As New HQ Rises, Old Owners Cause Trouble Underfoot

102405 article schuerman As New HQ Rises, Old Owners Cause Trouble UnderfootThe skeleton of the new New York Times building is now about 400 feet high, but the fight over the land beneath it is still not over. In some ways, it hasn’t even begun.

Over three years ago, the state condemned the 11 parcels on the site to make way for the new 52-story building, and at the time paid out $86 million to the former owners.

Now 10 of the landlords who feel they have been ripped off are calling for their day in court—and a bigger check. (The 11th took the money and ran.)

But in a twist that should make even the staunchest rooter for the underdog blanch, every dollar more that these small-time parking-garage magnates win in court will come not from the ledgers of the mammoth corporations, but from the treasuries of the city and state.

That’s because, according to the development agreement that paved the way for the condemnations, the Times Company and Forest City Ratner get to divert every dollar beyond that initial $86 million from the substitute tax payments that they’re making. And the landlords claim that they are owed two or three or even five times what they’ve received so far. In essence, city and state taxpayers—who are already chipping in several millions dollars’ worth of subsidies—will also be helping out if the court appeals are successful.

The Empire State Development Corporation, the state economic-development agency, defends the agreement because the Times Company and Forest City needed to know what their maximum outlay for the buying property would be before agreeing to the deal.

“It’s already paying more property tax by multiples than the previous properties were paying,” said an agency official who requested anonymity, speaking to The Observer. (The state has not, however, done an analysis comparing before-and-after tax revenues.)

The official said that the Empire State Development Corporation was also eagerly awaiting a court date so it could argue its own case. But only one judge hears eminent-domain cases, Martin Schoenfeld, and he has other duties as well, which means that a hearing may be many months away.

Property-rights advocates argue that government regularly undervalues property—it’s what makes eminent domain so attractive to private developers, they say.

“It might put an end to the taking of property, if they had to pay market value,” said Joe Wright, an advisor to community groups fighting eminent domain and a member of the national property-rights group the Castle Coalition. “They wouldn’t have to go through with eminent domain then, because they would get no economic benefit.”

Catherine Mathis, spokeswoman for The New York Times, said that the agreement on acquisition costs was part of a larger deal that would provide amenities to the public.

“The Times and Forest City Ratner Companies entered into a complex arrangement with the city and state to develop this property,” she said in a statement. “There are many components involved in the arrangement, including subway amenities, a publicly accessible auditorium, guarantees to build within set timeframes and make a payment in lieu of taxes.”

Lawsuits over condemning the land for the Times building delayed the construction of the tower by about six months, according to a state official, but they were unsuccessful. (The building itself is more than a year behind schedule and will open sometime in 2007.) Now there’s no stopping the building, but the current appeals demonstrate that while the Constitution permits the government to seize private property for “just compensation,” there’s no easy way to find out what “just” means.

“They gave us 20 cents on the dollar for what the property was worth,” said Sidney Orbach, whose partnership, Three O Realty, owned a 16-story office building on 40th Street. “Their initial offering was $7.2 million, and then they were required to reassess and ended up offering about $8 million. The appraisal we had done was for $35 million, and that’s on the lower side because of the way appraisals are done.”

The state’s appraisal comes to about $83 per square foot of space in his old building. The real-estate services firm Cushman & Wakefield—which isn’t working for either Mr. Orbach or the state on the Eighth Avenue appraisals—told The Observer that a square foot might have gone for between $250 and $300 three years ago.

The sleek, new-fangled New York Times skyscraper, designed by Renzo Piano and Bruce Fowle, is also replacing a student dormitory for nearby colleges, parking garages, a couple of porn stores, a business school—a hodgepodge of low- and middlebrow businesses, largely locally owned, often unattractive and not terribly valuable from a tax point of view. Needless to say, they don’t fit in with the new Times Square.

For a sense of what does fit, read the legal papers—first reported by The Village Voice this August—that established the partnership between the Times Company and Forest City Ratner. The developers—who would not comment for this article—are prohibited from leasing to “a ‘fast food’ restaurant at which food is prepared on-premises … such as, by way of example only, McDonald’s, Nathan’s, Wendy’s, Taco Bell.” But they can rent street-level space to “a specialty eat-in or take out ‘quick food’ establishment that offers higher quality food such as, by way of example only, Cosi, Starbucks and other similar facilities.” Yes to scones; no to Egg McMuffins.

Mr. Orbach thought he was pretty upscale himself, however: Donna Karan rented space from him. In fact, Mr. Orbach’s office building was so prosperous that the Empire State Development Corporation is saying that his rents were above market rate and therefore not a reliable way to calculate the true value of the property. A representative from the state agency wouldn’t elaborate because litigation is pending. Hmmm … if New York real estate isn’t worth whatever you can get for it, then why do we have this thing called capitalism anyway?

Oh, it’s not called capitalism; it’s called economic development. Sometimes the market needs to be nudged along, or else it will be mugged along.

Lawsuits

Mr. Orbach, by contrast, says that those rents, if anything, were forced down in 2001 and 2002 by the threat of condemnation—although he doesn’t deny that his building was prosperous.

“It was very desirable, and there was tremendous competition for space,” said Mr. Orbach. “As soon as the notices came out and word got around that it was going to be condemned, any potential tenants dried out. Some of the brokers went around to the existing tenants and said the building was going to be torn down, ‘Do you want me to find some place other for you?’”

Mr. Orbach tried to take his case to the U.S. Supreme Court, but failed. The court did hear a similar case, Kelo v. New London, however, and in a 5-4 decision this summer came out in favor of government’s right to take private property and turn it over to another private entity, rather than merely for public works. However, property-rights advocates note that the Kelo case differs from the New York Times situation because in New London, a redevelopment agency seized the property first and then sought the best bid from any developer who wanted in.

Also, much of Times Square was redeveloped through an open bidding process. But the Eighth Avenue site was acquired by the state exclusively for use by The Times, which had said it was considering moving 750 jobs to New Jersey in order to save money. The newspaper company worked out a deal with the state: It would retain 3,300 employees and hire 1,148 more in exchange for access to the property and $18.7 million worth of sales tax and energy benefits, according to an analysis by the nonprofit watchdog organization Good Jobs New York. The newspaper will occupy about half of the building; Forest City is seeking tenants for the top half. Maybe Donna Karan can be lured back.