A Real Estate Story Of Finding A Beauty In An Ugly Duckling

    • The Business and Research Center in Garden City, N.Y., was recently sold for $39.3 million.

      When Metropolitan Realty Associates LLC and Angelo, Gordon & Co. paid $7.4 million to acquire a former pharmaceutical plant on Long Island in 2005, some real-estate executives questioned the wisdom of the move.

      The huge six-level concrete fortress, located in Garden City, N.Y., about 25 miles from Manhattan, had both shocked and awed observers since it opened in the mid-1960s. Over the years, some people labeled the stark two-building complex, designed by the late Paul Rudolph, a former chairman of Yale’s Department of Architecture, as an exciting break from the ordinary. But to critics, the dreary building seemed better suited for cold-war Russia. The hand-chiseled facade features numerous turrets, some capped with dome skylights.

      Jack O’Connor, a principal in the Long Island office of brokerage Newmark Knight Frank, thinks the Metropolitan/Angelo Gordon team faced a daunting task. “I wouldn’t have done it. The building was old and tired, and it didn’t really show well,” he says.

      But to Joe Farkas, president of Jericho, N.Y.-based Metropolitan, the hulking giant showed potential. It turns out, he was right.

      A few weeks ago, Metropolitan and Angelo Gordon sold the renamed Business and Research Center at Garden City for $39.3 million to a joint venture of Carlton Associates Inc. and real-estate investor David Werner. It is this year’s highest price for a office building on Long Island, according to local brokers. The site also includes warehouse and laboratory space.

      The deal netted a profit of more than $10 million for Metropolitan and Angelo Gordon, which, after purchasing the eyesore spent some $15 million transforming it into a bustling commercial building center.

      Looking back today, Newmark’s Mr. O’Connor says of Mr. Farkas: “The guy was a genius.”

      The transaction illustrates how even the most seemingly unappealing and outdated buildings can find success if positioned properly and given enough attention.

      “We love it,” says David Cohen, president of Manhattan-based Carlton Associates. “It’s not the typical steel-and-glass structure. To us, it was architecturally significant.”

      In this case, it helped that the space is fully leased with long-term tenants, including Nassau Community College and the corporate headquarters of Lifetime Brands Inc., whose brands include Mikasa and KitchenAid. Being fully leased makes the building a safer bet because the new owner won’t have to find new tenants in a weak market with office vacancies at a nine-year high on Long Island. The annual cash flow is about $3.4 million.

      Long Island, like many suburban markets, has too much space: In the second quarter, 13.4% of Long Island’s office space was vacant, up from 12.4% a year earlier, according to Newmark.

      “Investors active in suburban markets are almost singularly focused on well-leased assets,” said Dan Fasulo, managing director of Real Capital Analytics.

      Back in the commercial heyday, vacancy rates didn’t matter. Thanks to lax lending standards, commercial buildings were built and traded hands at a frenzied pace. While most buyers offered top dollar for glitzy office trophies, Mr. Farkas focused on the ugly duckling, available because Bristol-Myers Squibb Co. left the site.

      While no other pharmaceutical firm emerged and some developers wanted to knock it down, Mr. Farkas was convinced the monolith hadn’t outlived its useful life.

      Mr. Farkas removed barbed-wire fencing and overgrown foliage. He threw out old lab coats and beakers, ripped out walls so the space could be subdivided for new tenants and added dozens of new windows to let light in.

      To be sure, the unique building turned off plenty of potential renters. But Lifetime Brands says it fell in love with the space. In 2006, it took the bulk of the main building for 15 years. It transformed former warehouse space into a showroom visited by buyers for companies from Wal-Mart Stores Inc. to Macy’s Inc. A grandiose curved staircase leads to the corporate headquarters.

      “Since we’re a company that’s very creative, being in a building that’s uniquely designed is important to us,” says Jeff Siegel, Lifetime Brand’s chief executive. “A regular, standard office building would not say what we are.”

      Mr. Farkas tried to sell the building in 2007, but, with the financial markets in turmoil, there was little interest. He decided to try again the next year. But just before he was to distribute sales books to investors that September, Lehman Brothers and the financial markets collapsed.

      Last year, he decided conditions were ripe for a third attempt. Mr. Farkas says more than eight bids on the property were received, and the deal closed in late July. (credit, d, wotapka, wsj)