The King of Columbus Circle Has Plans
By Zeke Turner
November 30, 2010
On Nov. 15, Stephen Ross, chairman of the Related Companies and owner of the Miami Dolphins, strode into Room 238 of the New York State Supreme Court, four minutes after litigation over 3 Columbus Circle was slated to begin. A dozen lawyers waited around a square table in the center of the room, rattling gold watches and eyeing stacks of documents thicker than phone books. A dusty desk and three side-by-side metal filing cabinets sat in the corner next to three large windows dressed in crooked French blinds.
Mr. Ross swept past his opponent, Joe Moinian, the building's owner and chairman of his own development firm, sitting upright on a front-row bench closer to the entrance. A big knot in Mr. Moinian's baby-blue silk tie hugged his neck. Mr. Ross sat down on a bench of his own, front and center, and crossed his legs, knees stacked. "Mr. Ross, I haven't seen you in years," said Judge Charles Ramos from the other side of the room. His robe hung open below his bow tie. "It's like an old-folks home."
The city's most powerful developer grinned and arched his eyebrows. "Thank you," Mr. Ross said. A black ribbed sock and black hand-sewn leather loafer with tassels dangled from below the right cuff of his navy pinstriped suit. His plan to take over Mr. Moinian's building by controlling the debt is unusual for Mr. Ross, but Columbus Circle is his home turf: He keeps a condo and office in the Time Warner Center, which Related co-developed after helping demolish Robert Moses' Coliseum. Knocking down Mr. Moinian's building could be the next step in remaking the area.
But at 3 Columbus Circle, Mr. Ross owns only the $250 million mortgage, which collects $70,000 in interest every day. After Mr. Moinian stopped making payments in January, Mr. Ross and his financier, Deutsche Bank German American Capital Corporation, accelerated the mortgage, demanding full payment and an additional $54 million as a prepayment penalty. It was the first step toward foreclosure and taking the building away from Mr. Moinian, who has already seen his 20 million-square-foot empire shrink during the Great Recession (Barclays Capital seized 475 Fifth Avenue from Mr. Monian and a partner in 2009).
Mr. Ross appeared on CNBC's Squawk Box on Sept. 10 to talk about the real estate market and the Dolphins alongside Richard LeFrak. Mr. Ross' picture floated onscreen above the title "KING OF COLUMBUS CIRCLE."
"We bought a note on a property that was kind of adjacent to Time Warner Center," he told the show's host, Carl Quintanilla, just after noon. "We saw that there was a higher and better use and we bought the note hoping to do something there." CNBC cut to B-roll of 3 Columbus Circle with the Moinian Group's "M" logo on the scaffolding in clear view.
When Mr. Moinian bought the building, a homely red-brick tower built in the 1920s at 1775 Broadway for General Motors, for $130 million in 2000, it was mostly full. Newsweek kept offices there until 2009. Before credit dried up, Mr. Moinian began a bold plan to raise the building's profile, investing $175 million for renovations, including a fresh sheath of glass. He changed the name to 3 Columbus Circle and raised asking rents.
It's not the ugliest building in the area, but the glass, which catches the reflection of Lord Norman Foster's Hearst Tower across the street, isn't fooling anyone. According to media reports, Mr. Ross would like to demolish Mr. Moinian's tower and replace it with one designed by a famous architect; he is planning to move the city's first Nordstrom's to retail space on the lower floors to anchor the tower, and fill the upper floors with 140 condominiums; and the company began shopping for architects in September. Related declined to comment.
"It's just not something that I think a lender should be saying," Stephen Meister, Mr. Monian's lawyer, told The Observer over the phone on Monday. Mr. Ross has stipulated that any new tenant in the building would have to agree to a six-month demolition clause with no provision for reimbursement.
Between Mr. Moinian's raising rent in the building and the lenders' attempts to scare off new tenants, 3 Columbus Circle is now less than 20 percent occupied. On Monday, a leasing advertisement on the building's black scaffolding read, in big white letters, "contiguous block of up to 650,000 RSF"—that's in a 770,000-square-foot building. From CNN's 10th-floor cafeteria across the street in the Time Warner Center on Monday afternoon, The Observer counted four construction workers painting sealant around a drain and installing glass sheathing on the fourth-floor balcony—perhaps dutifully polishing the Titanic's banister.
In court earlier this month, Mr. Meister, a litigator's litigator wearing a dark pinstriped suit that offset his razorback brown hair, told Judge Ramos that he wants to perform what he calls "a Ross-ectomy." There was hushed laughter. The judge slouched and gazed through half-moon spectacles at the tip of his nose.
"It's not that there are bad vibes," Mr. Meister continued later.
Judge Ramos was amused: "Bad vibes?"
"It's that there is a cancer in the building!" Mr. Meister bellowed on from a podium next to the lawyers' table. "I have to get rid of Mr. Ross. I have to get rid of Mr. Ross, O.K.? I have got the money; he's right here." Mr. Meister slapped his right hand down on the shoulder of a plump man in a gray suit sitting at his hip. The only way that Mr. Moinian can take the scalpel to Mr. Ross is by paying off his $250 million mortgage.
The gray suit was a representative for SL Green, the publicly traded real estate company, run by Marc Holliday, that controls more than 30 percent of the office space in Manhattan. Mr. Holliday agreed in October to help Mr. Moinian refinance the building as part of a joint venture.
The biggest sticking point for Mr. Moinian is the $54 million prepayment penalty. Lawyers for both sides spent the majority of the 63 minutes in court arguing over the language that describes it in the mortgage document. Do 10 words between two commas on page 99—"provided that the Loan has not been accelerated by Lender," which it has been—modify the words ahead of the first comma or behind the second? And so on.
Halfway through the hearing, Judge Ramos examined the documents in front of him, head in chin, and sighed. He pushed his glasses up his nose. There was silence for one minute and 15 seconds as he stared at the mortgage. At the back of the room, an executive sitting to Mr. Ross' right wrapped his arm over the developer's shoulder and began whispering in his ear. Mr. Ross stared down at his dangling right loafer and nodded gently. At the end of the silence, Judge Ramos scratched his head and read the clause aloud. "... And then there's a comma."
"I am not going to try to argue with your logic," the judge said, "but I have to deal with the document as written."
Later, when discussion of existing examples of foreclosure practice came to a head, Mr. Meister gently hip-checked the skinnier Mark Walfish, Deutsche Bank and Related's lawyer, away from the podium to get a point in. Mr. Walfish was not amused: "Judge, this is great—this is like The Jerry [Springer] Show."
"I want to talk to the two of you in the back," the judge said. Mr. Meister continued to press his point forward. "In the back, right now!" The lawyers followed the judge out of the room.
Twenty minutes later, the lawyers emerged from the judge's chambers. "I need Joe. Is Joe here?" called Mr. Meister. Mr. Moinian and Mr. Ross, still yet to acknowledge each other, returned with their lawyers to see the judge. Twenty minutes later, they left without a word.
Nothing was settled.
On Nov. 24, the day before Thanksgiving, a representative for Mr. Meister's office dropped off at the State Supreme Court a Bank of America cashier's check signed by SL Green Management for $258,550,838.52. The numbers run to the edge of the paper. If Mr. Ross picks up the check by Dec. 6, the dispute is over and Mr. Moinian will have a new financier. If they leave the check in the court's vault, litigation over the prepayment penalty will continue, with Mr. Ross losing more than $70,000 in interest daily.
Nobody has any idea what Mr. Ross' next move will be.
"By the way, why would any lender turn that down?" Mr. Meister asked The Observer, referring to an earlier offer turned down by the lenders that included the prepayment penalty in escrow. "Think about that! Why would any lender whose real goal is to get repaid turn that down? That proves that they're predatory! The only reason to turn that down is because they want to steal the building. That's the only reason, O.K.?"
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