Brooklyn's `Once in a Lifetime' Deal Said to Draw Top Investors

Bloomberg/February 16, 2016

By David M Levitt

Vornado Realty Trust, one of the biggest owners of Manhattan office towers, and Silverstein Properties Inc. are among potential bidders for real estate offered by the Jehovah’s Witnesses in an area of Brooklyn that’s in high demand by developers.

The companies have expressed interest in at least one of three properties for sale, including the Brooklyn Heights complex that’s been the religious movement’s headquarters for almost half a century, according to people with knowledge of the matter, who asked not to be named because the process is private. Other potential bidders include L&L Holding Co. and Taconic Investment Partners, both pioneering developers in Manhattan’s technology-heavy midtown south office district, as well as smaller companies such as Megalith Capital Management and Alloy Development, the people said. 

Dozens more investment firms -- foreign and domestic, both new to New York and ones with a long history of projects in the city -- have requested materials and signed confidentiality agreements to receive details on the properties, the people said. Developers are flocking to Brooklyn, aiming to capture the surging demand for housing and offices by millennials and Web entrepreneurs, especially in the close-to-Manhattan neighborhoods surrounding the Witnesses’ properties.

“The market as a whole is looking at this transaction as a once-in-a-lifetime opportunity,” said Ofer Cohen, president of TerraCRG, a Brooklyn-based commercial-property brokerage. The headquarters, a five-building complex near the Brooklyn Bridge’s exit ramp, would give a buyer control over a rare large office vacancy in the “very best part of Brooklyn,” he said. “Every Manhattan office player is going to bid on this asset.”

Manhattan Prices

As the Witnesses, formally known as the Watchtower Bible and Tract Society, plot their relocation to Warwick, New York, the properties may fetch more than $900 million combined, according to Cohen, who based his estimate on an analysis of the assets and comparable sales nearby. The headquarters complex alone might sell for as much as $500 million, or more than $600 a square foot, he said, a value normally associated with Manhattan.

Bids for the 734,000-square-foot (68,000-square-meter) complex are due Tuesday, according to Richard Devine, a spokesman for the society. Offers for an additional property, a 135,000-square-foot development site on Jay Street in the Dumbo section, are due on Thursday. Also on the market is the Witnesses’ original 1909 headquarters building, now a 152,000-square-foot dormitory with unobstructed views of New York Harbor, for which bids were received on Feb. 11.

‘Pretty Delicious’

The headquarters complex, a Squibb Pharmaceuticals factory before the Witnesses bought it in 1969, will be delivered empty, offering a “pretty delicious” opportunity for a company to establish its Brooklyn bonafides as the anchor tenant, said MaryAnne Gilmartin, chief executive officer of Forest City Ratner Cos. The firm, developer of the borough’s Pacific Park-Barclays Center project, doesn’t intend to bid on the properties, preferring not to participate in what Gilmartin expects to be a hyper-competitive process, she said.

Brooklyn has become a favored destination for technology and media tenants, with hundreds of startups as well as larger companies such as online artisan marketplace Etsy Inc. and collaborative-workspace provider WeWork Cos. filling up the borough’s offices. Downtown Brooklyn’s office market, with 15.7 million square feet, had an availability rate of 2.5 percent at year’s end, according to data from CBRE Group Inc. That compares with 10.4 percent availability in Manhattan.

While the area’s appeal to creative firms is well-known, the headquarters may also attract the technology operations of more-traditional corporate or financial tenants, said David Levinson, chairman and chief executive officer of L&L Holding, who plans to bid on the complex in partnership with other entities he declined to name.

“This is a project that’s made for us,” said Levinson, whose company redeveloped 200 Fifth Ave., a former toy showroom in midtown south, built in 1909, that’s now home to Tiffany & Co., advertising firm Grey Group and the Eataly food hall. “We think it’s going to be a very exciting, high-energy complex with lots of amenities.”

Watchtower Sign

The headquarters’ signature rooftop sign -- with its big, red “Watchtower” visible to anyone crossing the bridge into Brooklyn -- may further sweeten the attraction to a tenant. While the city generally discourages skyline-dominating advertising, it allows existing signs to be updated by a building occupant. The sign originally said “Squibb” until the Witnesses took over.

“It’s all about planting a flag,” said Aleksandra Scepanovic, co-founder of Brooklyn brokerage Ideal Properties Group. “The moment you are in possession of the headquarters, you really visually own the skyline of Brooklyn.”

Another potential bidder on the properties, Taconic, was part of the partnership that repositioned Manhattan’s 111 Eighth Ave., a vast former industrial warehouse now owned by Google Inc. Co-Chief Executive Officer Paul Pariser declined to comment on the Witnesses’ offerings. Representatives for Vornado and Silverstein, redeveloper of the World Trade Center, also declined to comment. Alloy spokesman Joey Arak declined to comment beyond confirming that the company intends to bid.

While the headquarters complex has the highest profile, the other two properties are also poised to become hugely profitable. The site at 85 Jay St., now a parking lot, can accommodate almost 1 million square feet of development, according to Cohen, who said he anticipates bids of $225 million to $325 million. The property is in the heart of Dumbo, the area between the Manhattan and Brooklyn bridges where office and residential rents are among the borough’s highest.

Development Site

Samvir Sidhu, chief executive officer of Megalith,  called the Dumbo lot “a blank canvas” and said the developer is working with “a world-renowned architect to help us develop a vision for a marquee project.” The company is focused on that property and the dormitory but hasn’t ruled out bidding for the headquarters, he said.

The Jay Street lot -- rezoned to allow for additional development in 2004, when the Witnesses were considering it for a new headquarters -- has drawn attention from some community groups and elected officials who are concerned that the site may go to a buyer who would build mostly luxury condominiums at the expense of much-needed lower-cost housing.

“This would be a terrible outcome for the community, as the affordable-housing shortage in Brooklyn and throughout the city has reached a crisis point,” said city Public Advocate Letitia James, Councilman Stephen Levin and the seven other signers of a Dec. 22 letter to the Witnesses. The society “stands to make potentially hundreds of millions of dollars while generating no public benefits.”

Devine said the Witnesses have been trying to find a mutually acceptable date to discuss the group’s concerns.

Upgrades Needed

The dormitory, at 124 Columbia Heights in Brooklyn Heights, may fetch as much as $90 million, Cohen said. The building’s units lack kitchens, in keeping with the communal life the society expects from its volunteers, so a buyer would have to plan on a makeover, he said.
The headquarters complex, too, would need an upgrade to satisfy the demands of the city’s technology tenants. While financing for such ambitious projects has gotten more expensive in the wake of this year’s market turmoil, Devine said the Witnesses are going ahead with the sales and the plan to move upstate by 2017. Proceeds will go “right back into our non-profit work of Bible education, disaster-relief work worldwide, literacy programs. None of it will go to enriching any individual.”

The society, having bought almost all of its real estate decades ago, when prices were a fraction of today’s, isn’t concerned about getting top dollar, according to Devine.

“There is a proverb in the Bible that says ‘He who looks at the clouds will not sow seeds,’” he said. “That’s kind of where we are right now.”

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