A Market on the Rise
Jamestown Properties Plans to Add Tower at Chelsea Market
The Wall Street Journal 02/14/2011
By DANA RUBINSTEIN
Jamestown Properties, the Georgia-based real estate firm that took in the lion’s share of the proceeds when Google Inc. bought its New York headquarters, is reinvesting hundreds of millions of dollars in another Chelsea property well known for its retail space and trendy media tenants.
Jamestown has cut a deal to pay more than $225 million to buy out its partners in Chelsea Market, a property whose redevelopment as a specialty-food destination and media mecca played a major role in the meatpacking district’s renaissance. Home to stores such as Amy’s Bread and Lobster Place and tenants such as the Food Network and Major League Baseball Advanced Media, it gets more than 120,000 visitors a week.
Jamestown, which has been an investor in the property since 2003, also is planning to add a 300,000-square-foot tower to the building, to be used either for additional office space or a hotel, said Jamestown Managing Director Michael Phillips. The firm plans to begin a public-review process in the spring.
“It’s not a fully completed asset,” Mr. Phillips said in an interview.
Jamestown is buying out the stakes in the property—which takes up the entire block between 10th and 11th avenues and 15th and 16th streets—formerly held by Angelo, Gordon & Co., Belvedere Capital and Irwin Cohen, the developer who conceived of the Chelsea Market in the early 1990s.
The deal values the property at about $800 million, a reminder of the enormous wealth that can be created by investors who recognize the potential of a dilapidated buildings. In the early 1990s, when Mr. Cohen purchased the debt on what would become Chelsea Market, he paid less than $10 million.
Jamestown has a history of making money in Chelsea. The firm, which runs funds for German investors, owned the majority stake of 111 Eighth Avenue, the behemoth office property across the street from Chelsea Market, which was purchased by Google in a $1.9 billion deal, the city’s largest commercial real estate transaction of 2010.
Chelsea Market’s success is tinged with a note of sadness: One of the key players behind it was Angelo, Gordon’s head of real estate, Keith Barket, who died late last year at 49 of a rare form of cancer. Mr. Cohen in an interview said that Mr. Barket’s willingness to put money behind the Chelsea Market concept represented “the most significant event of my business life.”
Mr. Phillips said he and his former partners have made arrangements to dedicate the concourse fountain to Mr. Barket, whom he described as “a great visionary.”
Chelsea Market’s rise coincides with the neighborhood’s dramatic transformation, from crime-ridden wasteland to a high-end office and retail district with amenities such as the High Line (which runs through the building), Hudson River Park, Chelsea Piers and soon a branch of the Whitney museum. The meatpacking district, roughly bounded by 14th, Hudson, Gansevoort and West streets, is now home to some of the city’s hottest bars and restaurants.
“It’s probably been our most profitable real estate transaction,” says Adam Schwartz, the head of U.S. and European real estate for Angelo, Gordon.
The neighborhood was a lot different in 1993 when Mr. Cohen, a developer of office and manufacturing space in Manhattan and Queens, bought the mortgage on the aging complex of 16 old factory buildings for less than $9 a square foot, just as the property was being foreclosed on.
“It was the Wild West in Manhattan,” Mr. Cohen recalls. “There had been three gangland-style murders in the building, with people on their knees shot in the back of the head. The building was controlled by street prostitutes, who told the staff when to open and close the loading docks. They used the loading docks for their clothes changes. And the tenants were in a revolt.”
Granted, there weren’t many tenants to speak of. And those that there were—a man who produced TV ads, a firm that manufactured women’s ready-to-wear—were paying rents of $3 or $4 a square foot, when they paid at all. At least one tenant had taken to diverting his rent to pay for armed building guards, Mr. Cohen says.
With the backing of Uzbek investors, Mr. Cohen and his daughter Cheryl went on to tear down the walls between the 16 buildings comprising the complex and create a giant, 1.25-million-square-foot office and retail building.
They opened the retail portion in 1997 and Angelo, Gordon and Belvedere joined the ownership group one year later.
From the beginning, their plan was to woo retailers with low rents and the opportunity to both produce and sell products at the same location. Amy’s Bread, for example, moved its ovens into the manufacturing space and leased retail space in the 800-foot concourse connecting Ninth and Tenth avenues. The retailers, in turn, attracted office tenants to the upper floors.
“That was Irwin’s brainchild,” says Glen Siegel, founder of Belvedere.
The ground-floor tenants also include Manhattan Fruit Exchange and Sarabeth’s. The upper floors drew tenants such as Oxygen Media and NY1. Thanks to the building’s dramatic, 30-foot ceilings, HBO shot the prison show “Oz” there.
“Irwin Cohen sparked an area renaissance which over time defined and refined a gritty neighborhood into one of the most well balanced, sexy, submarkets in the city,” says Doug Harmon, the Eastdil Secured senior managing director who represented both sides in the transaction, in addition to engineering the sale of the Google building.
Today, asking rents for new retail tenants in the concourse are more than $100 a square foot, compared with about $25 a square foot in 1998. Rents for office space have risen from between $15 and $18 in 1998 to more than $50.
Since 1998, the net annual income on Chelsea Market has grown from $5 million to more than $40 million.
Jamestown owned a majority stake in the property before it reached a deal to buy out its partners, according to people familiar with the matter. The partners also had incentives that gave them a bigger economic stake if they increased its value beyond a certain amount. The property also has close to $200 million in debt on it.