The Tower Broker: Zuccotti Makes Bid for Trade Center

An innocuous-looking government report sits on a shelf in

John Zuccotti’s office on the sixth floor of One Liberty Plaza. Published in

1981, The Future of the World Trade

Center represents the findings of a blue-ribbon panel chaired by Mr.

Zuccotti, a former deputy mayor who was then settling into life as a

high-powered private attorney. The trade center, Mr. Zuccotti’s report said,

ought to be sold to a private developer.

Nearly 20 years later, it appears that the man who wrote the

book on the Twin Towers may end up owning them, too.

The company Mr. Zuccotti now heads, Brookfield Financial

Properties, has emerged as the favorite among four finalists in the Port

Authority of New York and New Jersey’s competition to win a 99-year lease on

the Trade Center, according to numerous real estate executives, brokers and

financial analysts. “Brookfield is a no-brainer as the logical buyer,” said

Michael Cohen, the president and chief executive of the brokerage GVA Williams,

summing up the conventional wisdom.

The lease, expected to cost the winner as much as $3

billion, would add New York’s two tallest buildings to Brookfield’s downtown

portfolio, which already includes three of the four World Financial Center

buildings and One Liberty Plaza, just across a wind-swept square. Buying it would

allow the company to take advantage of economies of scale and would create, in

the words of one broker, “a city within a city.” And that’s just the beginning

of Brookfield’s recent flurry of development activity: In the last few months,

the company has broken ground on a new office tower at 300 Madison Avenue, at

42nd Street, for the Canadian Imperial Bank of Commerce; it has leased the top

floors of One Liberty to the Nasdaq stock exchange, which plans to make the

building its new headquarters; it has begun negotiating a deal to build a new

Battery Park City office tower for Brown Brothers Harriman; and it has sought

city approvals to build a 2.5-million-square-foot office building on top of the

rail yards at 31st Street and Ninth Avenue, hoping to capitalize on plans for a

new Penn Station and the westward expansion of midtown.

Leading this charge, at least strategically, has been Mr.

Zuccotti, 63. Part Zelig and part Talleyrand (the French foreign minister who

served the king, the Jacobins and

Napoleon), Mr. Zuccotti has an uncanny knack for being where the action is and

emerging without a scratch. He survived two harrowing years as Abraham D.

Beame’s first deputy mayor, weathering the city’s fiscal crisis so well that

some wanted him to run for Mayor himself. At Brookfield, Mr. Zuccotti steadied

a company that had come on hard times and made it into a contender again.

Brookfield was formed out of the remnants of the American

subsidiary of Olympia & York, the legendary real estate company owned by

Toronto’s Reichmann family. The company became Manhattan’s largest private

landlord in the early 1990′s, but it couldn’t escape the weight of bad debt.

Mr. Zuccotti, once a trusted confidant of the Reichmanns, took over Olympia

& York’s U.S. branch in 1990 and hung on as it buckled beneath $5 billion

in debts, fell out of the Reichmanns’ hands and came under the control of a

Canadian conglomerate.

“John pretty much single-handedly kept them out of

bankruptcy,” said Carl Weisbrod, who was the president of the city’s Economic

Development Corporation at the time Olympia & York went belly up and is now

the head of the Alliance for Downtown New York. The company now owns 10 million

square feet of Manhattan office space, making it one of the city’s biggest

landlords. Its stock price, trading at more than $16 a share on the New York

Stock Exchange, is up 55 percent over the course of this year.

So it’s no wonder that Mr. Zuccotti is bullish about his

Twin Towers.

“We believe we will win. We will take it over,” he told the

Toronto Globe and Mail in July.

Citing a confidentiality agreement the company signed with the Port Authority,

neither Mr. Zuccotti nor any Brookfield executives would comment for this

story. But in a conference call with analysts earlier this month, Brookfield

executives disclosed that they had lined up two financial partners as

co-investors in the project. They say they plan to refinance their Manhattan

office buildings, or sell part-ownership stakes in them, as a way to raise

money for their expansion drive.

Sources with knowledge of

the bidding confirmed that the company was one of four finalists, along with

Mortimer Zuckerman’s Boston Properties Inc., Steve Roth’s Vornado Realty Trust

and Larry Silverstein. The eventual winner will have to have the patience and

tact to first strike an agreement with the Port Authority, then negotiate a

settlement with the city on the real estate taxes owed by the building, all

while carefully balancing the competing egos and agendas of New Jersey Governor

Christine Todd Whitman, Governor George Pataki and Mayor Rudolph Giuliani.

To complete such a deal, you need an operator. Someone like

Mr. Zuccotti.

“John, I think, has a very shrewd understanding of how to

work with government,” Mr. Weisbrod said. “He’s always maintained good

relations, but the important thing is he knows how to use those relations. He

knows when to go to the commissioner, when to go to the deputy mayor, when to

go to the line operative on issues.”

A Rumpled Genius?

Friends describe Mr. Zuccotti as capable and gregarious, if

a bit schlumpy and scatterbrained. He’s heavyset and has a big, meaty

handshake. “He looks like a rumpled professor,” said Leonard Stern, for whom

Mr. Zuccotti did legal work back in his private practice days. “He’s a softy in

the sense that he doesn’t yell and scream, and he has a bit of a Columbo thing

to him,” said Tom Falus, a former Olympia & York executive who is now at

the brokerage Cushman & Wakefield Inc.

Mr. Zuccotti grew up in the Village and attended Princeton

University and Yale Law. He and his wife Susan, a historian, still live in a

brownstone in Carroll Gardens, Brooklyn, which they bought in the 1970′s, when

Mr. Zuccotti was in city government.

Mr. Zuccotti has always had an instinct for survival.

Appointed chairman of the Planning Commission by Republican Mayor John Lindsay

in the late 1960′s, Mr. Zuccotti managed to stay on even after the Democrats

took back City Hall in 1973 under Mr. Beame. Mr. Beame tapped Mr. Zuccotti as

his first deputy mayor in 1975, as the city struggled to avoid bankruptcy. The

acrimony was thick, but Mr. Zuccotti earned high marks from all parties, mostly

by telling the hard numerical truth.

“Even during the financial crisis, he was the one guy

everyone felt they could trust,” said civic activist Richard Kahan, then an

official at the state’s Urban Development Corporation.

In 1977, as he prepared to leave city government, Mr.

Zuccotti was asked to consider a run for Mayor. But Mr. Beame was running

again, and Mr. Zuccotti said he thought it would be disloyal to challenge him.

Mr. Zuccotti went to England for the summer and read Trollope. Mr. Beame was

defeated in the Democratic primary by Ed Koch.

When he returned, Mr.

Zuccotti traded on his brains, expertise and connections to get very rich. He

went into private practice with his law school roommate, Peter Tufo (now

ambassador to Hungary). He represented developers like Mr. Stern, Mr. Zuckerman

and Paul Milstein, who called Mr. Zuccotti “my cardinal.” He also represented

Paul Reichmann.

In 1990, Mr. Zuccotti left his firm behind to go to Olympia

& York. Mr. Reichmann was spending more and more time on Canary Wharf in

London and wanted someone to keep on eye on New York operations. An old

acquaintance and company executive, Meyer (Sandy) Frucher, recommended Mr.

Zuccotti.

“Clearly, in hindsight, he stepped onto the bridge of the Titanic ,” Mr. Falus said.

When he took the job, Mr. Zuccotti thought he was going to

be masterminding large-scale developments in New York and San Francisco. By

Christmastime, 1991, he was flying from New York to Japan on Paul Reichmann’s

jet, along with his boss and Richard Holbrooke, then of Lehman Brothers, to try

to renegotiate repayment of a large debt to Nomura Securities.

“I remember how stressed out he was,” said Alan Wiener, a

friend and former colleague of Mr. Zuccotti in the Beame administration, now a

mortgage lender. “You could just see it was the same as when we were at the

depths of the fiscal crisis.”

The turning point, as Olympia & York veterans now

remember it, came in the spring of 1992. Mr. Zuccotti called 100 or so of the

company’s creditors to a meeting in a recently emptied office suite on the top

floor of One Liberty Plaza. Mr. Zuccotti took the podium and went through a

statement of principles-among them, a commitment that the American company

would operate separately from the Canadian company, its creditors and the

Reichmanns. “You will all get your money back,” one participant remembers Mr.

Zuccotti declaring.

“I think we all almost fell out of our chairs,” Mr. Falus

said. “The facts and the numbers made it very, very difficult to understand how

that was possible. But he was saying ‘I’m going to take care of you,’ and

everyone knew [him] as the person who saved New York.”

Political Skills Help

He would need all his political skills to do it. With the

city, Mr. Zuccotti negotiated a deal in which Olympia & York paid its real

estate taxes on a month-to-month basis, as rents came in. Later, when it seemed

that huge real estate transfer taxes might keep the company from reorganizing

under American control, he and Mr. Frucher lobbied the city to forgo the tax.

They convinced the state legislature to repeal a similar state tax, and got

Assembly Speaker Sheldon Silver and Senate Majority Leader Joseph Bruno to

write letters to the bankruptcy court judge saying the law would be changed

soon and the tax shouldn’t hold up the reorganization.

At the same time, Mr. Zuccotti had to negotiate a thicket of

boardroom intrigue. At one point just prior to the crucial 1992 creditors’

meeting, Paul Reichmann had flown to New York to ask Mr. Zuccotti to pay back

what was essentially a $330 million loan from a Bronfman family company, taken

out against the World Financial Center. Mr. Zuccotti refused, saying that he

had American banks which were owed money first, and they might force the

company into bankruptcy if he seemed to be favoring Mr. Reichmann’s friends.

Mr. Reichmann took the refusal as an act of betrayal. But Mr. Zuccotti had

wrested the company from his boss’ control.

For the next three years, the nearly insolvent American

branch of Olympia & York would resemble a Roman court with plots and

counterplots. Robert Lowe, an accountant who took over the Canadian company on

behalf of the banks, tried to seize the American buildings to pay off Mr.

Reichmann’s debts. Vulture investor Leon Black, along with developer Jerry

Speyer, bought a large chunk of the company’s debt on the bond market in a

takeover bid.

Mr. Zuccotti sided with a group of debtors who included,

ironically enough, the onetime Bronfman conglomerate Edper-Brascan (it’s now

owned by its Canadian management), which Mr. Zuccotti had refused to repay a

few years before. When the company was carved up, Mr. Zuccotti’s group ended up

with the sweetest plums: 245 Park Avenue, three of the four towers of the World

Financial Center and One Liberty Plaza.

The buildings were added

to Edper-Brascan’s publicly traded real estate portfolio, which includes

buildings in Toronto, Boston and other cities, and rechristened as Brookfield.

As the real estate market

roared back, so did Brookfield. Now, a decade later, Mr. Zuccotti finally has

the chance to oversee the expansion Paul Reichmann hired him to lead-but

carefully this time. “If there is one word to appropriately describe

Brookfield, it is ‘discipline,’” said Frank Mayer, a senior real estate analyst

with HSBC Securities [Canada] Inc. in Toronto.

Mr. Zuccotti’s role in the company has decreased with the

good times. He seems content to leave the day-to-day decisions to his second in

command, chief executive Rick Clark. He’s gone back to practicing law a bit at

Weil, Gotshal and Manges, where he’s of counsel. And he is spending more time

traveling and in the outdoors. He is an avid fisherman. “I think it may have

something to do with how he does business,” said Paul Selver, a former law

partner who considers Mr. Zuccotti his mentor. “In fishing, what is required is

a lot of patience, a willingness to think through how an unpredictable fish is

going to react so you can get the catch.”

And Mr. Selver won’t be surprised if his mentor reels in the

tallest buildings in New York.