Paul Reichmann is not a man given to using superlatives to describe his business prowess. In rare interviews, he normally brushes off as exaggeration the encomiums heaped on him and his brother Albert for their performance at the helm of their private fiefdom, Toronto-based Olympia &
York Developments Ltd.
(O & Y). They have maintained that modesty despite the dazzling growth of the company from a small tile business into the world’s largest development company. 0 & Y now has real estate assets estimated at $3.5 billion and the firm has at least another $1.25 billion tied up in a clutch of natural resource, trust and real estate companies. But last week Reichmann was positively effusive—in a relative sense, of course—following 0 & Y’s latest coup. In what has been described as the largest real estate transaction in history, 0 & Y signed a $2.24-billion (U.S.) deal with American Express Co. in which the U.S. giant handed over its present Manhattan headquarters to the Canadian developers for $240 million and agreed to become a tenant in 0 & Y’s nearby Battery Park City project.
And if Amex officials were happy about the added room that the 51-storey tower will provide for their operations when it is completed in 1985, 0 & Y officials were no less pleased at the 35-year lease signed by Amex that will generate an estimated $2 billion in rental revenue. Not only that, Paul Reichmann told Maclean's in an interview, the Amex move assures the success of a “unique and forward-looking project.” That, in turn, he added, will create “the office centre of the highest standards in New York City.”
Strong claims for a Reichmann. But observers on both sides of the border shared his enthusiasm. Henri Alster of New York’s Alster International promptly termed the deal “a classical real estate coup.” At the same time, Ross Cowan, a real estate analyst with McCleod Young Weir in Toronto, said the deal means that “the momentum of
the Battery Park project is taking off.” The consensus was that by landing Amex as a second major tenant—the first to sign a lease was City Investing Corporation—0 & Y was well on its way to fulfilling its prediction that the complex, which will be called the World Financial Center, will become the new nexus of New York’s financial district.
Perhaps the most remarkable aspect of the deal, however, was that it took place at a time when demand in both the United States and Canada for office space is screeching to a halt.
The recession is slicing into demand just as a record amount of office space is flooding the market. The situation is causing many major developers that are active in the United States to sell off projects or place them on hold. The dismal situation has also led to charges in the United States that the Canadian developers have overextended themselves—backed -
by eager-to-lend banks—and are now paying the price.
But the Reichmann brothers seem to be operating in a different development universe. In the face of analysts’ charges that he took an enormous risk
by buying Amex’s present headquarters, Paul remains confident. His company, he said, has found the rental market in New York to be “very good at present.” Much of the available space at the old Amex building, he explained, would be filled by overflow from the 0 & Y-owned office tower at 55 Water St. As well, “two or three banks are interested in the Amex building.” Nor has Reichmann’s company had any difficulty finding frieridly bankers to finance its projects. But like other developers, he told Maclean 's, o& Y has resorted to some “imaginative” financing arrangements to secure longterm funds. In fact, the Battery Park project, he said, *í¡ has been partly financed by ir' a 35-year loan from a “major lender” in which the latter would rake in a share of the rental cash flow from t i the project beginning in its sixth year of operation.
It is not surprising that the Reichmann operation continues to thrive at a time when its competitors are ¡2 suffering from the ecognomic downturn. One of the ^unique traits of the Reich|mann clan has been its ability to make business coups by going against prevailing economic wisdom. The first such success came soon after the family emigrated to Canada from Morocco in the early 1950s—the last of a series of moves that began when the family fled Hungary for Austria in the 1920s fearing a spread of the Russian Revolution, then moved on to Morocco in the 1930s as the Nazi threat grew in Austria. After acquiring a taste for contracting by overseeing the building of a warehouse for the family’s first Canadian concern, Olympia Floor & Wall Tile Co., the brothers turned their talents to development on a - larger scale.
One of their early successes came in 1962 when, in a move that was deemed foolhardy at the time, they selected a site in Don Mills, in the northeast hinterland of Toronto, for an office tower development. Today the move is hailed for its foresight. Even more bold was the Reichmanns’ 1976 purchase of eight office buildings in Manhattan for a bargain-basement $350 million. At the time, New York City was near bankruptcy and other developers were avoiding its real estate like the plague. Today the buildings acquired by the Reichmanns have at least tripled in value.
With last week’s deal, the Reichmanns appear to have touched yet another controversial scheme with their magic wand. For at least a decade before they came on the scene, plans for the Battery Park project had come and gone, giving rise to growing skepticism that the 16-acre-long strip beside the Hudson River would ever be anything more than a barren patch of landfill. But it is only a matter of months before the Reichmanns’ latest dream will begin to take shape. And an imposing sight it will be. The complex has been designed by the respected U.S. architect Cesar Pelli. And, he told Maclean’s, it will be “comparable in intensity and importance to the Rockefeller Center.” The four major glass-and-granite towers at its heart, he said, will be “proud forms celebrating height,” but at their bases they will be “more open and responsive” in a way that the sterile skyscrapers of the 1960s are not.
But if the Reichmanns have pulled off another coup, it is also clear that the
rewards of their acumen are not confined to O & Y. Amex officials point out that the $180-million capital gain resulting from the sale of their building will allow them to get rid of a sheaf of low-yield, long-term bonds at a loss. The capital gain, explained Amex Chairman James Robinson Iff, will be written off against the loss on the bonds at tax time. Not only that, but under the terms of the agreement, Amex has an
option to buy 50 per cent of the equity in its new quarters when the leaseexpires. As a result, it was no surprise that everyone was all smiles as Amex and O & Y officers posed for the cameras last week beside the flashy architectural model of the project. Nor was it surprising.that in the wake of the deal Paul Reichmann allowed himself a temporary lapse in modesty.
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