Dealmaking in the user-driven 90's

Real Estate Weekly, Jan 20, 1993 by Therese Fitzgerald

In the 80's, recalls Michael Myers, deals were mostly product-oriented. Today, he said, they are user-driven.

With that in mind, he and parruer Diane Wilson set about building a practice devoted to creative, user-oriented solutions to today's real estate problems. "The thing that was going to generate real estate values for the 90's was going to be the user,' said Myers. "A property without a user had none or little value." Formerly of Wilrock National, the two are currently president and managing 'director of Newmark Real Estate Services' Equity Advisory Group.

The department focuses on strategies that help users create equity and help investors and institutions preserve value.

"This combines all the disciplines to maximizing value for the party we represent," he said.

One of these approaches has been the office condominium. The flagship deal for the team of Myers and Wilson was done when they were at Wilrock National. They arranged for the Girl Scouts of America to buy roughly one-third of Hammerson Properties' 420 Fifth Avenue for about $139 per square foot. The office tower at the time had attracted only one tenant for 58,000 square feet and the frustrated owner was about to sell the brand-new building to a single investor for roughly $65,000 or $100 per square foot.

When first presented to Hammerson, Myers said, the unconventional idea of an office condominium was at fir st greeted with opposition.

"We met up against a stone wall," Myers said. "It was rejected," clarified Wilson. With the help of Ed Cogan, senior advisor to Hammerson and a friend of the chairman, Sydney Mason, they were able to get their proposal approved.

The result was a new headquarters for The Girl Scouts that met its needs and, via ownership, saved them in the neighborhood of $10 a foot on real estate taxes. And Hammerson was able to realize value on the building that may have been lost.

For engineering this transaction, Myers and Wilson were nominated for the Real Estate Board of New York's "1991 Most Ingenious Deal of The Year."

They are currently in the process of converting 866 Second Avenue with an eye on selling and leasing to entities related to the United Nations and they

"It's really the only viable solution," said Myers.

While the office condominium h as been tried here and there in the city -- Zeckendoff converted his Delmonico Plaza on 59th Street between Park and Madison in the early 80's, Myers said, it is still a pioneering method.

"People want to know 'what kind of comparables do you have?"' Myers said. "Well, there really are no comparables."

"We've re-applied the principals to how it works today in the here and now," Wilson added.

The office condominium, Myers said, works well for non-profits and government entities because of the tax benefits and because they can get their money cheaply.

Principals in Newmark & Company Real Estate, the parent company of Newmark Real Estate Services, are partners in 305 Seventh Avenue, which is being marketed as a condominium for non-profits.

According to the brokers, users have a lot of choices today and they help them sort through these alternatives.

"Do you just lease or buy or do you create some form of equity? Myers said.

In representing another user, the New York Blood Center, Myers and Wilson negotiated the purchase of a 165,000-square-foot building at 22 Ericsson Place in downtown Manhattan for roughly $40 a foot.

The team had originally conceived a plan whereby a consortium consisting of the Blood Center, Einstein Medical College, Montefiore Hospital and Cornell University, and the Public Health Research Institute, would occupy a 1 million-square-foot bio-medical research center in The Bronx.

After the state dropped the idea, Wilson and Myers began searching virtually all over Manhattan for something the Blood Center could buy.

The Equity Advisory Group also lends its services to institutions, which, Myers said, are often too quick to foreclose and sell the property to another owner at a rock-bottom price.

"What's the point of foreclosing on one owner to sell it to another owner," he said. "It's the different side of the same coin."

The group can devise any number of plans that minimize the institution's loss and optimize value. With a strong management team in place, Myers said, they can prepare the building for sale, turn into a condominium or convert part of the debt to equity.

A significant amount of property has transferred to institutional ownership and in the next two to three years, he said, we should expect to see more.

"Ninety percent of commercial real estate is bankrupt effectively," he said.

For each of their clients, Myers said, they devise a Strategic Path Program, which outlines a theoretical transaction step-by-step.

"We iron out the wrinkles in the profit before going out to the market, Wilson said.

"So often a deal that looks good real estate-wise, when it gets to the accounting people it gets knocked down because it doesn't have the desired effect," said Myers who is also a CPA.