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