In the early 90′s, when the city was in the throes of a recession, a Soviet immigrant named Tamir Sapir began buying up some of the most forsaken office buildings in town. Mr. Sapir was something of a character. He claimed to have made a fortune exporting stereo equipment and he was known as “the Crazy Eddie of Russia.”
He had a weakness for gold chains, flashy cars and modish clothes that would make even Austin Powers blush. His taste in real estate was just as questionable. Among other things, Mr. Sapir spent $20.5 million on 2 Broadway, a clunky 33-story white elephant that gazed mournfully over Bowling Green.
The city’s clubby real estate community snickered and speculated rather imaginatively about how “the Crazy Eddie of Russia” really made his money. But then the market rebounded, his holdings became very valuable and the snickering tapered off.
In July, the Metropolitan Transportation Authority agreed to lease 2 Broadway and pay their new landlord roughly $38 million in rent each year for the next 49 years -by several accounts, a generous deal for Mr. Sapir.
It was a decision the M.T.A. bureaucrats may live to regret. Already the agency has been taken on a wild ride by Mr. Sapir, spawning an ugly landlord-tenant battle in State Supreme Court in Manhattan. And even if the legal feud is close to being resolved-as both sides agree it is-there are still questions about Mr. Sapir’s financial health and whether he really intends to meet the M.T.A.’s needs.
The M.T.A., whose chairman, Virgil Conway, is an appointee of Gov. George Pataki, is so concerned that it filed two lawsuits in December, which seek to keep its deal with Mr. Sapir’s company from hurtling off the tracks.
In one case, the authority alleges the company, ZAR Realty Management Corporation, attempted to fraudulently take out an $86 million loan with Credit Suisse First Boston Mortgage Capital L.L.C. against 2 Broadway. The M.T.A. was furious because it is funding $55 million in renovations in the building that give the agency an ownership stake in the property as part of the transaction.
A second lawsuit alleges that Mr. Sapir’s company completely failed to live up to its agreement to act as the developer of the renovations. The authority was so disturbed when ZAR allegedly failed to fulfill the most rudimentary terms of the deal-like getting the project insured-that it slapped the company with an $80 million lawsuit. What’s more, it wrested the project from Mr. Sapir’s hands and entrusted the renovations to one of the real estate mogul’s former lieutenants.
Mr. Sapir’s alleged misdeeds at 2 Broadway threaten to do more than simply confound the transportation authority’s bureaucrats. The M.T.A. leased 2 Broadway primarily because it needs a new home for nearly 1,500 employees who work in the New York Coliseum, which the agency is in the process of selling to developer Stephen Ross for $345 million.
Mr. Ross plans to demolish the Coliseum and build a glorious new, $1.1 billion headquarters for Time Warner Inc. But real estate sources said the M.T.A. can’t close the deal until it moves its staff out of the former exhibition hall on Columbus Circle. So any delays caused by Mr. Sapir at 2 Broadway could deprive the authority of much needed income from the Coliseum sale.
It’s difficult to fathom why Mr. Sapir would do anything to interfere with the cash flow of a tenant that has promised him tens of millions of dollars annually for the next 49 years, on terms that industry insiders said were favorable to ZAR. It becomes even more baffling amid reports from a number of real estate brokers and lawyers who have done deals with ZAR and complain that they haven’t been paid.
Mr. Sapir was on vacation in Mexico and unavailable for comment. Robert Epstein, ZAR’s assistant general counsel, insisted the company’s accounts were in order and that it was close to settling its legal problems with the M.T.A. He downplayed the court battle as nothing more than an honest dispute between two groups of fair-minded people.
Todd Sollis, an attorney for the M.T.A., also said he believes the two cases are nearly resolved. He declined to comment in detail about the terms of the settlement except to say that the decision to take the refurbishment project away from Mr. Sapir is an important element.
But he was much less diplomatic about the owner of ZAR Realty and his employees and their behavior at 2 Broadway. “They just didn’t have their act together,” Mr. Sollis said. “I mean, it was mind-boggling.”
Mr. Sapir has long been a mystery man in the city’s real estate world. He never attends the real estate conferences to which so many of his peers flock. Even people who have met and worked with the ZAR Realty owner are unclear about his history and the source of his money.
He reportedly hails from the former Soviet republic of Georgia and arrived in the United States in the early 1980′s. Some acquaintances have said he drove a cab. Others have said he ran “your typical lower Fifth Avenue electronics store.”
When the trade barriers between America and Russia fell, people who know Mr. Sapir said, he made a fortune in the electronic importing business and oil distribution. His rapid wealth also fueled gossip.
Mr. Epstein dismissed the talk. “When you are dealing with someone from the Soviet Union, people look at that and say, ‘Maybe he’s been involved in shady deals,’” he lamented. “That’s sort of prejudicial.”
Mr. Epstein, however, declined to discuss Mr. Sapir’s past. “I don’t know,” he said. “I can’t tell you. I’ve never done research on Tom Sapir’s background.”
One thing’s for sure. In the early 90′s, Mr. Sapir began paying cash for some of the least attractive buildings in Manhattan. In 1995, he bought 2 Broadway, an ugly duckling that Olympia & York had to unload after filing for Chapter 11 bankruptcy protection.
Big-time realtors thought Mr. Sapir was a rube who didn’t understand that his properties were worthless. More than a few of them were convinced the 1.6 million-square-foot behemoth, erected in 1959, was so passé and so far away from midtown that it would never be a money maker. They actually believed it made more sense to rip the monstrosity down and build something smaller in its place.
Mr. Sapir disagreed. He hired Skidmore, Owings & Merrill to do $100 million in improvements at 2 Broadway, including an exterior makeover that would replace the building’s drab industrial visage with an electric blue facade. As the real estate market tightened in 1997 and it became harder and harder to find buildings with enough space to house a major corporation, Mr. Sapir found himself being romanced by Goldman, Sachs & Company, Empire Blue Cross and Blue Shield and the M.T.A., all of whom were suddenly enamored of 2 Broadway.
Mr. Sapir usually let his executive vice president, Fred Contini, do most of the talking to such corporate types. According to people who met with him, Mr. Sapir sometimes acted as if he didn’t really understand English. It was clear to them that he understood everything that was said.
He was less subdued when it came to spending fast-growing wealth. He drove a Rolls-Royce. He made regular trips to gambling meccas like Atlantic City and Las Vegas, where he was treated like a high roller. He broke ground on a 56,000-square-foot mansion in Kings Point, L.I. And he entertained his guests on a 160-foot-yacht that he anchored for a time in the Battery Park City boat basin.
On deck, there was a bathysphere, a futuristic diving bell lowered into the depths of the ocean on a cable, and numerous Zodiac boats, inflatable rubber crafts powered by outboard motors. Down below, guests gathered for meals around a gold-framed glass dining room table in chairs with carved lion’s heads. The interior was adorned with faux animal skins and cushions bearing Gucci-like patterns. Said one visitor: “The word ‘bordello’ comes to mind.”
Then last July, Mr. Sapir struck his deal with the M.T.A. at 2 Broadway. Anybody with a rudimentary grasp of arithmetic could see it would make him a very wealthy man indeed. “It was a major deal,” said Jonathan Mechanic, chairman of the real estate department at Fried, Frank, Harris, Shriver & Jacobson.
It was a deal, however, that seemed to favor Mr. Sapir more then the M.T.A.
As part of the agreement, Mr. Sapir agreed to perform $55 million in refurbishments-including the modernization of the elevator banks and the upgrading of the lobby, bathrooms and heating systems-that the agency needed to be completed before it could move into the building.
But unlike most other long-term leasing deals, the agency agreed to fund the $55 million renovation deal. The authority offered Mr. Sapir a $4 million development fee, and dangled an additional $3 million in incentive payments if the work was completed ahead of schedule.
It soon become clear that was highly unlikely. In September, the M.T.A. complained to ZAR that the company hadn’t properly insured the project or gotten performance bonds from the contractors on the job. The authority said ZAR hadn’t even provided it with a time schedule for the crucial renovations.
“This is real basic stuff,” Mr. Sollis said. “I mean, providing basic insurance coverage for the project? If you can’t do that, you can’t get it done.”
Not surprisingly, there were delays. “Nothing was happening,” said a real estate executive familiar with the deal. “It was like a runaway train.”
ZAR’s Mr. Epstein insists that just wasn’t so. “ZAR was trying to perform what it was supposed to be doing,” he said. “Once again, this is a big deal and it’s very complicated.”
To make matters worse, the M.T.A. was horrified to discover that ZAR was in the midst of taking out a loan of more than $86 million with C.S. First Boston using 2 Broadway as collateral. According to the lawsuit, ZAR wanted to use the money to pay the fee of the M.T.A.’s real estate broker on the deal.
The agency was incensed because it had its own ownership stake in the building, through the improvements it was financing. “There’s no question about it,” Mr. Sollis said. “If we let this go, we go to raise money in the future and we’re pledging our collateral, our interest in these improvements and somebody else has pledged them? Our borrowing rate is going to go straight up, or else we just can’t use them as collateral at all.”
Mr. Epstein insists that, in this case, too, ZAR did nothing wrong. William Adamski, a C.S. First Boston managing director, also downplayed the tensions. “This is clearly one of the great successes of [the real estate boom],” he said. “Everything is going to be resolved in a way that is beneficial to both parties.”
The M.T.A., nonetheless, said ZAR repeatedly ignored the agency’s demands that it straighten things out. In December, it finally sued ZAR to block the loan and prevent any major delays on the much needed renovations. The lawsuits seek a total of more than $160 million in damages.
The authority also took the multimillion-dollar refurbishment project out of ZAR’s hands and turned it over to Mr. Contini, who left ZAR after a falling out with Mr. Sapir in January to start his own business. The M.T.A. is hoping to move into 2 Broadway in August according to its original schedule.
Mr. Contini had only nice things to say about his former employer and insisted the entire project is back on track. “It’s moving fast,” he told The Observer . “We’re on schedule and it’s going to be an incredible building.” Even his estrangement from Mr. Sapir won’t derail the project, he insisted.
Others are not so sure. And given the brief but turbulent history of this deal, the M.T.A. may be wise to hedge its bets about getting into 2 Broadway by the end of the summer. “It should happen,” Mr. Sollis said. “But then again, you never know.”