovate the building and convert it to small high schools. Up to 500 students can use this facility, known as Landmark High School and the Coalition School for Change.
Although the foreign investment group still found 220 West 58th Street appealing, its enthusiasm was tempered because a once-empty building, which had presented a leasing challenge, was now tied up for 15 years. The Grottos, based on a careful analysis of the zoning, emphasized the property's potential for the future. The closing took place on November 10, 1994, toward the end of the year in which the Federal Reserve raised the Short Term Federal Funds rate six times. This perilous climate for financing required the brokers to also keep moving along what became an all-cash purchase.
The transaction kept 220 West 58th Street on the tax rolls, protected future development of a key Midtown site by placing the parcel in strong ownership, and enabled the city to accommodate two high schools at an attractive rent.
Prior to this year's award ceremony, Turchin had won both the Most Ingenious Deal and Lawrence prizes. Grotto, Sr. had also won the Most Ingenious Deal award on a previous occasion. The Grottos are the first father-and-son team to be recognized with one of these prizes for brokerage achievement.
The judges for this year's competition were Joseph Philip Forte, Esq., Partner and Chairman of the Real Estate Department of Thacher Proffitt & Wood; William Frentz, Vice President, Real Estate Investments, Guardian Life Insurance Company of America; Lloyd Goldman, President, BLDG Management Company; Peter Hausberg, President, Eastern Consolidated Properties and Chair of the Sales Brokers Committee; and James L. Houlihan, Partner, Houlihan-Parnes.
The Henry Hart Rice Achievement Award was presented by REBNY Chairperson Bernard H. Mendik. The Robert T. Lawrence Memorial Award was given by Aaron Gural, Honorary Lifetime Chairperson of the Real Estate Board.
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|Title Annotation:||real estate deals|
|Publication:||Real Estate Weekly|
|Date:||May 10, 1995|
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