Читать книгу Risk Game - Francis J. Greenburger - Страница 8
ОглавлениеApart from the caissons jutting out from the ground, the site was completely blank and silent. The enormous metal pipes that dove fifty feet down into the earth at the tip of Manhattan were exposed and useless with nothing to anchor them to the solid bedrock below. Around the empty construction site a locked fence signaled the end of progress.
This was 50 West—my legacy project as a real estate entrepreneur, a sixty-four-story tower of glass and steel that was going to alter the city skyline. It was supposed to embody my career in real estate that began with leasing office space as a sixteen-year-old high school dropout; meandered through close calls, generous mentors, terrible disappointments, and moments of great luck; and arrived at success beyond any expectation. Only, 50 West had become a $500 million mud puddle.
I had seen my share of wild swings over the course of my fifty years in the business, but the radical shift from the abundance of money during the housing bubble to the global debt crisis set off by losses in the US subprime mortgage market was, to put it mildly, unexpected and unprecedented. As a seasoned developer and investor, I knew all too well that markets can turn on a dime. And I had spent my career always looking over my shoulder for signs of trouble and keeping an ear to the ground for the sounds of crumbling economic conditions. Even so, I completely missed the signs of this disaster that I experienced through the very expensive prism of 50 West.
When, in January of 2008, we began demolishing the three buildings on the site that sat across the street from Manhattan’s Battery Park area, I was full of optimism. And why shouldn’t I have been? Arranging the financing for the project had been a given. Despite the size of the project, which cost more than $6 million in architectural plans alone, it was only a question of which bank we would allow to give us the money. That’s how flush the times were. As the starchitects we solicited to join a competition to design the property unveiled their plans before me, I felt the amazing sensation of being at the start of something great. And when my wife Isabelle and I saw the Helmut Jahn entry, I was overcome with a sense of possibility as soaring as the tower itself: We were going to do something great.
Six months later, construction workers were driving the caissons into the ground. Later that summer, truckloads of earth were dragged out of the ground and carted away as we started excavating the site for the foundation of the skyscraper.
Then on September 15, Lehman Brothers filed for Chapter 11 in the largest bankruptcy in US history, and the world got really strange really quickly. That autumn, when many investment banks fell as fast as the leaves on the trees, I made the decision to shutter everything at 50 West. As high as I had felt when I was surveying the plans for the skyscraper was as low as I’d sunk while putting a stop to its building.
There remained $15 million undrawn and available on the pre-development loan I had on the property to design and build the foundation (the plan had been to phase into a full construction loan to go straight up once the foundation was complete). I had to pull everyone off the site and begin the painful process of unwinding the long list of contracts we had with engineers, architects, and construction companies, because the last thing any developer wants is to have a half-built building when the money runs out.
Early sketches of 50 West by Helmut Jahn
I was acting prudently (a few virtues were all I seemed to have left), but as soon as I halted construction, the bank with whom we had a $55 million loan balance sent us a letter stating we were in default. With ongoing construction as a stipulation of our loan agreement, they were entitled to foreclose on the land. The blindness of bureaucracy! My options were limited. The property was appraised at $150 million, but that meant very little in the post-Lehman paralysis. The property was actually worth nothing, since I couldn’t have sold it to myself in that moment. Money that once flowed freely had dried up overnight. I had to sort this out while also resolving hundreds of millions of dollars of other development commitments I was trying to undo—and this was only one out of my two hundred properties that I had to shepherd through an international financial collapse.
I can conceptualize numbers in an instant. Many people are very good at producing spreadsheets, but they never know whether the assumptions generated by the computer program are actually correct. I am able to look at a spreadsheet with a hundred numbers and home right in on a mistake as if it were circled in red. Real estate is all about deal making based on whether the numbers make sense, so I am fortunate to possess this gift. But the problem of 50 West was about more than numbers.
I acquired the property early in the real estate boom of the 1980s when my first major line of bank credit made it possible for me to purchase properties once out of my reach. My business grew exponentially as I closed on buildings and converted them into co-ops at a breakneck speed. Even during this heady period, the $2 million I offered for 50 West (originally a lot that included a three-story building and the twelve-story Crystal Building at 47 West Street, internally connected to the eight-story building at 74 Washington Street) represented the biggest deal of my career up to that point.
The challenge of making such a big acquisition, however, was the least dramatic aspect of the property’s tumultuous journey.
The first, and worst, chapter came immediately after the terrible events of 9/11. What began with me watching the unimaginable—the second plane hitting the World Trade Center moments after I dropped my small children at their school downtown—ended with the reordering of my priorities and responsibilities in a way I hadn’t ever done before. I had to reach deep inside myself to create stability among chaos and some sense of safety in a suddenly terrifying world. People all over the city—and the country—were doing the same. In my case, however, that included monitoring all of our buildings downtown with only limited access because the army had sealed off the area.
Only two blocks away from where the World Trade Center had stood, the Crystal Building was located in the very last section of the city to be reopened. It was so close that debris from the towers had landed on its roof. So for six months, no one could get anywhere near the building where I had begun to convert some of the vacant units into living lofts. Understandably, nearly everyone moved out.
I had fallen off financial precipices before and survived them (battered and bruised but intact). This one, though, was different. The emotional toll was greater than even I realized at the time. As I fought daily to find solutions to an endless list of financial demands and crises, almost imperceptibly I slipped into a depression. Unlike in the past, I now had an expanded world of responsibilities that included not only an entire staff, as well as children, friends, and relatives who relied upon me, but also a range of charitable organizations for which I was the major lifeline. Even though it wasn’t going to alter the fate of a billion-dollar real estate company, I busily set about cutting personal expenses.
It took nearly four years before I was ready to move ahead with the original plan and renovate the Crystal Building for a full residential condo conversion, which was what I was set to do when someone who worked for me suggested another plan: Demolish all the buildings on the lot and make one very, very tall building. Now, I had just spent years digging out of a financial and emotional hole (more like an abyss). Did I really want to do something as big and bold as, literally, aiming for the sky?
I listened carefully to the argument for building a skyscraper on the site (I always listen to other people’s ideas because that is how you happen upon good ones)—and the argument was persuasive. The zoning of the lot itself allowed for a forty-story building. However, it sat right next to the Battery Park Tunnel, which possessed an astounding 2 million feet of air rights. The way air rights work in New York City is that every piece of land has the right to build a certain-size building on it. If any of those rights aren’t used, they can be transferred to an adjacent property owner. The tunnel’s large entrance and lack of buildings accounted for its huge number of air rights; if we could buy 150,000 of them, it would translate into a tower that would be among the tallest residential buildings in the city.
Although it wasn’t the most conservative decision in the world, and I was just off a huge economic crisis, I wanted to do it. Make a skyscraper. Perhaps I was thirsting for optimism after such a dark time (and really, what’s more optimistic than a skyscraper?), but in the end I made a deeply personal decision to pursue the project—more for a sense of personal accomplishment than for financial gain.
The first step was getting those air rights. The Manhattan Transit Authority (MTA)—the public-benefit corporation run by a board recommended by various elected officials—controlled them (or so we thought), even though the MTA was barely aware they had them when we presented the idea. Because the MTA needed the money, and the city was fully in support of any developer interested in rebuilding Lower Manhattan, things moved forward quickly and smoothly.
That is, until the MTA inexplicably reversed itself out of the blue. When I asked the person from the organization who called why the deal was off, he said they were worried the MTA might need the rights one day to use them in some other way. With 1,850,000 feet of rights left, the fear seemed ludicrous. They could have built the Tower of Babel if they wanted to. I tried to argue the point, but logic is no match for bureaucracy.
It looked like we were going to have to resign ourselves to an alternate, shorter version of the tower that didn’t utilize the adjacent air rights until I met an architect who had a connection to the chairman of the MTA, Peter Kalikow. Through him I got an appointment with Kalikow, who was also president of one of New York’s biggest real estate firms. After I made my presentation on 50 West, he looked at the plan and his staff, then said, “What’s wrong with this?”
The yes that had turned into a no was back to yes. After working out a few more glitches (like the small one when the MTA discovered it was actually the city that owned the air rights and the MTA just had the ability to use them), in a process that took years, we finally made it to the last stop: a vote by the city council. Not surprisingly, the council started renegotiating the price of the air rights (one rule of real estate is that everyone renegotiates). More surprising was how wildly aggressive they were. The result was more months of long nights spent going back and forth. Often in real estate negotiations where the other party feels they have the upper hand, they aren’t satisfied until they see you bleed. With these air rights, however, I was beginning to hemorrhage. Even after we came to another agreement, the bloodletting wasn’t quite over.
Two days before the deadline for tax incentives we were counting on in building the tower, a city councilman appeared out of nowhere with another demand for community benefits before passing the deal. So we negotiated up until the very last minute; the council voted in favor of our assuming rights at ten o’clock the last day before we would become ineligible for a special real estate tax program the city was offering in Lower Manhattan.
There were many times I thought it wouldn’t happen and many more that I wanted to give up out of sheer frustration, but three years after the initial idea to build a tower, we got approval to start construction on the $500 million building. And then six months later, before the foundation was completed, the economy collapsed. Left with a pile of debt instead of a building, I faced a major dilemma. Should I throw more money onto the pile or cut my losses there and then?
One of the dangers of the real estate business is that often you are competing against people who have money but are not that knowledgeable. It’s a counterintuitive idea. Yet those with money (the only barrier to entry into the real estate market) but no experience in the buying and selling of property drive up prices because they want to get in on “the action”—and their power lies in their checkbook. If you pay a certain amount simply because the guy next door has paid it, you will not survive this ruthless industry that has created far more bankruptcies than it has billionaires. Saying no is the most important judgment you make. On the other hand, nothing happens until you say yes. Risk is an undeniable fact of real estate, mitigated only by having your own view of the market and believing in your instinct.
I have made my fortune from seeing value where others never thought to look. I pioneered the New York co-op market by taking apartments that no one dreamed anyone would ever buy, such as walk-up tenements in the West Village and housing complexes in middle-class black neighborhoods, and turning them into lucrative investments. In the process, I not only earned the title of King of Co-ops but also helped transform the city’s landscape from neglected rentals to prized homes.
It’s my life’s work to find value where others don’t. The unknown authors and agents that I enlisted to build up my father’s literary agency after his death; the unrecognized talents who have turned Omi, my artists’ colony upstate, into an internationally prominent cultural center; and those discarded in prisons or the political underdogs I have championed: All have brought an unparalleled richness to my existence.
I don’t give up easily—not on people or properties—and I wasn’t ready to give up on 50 West, not even after a global financial crisis made the land practically worthless. I struck a deal with the lender even though they were initially calling for me to either turn over the property or pay the $55 million I owed them, which I didn’t have. Instead, I convinced the bank to sign a new agreement that turned the short-term line of credit for the foundation into a regular land loan. I offered up $10 million in good-faith pay-downs and a personal guarantee of $22 million to secure the loan, and I agreed to pay a higher interest rate.
Everyone told me I was crazy. Why would I pay $3 million a year in interest alone, in addition to property taxes and insurance that totaled another $2 million annually, for a piece of land with no income on it? Why take the risk when I could be done with the whole mess by giving it back?
Because that land was my chance to fulfill a dream of building an iconic skyscraper. Plus, I thought, one day it was going to be worth a hell of a lot more.
