Being careful to keep his pink shirt and purple tie clean, Abe Hirshfeld steps gingerly around a pile of old sinks and toilet bowls on the 15th floor of PaineWebber Inc.’s boarded-up former headquarters at 25 Broad St.
“It’s like the old buildings on Fifth Avenue,” he says, “or in Paris or London.”
Even for a inveterate dreamer like Hirshfeld, that’s a bit of a stretch. But the 75-year-old real-estate developer says he can breath new life into this century-old beaux-arts relic, which sits cater-cornered to the New York Stock Exchange.
“I’m planning to renovate the building into beautiful apartments,” Hirshfeld says, “the highest luxury.”
Across the street, Jonathan Coven, an employee of Hong Kong billionaire Li Ka-shing, hopes to resurrect the former headquarters of now-defunct Drexel Burnham Lambert. The 34-year-old office tower at 60 Broad St. is full of asbestos and almost empty of tenants. But Coven vows to strip the building “right down to the slabs,” then to “spend whatever it takes” to fill it again with office workers.
Such would-be saviors of New York’s Financial District face tall odds.
After eight years of precipitous decline, this one-time epicenter of high finance has gone low rent. Most financial-services firms have fled, either to the modern buildings that ring the heart of Wall Street, or to Midtown, which offers shorter commutes from the suburbs.
So, armed with a proposed package of tax incentives and zoning changes, New York Mayor Rudolph Giuliani and municipal officials late last year set out to spur investment to turn the canyons of Wall Street into a 24-hour, mixed-use neighborhood. The City Council and state lawmakers have yet to vote on the plan.
Skeptics abound. “You’re asking private-sector investors to put money in when there’s no realistic chance of a return,” says Stephen Siegel, president of E.S. Gordon & Co., a Manhattan real-estate brokerage firm. “It’s just not going to happen.”
The efforts of Wall Street property owners and city planners will be closely watched outside of New York. In major cities nationwide, office towers erected in the 1980s have sucked tenants out of those built during the prior eight decades. Thus far, even the “vulture funds” that buy distressed properties on the cheap have steered clear of such buildings, many of them architectural gems.
Hirshfeld’s turn-of-the-century property and Li’s glass tower, for instance, represent the two generations of office buildings that many real estate experts have deemed obsolete. A look at the rise and fall of these two buildings illustrates how Wall Street’s bricks and mortar have fallen on hard times, and what it will take to reverse the decline.
The two buildings, which face each other across the Financial District’s spine, are part of “a two-block dead zone” of empty and nearly empty buildings, says Raymond O’Keefe, a veteran Downtown real-estate broker. While vacancy rates in Midtown Manhattan are edging lower, Downtown vacancies stand at more than 20 percent. About 23 million square feet are available, the equivalent of eight empty Empire State Buildings.
New York now has far more office space than it has ever needed. In the 1980s, spurred by city incentives, real-estate developers built about 42 million square feet of new offices. But there are fewer jobs in Manhattan now than a decade ago, and total office space in use has risen by only seven million square feet. If city planners hope to fill Downtown spaces without emptying offices elsewhere, as happened when downtown Brooklyn and Manhattan’s West Side were redeveloped in the 1980s, they must either add jobs – a formidable task – or create new uses for the buildings.
Nevertheless, during the past six months, a handful of entrepreneurs have been unable to resist the bargain prices on old Downtown buildings.
Last October, Hirshfeld paid $4,975,000, less than the price of some Manhattan townhouses, for the 500,000-square-foot, 21-story building on Broad Street. He says he is prepared to spend as much as $50 million to convert the building to luxury apartments, which he believes will rent for 25 percent to 35 percent less than those in Manhattan’s finest residential neighborhoods. “You won’t find many crazy people like me to take on a job like this,” he boasts.
Carl Weisbrod, head of a newly created Downtown business improvement district, says attracting investors like Mr. Hirshfeld, not end users of the space, is the crucial first step in turning around the financial district, which is still the nation’s second-largest office market, after Midtown Manhattan.
“The question is not: `Will some of these buildings attract tenants?”‘ says Weisbrod, formerly the city’s economic-development czar. “The question is: `Will some of them attract capital?’ That’s really the test of the mayor’s plan.”
Perhaps the most remarkable aspect of the decline of 25 Broad, 60 Broad, and scores of other neighboring buildings is how quickly they fell from grace.
For most of its century-long lifespan, 25 Broad St. traded on its proximity to the Big Board to stay filled with brokerage firms and banks, including the headquarters of PaineWebber for about 70 years. Its sought-after address attracted Manhattan real-estate tycoon Harry Helmsley and his partners, who bought the building in 1952 for $6.5 million.
By the 1980s, the building itself had lost its appeal to many financial-services firms, which wanted larger floors, higher ceilings and more modern amenities. But its location was still valuable. In 1979, J.P. Morgan & Co. bought the building from the Helmsley partnership for $20 million, with the intention of razing it to build a $250 million headquarters tower. PaineWebber and other tenants left.
When Morgan’s plan fell apart, Paul Reichmann, head of Toronto-based Olympia & York Developments Ltd., snapped up the building for $20.5 million, but his effort to develop an office tower also cratered. In 1984, he sold it to New York developer Joseph Neumann for $73 million, including $58 million in assumed debt. Neumann intended to build a new headquarters for Kidder, Peabody & Co., but after the 1987 stock-market crash, he recalls, “everything went down the drain.”
“It was terrible to see the decline,” recalls one employee of Buffalo-based Manufacturers & Traders Trust Co., one of the last tenants. “It was like a ghost town. I was kind of leery of using the men’s room after a while.”
It languished for four years before its new owner hired a broker to sell the building. Looters made the most of it.
“In my first tour of the building, there were elevator parts lying around on the floor, all of the brass had been ripped out for salvage,” recalls Cushman & Wakefield Inc. broker Bill Shanahan.
Across the street, 60 Broad St. has held up a bit better. One of the first modern skyscrapers in New York, it casts a 39-story shadow.
From the outside, it still looks much as it did when developers Percy and Harold Uris erected it 34 years ago.
Although its “exceptionally banal” design doesn’t stand up well next to showy buildings like 25 Broad, says architectural historian Andrew Dolkart, a number of brokerage firms once housed in older buildings were drawn by its newness, large floors and prime location.
In 1973, the Uris brothers sold their entire property portfolio to National Kinney Corp., the real-estate affiliate of Warner Communications. Five years later, Kinney unloaded the buildings to Reichmann’s Olympia & York for $46 million, plus $288 million in assumed debt.
Then, almost overnight, a series of corporate catastrophes turned the building into a financial disaster. Drexel Burnham Lambert, a tenant, filed for bankruptcy in 1990, sticking Olympia & York with a worthless lease and prompting the owner’s lender to sell the mortgage to Li for $57 million. Then, beset by its own financial problems, Olympia & York reneged on its pledge to pour more than $50 million into renovations.
Whether the buildings can rise from the ashes is anyone’s guess.
“Listen, if someone comes with the right price, everything is for sale,” responds Hirshfeld, who denies actively seeking a buyer. As he wanders his building’s rubble-strewn floors, however, he acknowledges that it might not be easy to entice people to live on the canyons of Wall Street.
Looking out at neighboring buildings like 55 Broad, which also is empty, he admits: “The views are not great. This is a problem.”
