What now for 40 Wall?
That interest is in the process of being foreclosed on by the real estate arm of Citibank and is currently managed by a receiver.
The owner's aim, the attorney said, is to force Citibank to complete renovations and maintain the building in accordance with the lease or to compel the sale of the lease towards that same end.
The amount of the lease payments were not disclosed. In this market, however, with a nearly empty building and extensive renovations needed to attract quality tenants, the owner would not have an easy time reselling it for comparable terms.
Besides selling its interest in the leasehold, Citibank Real Estate Inc. (CRIE) has the option to take over the lease and start fixing the building or to compel a new lease to be written under the same terms and conditions as the old lease. The institution may also choose to walk away or it may also choose to appeal Justice Kristin Booth Glen's decision. The Resnicks were not a party to the State Supreme Court action.
The Resnicks had acquired the leasehold to the 70-story office building for $77 million at a court ordered auction as part of the disposition of the Marcos holdings. Ferdinand and Imelda Marcos had purchased the leasehold in 1982 for $70 million.
In 1929, the property was for a brief period the tallest building in the world. The rival Chrysler Building architect waited until his former partner topped off 40 Wall and then installed a 185-foot spire he had ferreted inside the Uptown structure. Both were eclipsed by the Empire State Building two years later. 40 Wall still holds the title of tallest mid-block building.
The Depression left 40 Wall half empty at reduced rentals and the property fell into foreclosure. The end of World War II brought new power and vision to Wall Street and the green, pyramid-topped landmark was finally able to attract and maintain a steady and impressive clientele including firms such as Dewey, Ballantine and Bache & Co.
As the court decision notes, "the building was distinguished both architecturally and by the calibre of its tenants." In fact, the lease provisions - originally agreed to in 1967 by then fee owner Metropolitan Life, and Henry Loeb, Clifford Michel and George Comfort as tenants - require the property lessees to maintain this standard.
The Resnicks, backed by Citicorp which had also provided funding for Marcos, embarked on an ambitious renovation program and received a $62 million construction loan from CREI and a $50 million line of credit.
After $18 million was used from the line of credit, primarily for exterior work, Citicorp became nervous about the decline of the Downtown market and its own battered real estate loans. It cut off the Resnick's line of credit, leaving renovations incomplete and tenants hanging. The building will be 80 percent vacant by this January.
The Resnick group had invested nearly $15 million. of its own money and stopped paying CREI which began foreclosure proceedings last year. That foreclosure is still pending, and a receiver, Alfreida B. Kenny, was appointed by Justice Booth Glen and took over management of the property on Feb. 4. Tenants have been withholding rents, however, and money was for the most part unavailable for repairs and improvements.
The court appointment of a receiver for more than 60 days triggered a clause in the prime lease, said Elliot Cohen, a partner in Parker Chapin Flattau & Klimpl who represented the owner, J. Walter Hinneberg. The clause says that the leasehold mortgagee must expend funds to secure the obligation of the lease. When CREI did not maintain the building as a first-class property, the owners began termination proceedings.
While no order has yet been issued by the court, the owners are primarily interested in CREI either maintaining the property itself or selling its interest in the leasehold to someone else. "We're hopeful that this [decision] will break an impasse and CREI will now undertake the obligations of the tenant under the leases," said Cohen.
John J. Madden, a partner with Shearman & Sterling who represented CRIE said, "No order has been filed so we don't know what our position will be at the moment. "
CRIE has been in negotiations to sell the lease but a recent offer of $8.5 million plus guarantees of $30 million in renovations made by American International Group was rejected last month by the bank which is reported to be seeking at least $10 million.
A proposal has also been made to turn the tower portion into residential units, something City Planning would have to approve. Pressure has been mounting recently to provide alternative legal means for building owners to absorb the large number of vacancies. The lack of schools, sanitation and supermarkets, however, would be a hinderance in any rezoning effort.
Warren Wechsler, first vice president of the Real Estate Board of New York, said there are a number of buildings in the Downtown area that are going to have a tough time accommodating modern technology. There are also buildings where the floor plans are adaptable to residential uses, he said.
"The Board thinks there are a number of buildings that have problems for one reason or another - either financing, or their unsuitability and inability to adapt to modern business - where this might be a worthwhile alternative," he said.
Included in the vacant 80 percent of 40 Wall's 1.1 million square feet is prominent retail space on the Wall Street side that was formerly a Manufacturer's Hanover location. This empty space adds to the appearance of a vacant building, tenants charge.
The few tenants, including the law firm of Herzfeld & Rubin which has seven stories in the tower portion, are complaining about cuts in service and have sued the parties. Mechanical systems need upgrading, and promised lobby renovations and other improvements were never completed, they claim.
Herzfeld & Rubin has spent $4 million in tenant improvements, said tax certiorari partner Jeffrey Golkin who says he loves his office and the unobstructed views. He blames the City of New York for some of the building's problems.
"The difference between this building making it and not making it is the city's tax policy," he insisted. "To continue taxing it at the rate of $5 a square foot is unconscionable. There is no incentive for a bank, or an owner or a potential buyer where inherently, based on the tax burden, he cannot make a profit."
The building's real estate tax counsel, which has represented the property since Marcos had an interest, said they accepted a two-year city offer last year which reduced the taxes by several million dollars.
Victor Hade, a certiorari expert with Schwartz & Weiss, explained it was a settlement the client - currently the receiver - was willing to take. "Whatever bottom line you have, " he added, "when you can save $600,000 you have to consider taking it."
The market value has been reduced over the last three years from $125 million to about $75 million and as Hade put it, "any building that has an 80 percent vacancy factor is overassessed." Any incoming tenant will want renovations completed, he noted, and rents in that market are hovering at $20 a square foot.
Next year's tentative assessments will be released by Jan. 15 and the building's assessment will undoubtedly be reduced unilaterally by the city and challenged for further cuts by the property's representatives.
Kenny, the receiver, said the ball is in CRIE's court. "They have a number of options under the ground lease and it has to determine whether to elect any of those options or not," she said. "It doesn't mean the parties can't begin working out a mutually agreeable order. Whatever it will be will be interesting."
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|Title Annotation:||Supreme Court rules in favor of office building owner at 40 Wall St. in New York, New York in lease case|
|Publication:||Real Estate Weekly|
|Date:||Dec 30, 1992|
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