Battle of Milsteins: Old Brothers Clash, As Do Grown-Up Boys

In 1983, Paul and Seymour Milstein took a gamble on 42nd Street. Hoping for an inside track on Times Square’s redevelopment, the brothers, in partnership with the family of Manhattan real estate baron Jack Weiler, set down $5 million for a 40,000-square-foot parking lot at the corner of 42nd Street and Eighth Avenue.

Through ups and downs and Disney and Doug Durst, the Milsteins never gave up their dream of leaving a mark on Times Square. Years of ballyhooed plans yielded only stymied negotiations, recriminations and lawsuits. Still, they held on to the property, even as the state condemned every other lot on the block.

Yet the Milsteins seem finally to have met an enemy capable of prying away their dream property: the Milsteins.

In recent months, a bitter-and seemingly long-standing-private feud between Paul’s son Howard, a brash would-be sports mogul, and Seymour’s son Philip, the low-profile head of Emigrant Savings Bank, has burst into warfare in open court. Now Paul, 78, and Seymour, 80, brothers who built their father’s flooring business into a real estate empire, are engaged in a nasty battle over the assets of a lifetime.

Claiming mismanagement, Paul Milstein is trying to remove his nephew, Philip, as chief executive officer of the family’s $7.4 billion bank, and put Howard in control. Philip Milstein, in a lawsuit of his own, is claiming Howard sold the family’s real estate brokerage without permission and may have misused the proceeds in his ill-fated pursuit of the Washington Redskins.

The family’s lucrative partnership with the Weiler-Arnow family has been dissolved. And the parking lot on 42nd Street will most likely be sold to another developer. As the only privately held piece of land left on 42nd Street in Times Square, the $5 million parking lot today is worth, by one estimate, $150 million.

“We do not want this property to be damaged and subsumed in a Milstein family feud,” said Richard Seltzer, an attorney for the Weiler-Arnows, who sided with Seymour Milstein in thwarting his nephew Howard’s recent attempts to develop the property as a 35-story office tower.

“We want to rescue this property and sell it at the peak of the market,” said Mr. Seltzer. The phone has been ringing off the hook.

Members of both sides of the Milstein family, and their attorneys, declined to comment on any of the family’s disputes.

“It’s really sad,” said one real estate figure who’s known the family for years, “because Paul and Seymour were able to spend virtually their entire lifetimes working together as partners. They’re two older men, and at this stage of their lives, having always worked together, it’s now clear there has to be a division between the children.”

The origins of the dispute are murky. But it’s clear that one family member stands at the center of it all: Howard Milstein, who, after failing to buy a National Football League team and selling his beleaguered New York Islanders, has recently turned his attentions back to the family business.

Predictably, each side of the family blames the other for starting the fight.

“It is my belief,” Howard Milstein said in an affidavit filed in May in State Supreme Court in Manhattan in the lawsuit over control over the 42nd Street property, “that Seymour Milstein, and his children, Constance Milstein and Philip Milstein, have encouraged [the Weiler-Arnow family] to file the current action, and have supported [them] in this action, solely for the purpose of gaining leverage in connection with other disputes among members of the Milstein family.”

“We’re very well aware that Howard is trying to pick fights with Philip and his Uncle Seymour,” Mr. Seltzer countered.

Yet many close to the family see a subtler, and more inevitable, force at work: the passing of one generation, begetting power struggles in the next.

“I could show you Charlemagne,” said one close family associate, “and I could show you a kingdom divided in three parts.”

Real Estate Royalty

The imperial metaphor, if a bit overheated, is one that pops up regularly in conversations with Milstein associates.

“This family, they’re people who regard themselves as Manhattan’s royalty,” said one leading developer. “And they conduct themselves accordingly.”

The empire began modestly. Paul Milstein went to work for his father’s Circle Floor Company after World War II. Older brother Seymour joined the family’s new tile business. In the postwar boom, there were plenty of new buildings, and they all needed floors.

But the brothers aspired to do more than floor. In 1961, Paul Milstein bought a site on 68th Street between Broadway and Amsterdam and built the 35-story Dorchester Towers. Today, the family is worth a reported $5 billion.

The Bronx-bred brothers acquired a reputation for a bare-knuckled business style and willingness to fight disputes in court. That reputation hampered the brothers when they turned their attention to Times Square.

It was a daring move. Times Square then was a pit of massage parlors and porn shops. But state officials had little interest in giving their lucrative development deals to the likes of the Milsteins.

They lost bids to develop office towers to developer George Klein, a favorite of former Mayor Ed Koch. Officials also bypassed their bid to develop a wholesale merchandise market (slated to go up on the parking lot and adjacent properties), first wooing the Kennedy family, flirting with Mr. Klein, then handing the project to a consortium including developer Jerry Speyer-who hadn’t even bid for the site. The Milsteins eventually brought suit charging political favoritism for Mr. Klein, whom Paul Milstein once referred to as “Nazi Klein.” But the real estate market collapsed and the project never got off the ground.

Over the years, the Milsteins have announced grand plans to turn the property into a budget hotel, a theater, apartments and an office building. Those deals ran aground, too, as state officials chose other developers for prime sites, and resisted giving the brothers big tax breaks to build on their own property. Still, the Milsteins held on to their parking lot.

“They had bought the property, put up the dough,” said the Manhattan Institute’s William J. Stern, who negotiated with the Milsteins over the property back in the 80’s, when he was running the state’s Urban Development Corporation. “They owned it and they just did not feel like being bounced because they weren’t popular with a certain set.”

Mr. Stern said he had favored letting the Milsteins develop.

“Paul and Seymour were a dynamic duo,” Mr. Stern said. “They were totally different personalities. Seymour was very scholarly and thoughtful. Paul was more aggressive. Together they were a tremendous combination, and they understood New York real estate.”

The personality differences led one associate to nickname them “the diplomat and the barbarian.”

It is clear that they passed some of their personality traits, though not their interdependence, on to their children.

Howard, 49, is Paul’s son, portly like his father, and with the same ambition and aggression, and a Harvard law degree to boot. Riffing off his initials, “H.M.,” his uncle Seymour has been heard to refer to him as “His Royal Majesty.”

“Howard is gregarious, generous,” said Manhattan landowner and Republican power broker James Ortenzio, a friend. “Howard is one of the few people who are a lot of fun.”

In recent years, he has made forays into a series of high-profile projects, with a mixed record of success. Last month, his ownership group (including his younger brother, Edward) sold the Islanders for $190 million, a $5 million loss, leaving behind a gutted team payroll, a lawsuit against the company that operates the Nassau Coliseum, and nasty spat with Long Island politicians, one of whom referred to the Milsteins as “pigs at the trough.”

His record bid for the Redskins, $800 million, was rejected by the N.F.L., wary of his debt burden and brawling reputation. The family name wasn’t burnished any when, shortly before he filed a suit claiming he was undermined by the N.F.L.’s favored bidder, John Kent Cooke, Mr. Milstein sent a family employee to Bermuda wearing a wire, posing as an investor in an attempt to get Mr. Cooke to say something incriminating. (The ruse failed; Mr. Cooke and Mr. Milstein are still fighting in court.)

In Niagara Falls, Mr. Milstein’s $130-million plan to redevelop the dilapidated town’s center once caused residents to hail him as a savior. But the plan’s centerpiece, a casino, has fallen by the wayside (gambling being still illegal in New York). “They’ve missed a lot of deadlines,” said Mayor Irene Elia. “We’ve given them an ultimatum of July, and so far I haven’t seen anything.”

“I worked with both Paul and Howard at Battery Park City,” said former authority chief Meyer (“Sandy”) Frucher, now chairman of the Philadelphia Stock Exchange. “I knew them to be creative, energetic and honorable-if not occasionally loud. However, when you get to know them, they’re actually lovable.”

By contrast, Mr. Milstein’s cousin Philip, 51, has taken after his father Seymour’s quieter approach, associates say. “Philip is the mild-mannered chairman of Emigrant,” said one developer.

The Milstein brothers bought Emigrant Savings in 1986, installing their sons as vice chairmen. When asked why they wanted a bank, they said it gave the kids something to do. They’ve since built Emigrant Savings into one of the largest thrifts on the East Coast.

Eventually, Philip took over at the bank, while Howard ran Milstein Properties and the Douglas Elliman residential real estate brokerage.

Dueling Cousins

The cousins have always been jealous of their turf. When Philip, and not Howard, was named as the Milstein family representative to the Grand Central Partnership board in 1997, Howard stormed out of a board meeting threatening to sue. Philip quickly got out of his cousin’s way, but Howard Milstein, along with other developers, embarked on a lobbying campaign with city officials that eventually helped cost board president Dan Biederman his job.

“They really should just have a duel,” said Norman Sturner of Murray Hill Properties, who served on the partnership board shortly afterward.

When Howard Milstein turned his attention away from his feuds with Long Island politicians and the N.F.L., and back toward the family business, it was only a matter of time, some observers said, before he started fighting again.

“He’s a very bright guy,” said one developer, “but he’s got this sort of arrogance.”

The labor division broke down completely last year as age increasingly sidelined Paul Milstein, and he began to cede control of his interests to Howard and Edward.

Last May, Howard Milstein sold the Douglas Elliman brokerage for around $70 million. He didn’t bother to inform, or seek approval from, the other side of the family, which held a 40 percent share, according to a lawsuit filed in November by Philip Milstein in Delaware Chancery Court.

When he asked to inspect the books of the company, Philip Milstein says his cousin gave him only cursory financial reports. “Even the limited documents produced to date,” his lawyers argued in a brief filed in Delaware, “confirm Mr. Milstein’s initial concerns of potential mismanagement and self-dealing.” Howard Milstein kept his law firm on a $10,000-a-month retainer, paid out of $4 million of the sale proceeds reserved for “operating expenses,” leading Philip Milstein to question, the brief says, whether Howard and Edward Milstein “used the [company’s] resources and personnel to support their failed attempt to purchase certain sports franchises.”

In February, a Delaware judge, saying Philip Milstein had been “stonewalled,” ordered Howard Milstein to open his books to a forensic audit.

Soon after, according to an American Banker report, Paul Milstein wrote to the shareholders of Emigrant Savings, asserting that Philip Milstein “lacks critical thinking” and should be replaced as head of the bank.

“It is time for a change,” he wrote.

Meanwhile, Howard Milstein was moving to close a deal to develop the family’s property on 42nd Street. On May 5, 1999, Paul Milstein had written to his brother and the other partners, saying his sons were “the only ones authorized by me to do anything on this project.” Howard Milstein began negotiating with prospective tenants, including Ernst & Young, PricewaterhouseCoopers and Disney, and with state officials, whose approvals were needed to develop the 1.1-million-square foot office building he envisioned. He went so far as to have architects Fox & Fowle design the 35-story office tower, with space for an entertainment center (think Disney) on the ground floor.

Representatives of the Milstein’s partners at the site, the Weiler-Arnow family, complained loudly to Howard Milstein, especially when they heard the building was being marketed as a “Milstein project.” Members of the family have been gradually divesting themselves of their real estate holdings since patriarch Jack Weiler died in 1995. They had little interest in going into business with Howard Milstein.

On April 14, the Weiler-Arnows filed suit in Manhattan, accusing Howard Milstein of “unauthorized acts,” which were “antagonistic to the best interests of the partnership and [threatening] to diminish the value of the site.”

With the support of Seymour Milstein’s side of the family, the Weiler-Arnows asked to be put in charge of selling the land. Howard Milstein is fighting to have an independent party or, better yet, Howard Milstein, in charge of disposing of the property.

Days after the partnership on the Times Square property was dissolved, Paul Milstein and his sons fired back with a suit seeking to remove Philip Milstein as head of Emigrant Savings. In a complaint filed in April in State Supreme Court in Manhattan, they alleged that Philip Milstein had assumed “dictatorial control” of Emigrant Savings, refusing to call a meeting of shareholders, and had cost the bank hundred of millions through mismanagement.

A showdown could come at this year’s board of directors meeting, scheduled to begin May 23. At the same time, John Zuccotti, head of Brookfield Financial Properties’ New York office, a former deputy mayor and a longtime family adviser, is said to be trying to mediate a larger settlement between the family factions.

Meanwhile, on 42nd Street at 7th Avenue, construction cranes are at work on a new skyscraper, the Reuters building. There are plans for a new New York Times building on 8th Avenue nearby, and a tower atop the Port Authority across 8th Avenue from the Milsteins’ parking lot. At night, a red Loews Theater marquee gleams down on the hoods of cars parked there, reflecting what might have been.

At long last, the Milsteins seem to have accepted the likelihood they will never build on the property. “Because the two branches of the Milstein family have become increasingly fractious and mistrust each other,” Howard Milstein said in his affidavit, “… an independent third party should be appointed to hold a public auction.”

Many believe that Howard Milstein’s heart has never been in development, anyway.

“Howard’s always wanted to run the bank,” said one family associate. “Howard’s wanted to move away from real estate, since I think Howard aspires to be a revered civic figure.

“The real estate stuff-it’s more rough and tumble.”