How did Joseph Chetrit buy that building?


Two weeks ago, executives at Sony placed calls to a handful of investors vying for its 36-story Manhattan headquarters that spans an entire block on Madison Avenue from East 55th to East 56th streets.

The short list, which included competing groups led by Joseph Chetrit, Harry Macklowe and Joseph Sitt, had just vaulted over a deep field of big-league bidders, including Vornado Realty Trust and SL Green Realty Corp. Those who had cleared the first hurdle had agreed to pay $1 billion or more—and commit to a $100 million cash down payment for the distinctively topped, granite-clad tower designed by Philip Johnson in 1984 as the headquarters for AT&T.

But Sony wanted more: an irrefutable demonstration of who truly had the financial wherewithal to pull off one of the city’s highest-stakes deals in years. 

Advantage: Chetrit

That’s when Mr. Chetrit stole the show by producing a letter of credit for nearly $600 million from a Middle Eastern sovereign wealth fund, according to a person with direct knowledge of the negotiations. Two days later, on Jan. 17, Sony announced it would sell the property for $1.1 billion to Mr. Chetrit, who plans to turn the tower into residential condominiums and a hotel, and to upgrade its retail space.

“In the end, it came down to certainty of closing,” said Ben Lambert, chief executive of Eastdil Secured, Sony’s broker in the deal.

Starting off with such a large sum in hand certainly helped Mr. Chetrit increase those odds. At this point, however, the only thing that is truly certain is that Sony will get to keep Mr. Chetrit’s $100 million free and clear unless he can come up with a cool $1 billion by the mid-March deadline imposed by the electronics giant in order to beat the close of Japan’s fiscal year.

Asked to comment last week on that effort, Mr. Chetrit simply said: “I cannot speak. I’m too busy.”

And with good reason. With the clock ticking, Mr. Chetrit and his partner in the acquisition, investor David Bistricer, are scrambling to put together the capital at a time when even the biggest names in the industry are finding it difficult to raise huge sums.

Complicating Mr. Chetrit’s efforts is the fact that many New York real estate experts believe he is overpaying for the property, especially given that he’ll likely need as much as $500 million in additional funds to pay for its residential conversion.

Several sources last week also wondered how the low-profile, media-shy player, who runs his real estate empire out of a modest office at 404 Fifth Ave., a building he owns in the garment district, has the staff to tackle the logistics and detailed management of such a complex project.

Mr. Chetrit’s admirers insist he’s up to the task. They note, among other things, that in 2004 he was one of a group of five New York investors who paid $840 million to buy America’s tallest skyscraper, Chicago’s Sears Tower, now rebranded as the Willis Tower.

“Never bet against Joe Chetrit,” said Robert Rosania, an executive at Stellar Management, which co-developed five residential rental towers called Columbus Square with Mr. Chetrit and sold off the complex last year for $630 million. “There are very few [real estate] investors in the city of New York who have made as much money as he has in the last decade.”

One other thing he has going in his favor: a bit of breathing room. As part of the sale, Sony has agreed to stay put for another three years. Whether its rent payments can cover the high cost of all the debts Mr. Chetrit hopes to take on is another question. Mr. Chetrit plans to sell off or lease at least 100,000 square feet on the lower stories to a hotel operator in a deal that could generate much-needed cash. Given the Sony Building’s location in the Plaza district, home to many of New York’s priciest hotels—from the Pierre to the St. Regis—the property would likely appeal to any number of five- and six-star hostelries.

“Madison Avenue is an address that resonates globally, and the Sony Building is also physically very distinctive and beautiful,” said Mark Gordon, a hotel developer with Tribeca Associates. “Joe could create a very dramatic hotel at a time when there are quite a few luxury hotel brands that want to expand or be here, such as Montage or Shangri-La.”

Lofty projections

What most set Mr. Chetrit apart from the more than 20 bidders for the property are his lofty projections for the residential portion of the project. He plans to convert about 600,000 square feet into condos, priced at a gold-plated $4,000 per square foot or more. This for a building with limited direct sightlines of the one thing that most of the world’s wealthy want to see out their windows in New York: Central Park.

“The location is more about business and shopping, but that is attractive to a lot of buyers, especially foreigners and a growing influx of Chinese coming here,” said Ilan Bracha, a broker of high-end condos at Keller Williams.

Adding to the risks potential lenders must weigh is the final project’s long timeline. Most sources say it will take Mr. Chetrit nearly two years after Sony’s exit to convert to condos. That would push the residential portion’s delivery date out to 2018—a long time to wait for the payoff he’ll need to settle his monumental debts. On the other hand, it’s possible the city’s real estate market will be a lot stronger another half-decade down the road.

“Right now, it’s not hard to get $3,500 or $4,000 [per square foot] for an apartment,” Mr. Bracha noted, “but where the market will be in five years from now is a good question.”

 

Crains New York: How did this man buy that building?

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