RXR Realty Takes Lead on Prob­lem Stricken Re­de­vel­op­ment of the Sony Build­ing

The Jewish Voice - - BUSINESS FEATURES - By Mark Sny­der

The half decade long saga to re­de­velop the Sony Build­ing has taken yet an­other turn. On Thursday, April 5, the own­ers of 550 Madi­son Av­enue, in­fa­mous for be­ing the for­mer head­quar­ters of tech-gi­ant Sony, re­cruited a new part­ner for the bumpy ef­forts to ren­o­vate the prop­erty, as well as brought in some help to curb their failed at­tempts and bad press.

Mere months af­ter preser­va­tion­ists rose up in arms over the lobby's de­mo­li­tion, RXR Realty, led by Scott Rech­ler, pur­chased a mi­nor­ity stake from Saudi Ara­bia's Olayan Group in the $300 mil­lion re­de­vel­op­ment of the Mid­town of­fice tower.

Now RXR will take the helm as lead de­vel­oper on the Sony Build­ing project.

A re­cent re­port in The Post re­vealed, “In a scram­ble to side­step more bad press from protesters — who blasted Olayan's plan to dis­man­tle the lobby of the tower de­signed by leg­endary ar­chi­tect Philip John­son and re­place it with a glass façade — Olayan hired high-priced cri­sis-man­age­ment firm Te­neo, The Post has learned. Headed by Doug Band, once a Pres­i­dent Clin­ton aide, Te­neo con­cocted a strat­egy to tamp down con­tro­versy, ac­cord­ing to a con­fi­den­tial March 28 memo the spin­meis­ters sent to Olayan ex­ec­u­tives, a copy of which was ob­tained by The Post.”

Te­neo ad­vised, “Po­si­tion the ad­di­tion of RXR as a pos­i­tive, nat­u­ral de­vel­op­ment in the re­de­vel­op­ment process. Re­duce spec­u­la­tion that this ap­point­ment is in­dica­tive of chal­lenges with the ren­o­va­tion. Re­in­force that both the land­mark­ing process and re­design are mov­ing ahead and that there will be no in­ter­rup­tion.”

Back in 2016, the va­cant build­ing with its in­fa­mous Chip­pen­dale top, was pur­chased by Olayan for $1.4 bil­lion af­ter plans for re­de­vel­op­ment by the prior in­vestors failed.

It all started in 2013, when real es­tate in­vestor Joseph Chetrit and his usual part­ner David Bistricer pur­chased the build­ing for $1.1 bil­lion from Sony. The pair had high hopes for the tower lo­cated at 550 Madi­son Av­enue. They drew up plans to con­vert the build­ing into a lav­ish res­i­den­tial de­vel­op­ment, back when lux­ury apart­ments were all the rage for Man­hat­tan bil­lion­aires. Un­for­tu­nately, this craze soon dropped off and the lux­ury mar­ket con­tin­ues to de­cline even now.

At the time how­ever, Chetrit hired the fa­mous ar­chi­tect Robert A. M. Stern to con­vert the 37-floor of­fice build­ing, lo­cated be­tween 55th and 56th Streets, into res­i­den­tial apart­ments, with eight floors re­served for a fives­tar hotel by an in­ter­na­tional hotel group. Plans to build a $150 mil­lion triplex pent­house with a mar­ble stair­case were also filed by Chetrit.

Then in mid-2016, in line with the lux­ury real es­tate de­cline, Chetrit de­cided to aban­don his plans of res­i­den­tial trans­for­ma­tions and signed a deal to sell the Sony Build­ing for $1.4 bil­lion to the Olayan Group, which is run by a Saudi fam­ily, and Chels­field, which man­ages its prop­er­ties. Olayan's in­ten­tions from the start were to keep the prop­erty as of­fice space.

Chetrit and his part­ner Bistricer owed $925 mil­lion in short-term loans on the prop­erty that they were pres­sured to pay back. The pair also faced dif­fi­cul­ties in get­ting a con­struc­tion loan due to the de­cline in the mar­ket for high priced apart­ments mak­ing lenders wary.

Ac­cord­ing to a New York Times re­port at that time 2-years ago, “Mr. Bistricer said he and Mr. Chetrit were pro­hib­ited from talk­ing about the deal un­til the sale closed at the end of May.

‘It was prov­i­den­tial,' said Nancy Packes, a con­sul­tant for lux­ury res­i­den­tial projects, that Mr. Chetrit was able to find a cashrich buyer for the build­ing. Over the past three years, she said, the mar­ket for bil­lion­aire apart­ment buy­ers has gone from ‘mush to ice.'

‘Even break­ing even is a win,' added Ms. Packes, who was not work­ing on the 550 Madi­son project.

It was un­clear how much money the part­ners made. Es­ti­mated in­ter­est pay­ments for the build­ing to­taled $180 mil­lion over three years, and prop­erty taxes for that pe­riod came to nearly $45 mil­lion, ac­cord­ing to pub­lic records. Some of those costs were cov­ered by the rent Sony paid to con­tinue to oc­cupy the build­ing. The com­pany re­cently moved.

The part­ners also pre­sum­ably had to pay mil­lions of dol­lars for lawyers, ar­chi­tec­tural plans and the mar­ket­ing firm for the project.”

Philip John­son de­signed the tower as the AT&T head­quar­ters in the 1980s. In 2002, Sony pur­chased the build­ing from AT&T for around $236 mil­lion.

Bring­ing it back to the present, Olayan has fi­nally made sev­eral con­ces­sions. Most im­por­tantly they agreed to have the build­ing land­marked. In ad­di­tion, they con­ceded to pre­serve the “North­ern Sky” and “South­ern Sky” mu­rals made by Dorothea Rock­burne, which were in­stalled in the build­ing in 1993.

In Te­neo's memo to Olayan, the cri­sis-man­age­ment firm ad­vised, “We ex­pect that any cov­er­age of the an­nounce­ment will ref­er­ence the con­tro­versy around … the Sky Lobby mu­rals. We want to re­duce and man­age that spec­u­la­tion as much as pos­si­ble.”

Olayan ex­ec­u­tives were told by Te­neo that if any re­porters ask them about the mu­rals, their re­sponse should be: “we have great re­spect for Ms. Rock­burne and her work” and “the mu­rals are in place and fully pro­tected, and we are safe­guard­ing their fu­ture.”

The memo also said that “un­der strict em­bargo” news would be re­leased to a me­dia out­let, and the an­nounce­ment would be ac­cel­er­ated by a “Leak De­fense Strat­egy.”

Te­neo also ad­vised the Olayan should not pro­vide any com­ments on the record re­gard­ing RXR. Ev­ery­one fol­lowed this script, in­clud­ing Rech­ler, when The Post ap­proached them for in­for­ma­tion last Wednesday evening.

Scott Rech­ler-led RXR Realty will be the lead de­vel­oper on the Sony Build­ing project. (Photo via RXRre­alty.com)

In 2013, real es­tate in­vestor Joseph Chetrit with a part­ner pur­chased the build­ing from Sony for $1.1 bil­lion.

The Sony Build­ing lo­cated at 550 Madi­son Av­enue in 2015. (Photo Credit: Wikipedia)

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