The Times' Sweetheart Deal
The New York Times Company's sale this month of its 43rd Street headquarters at least doubled the profit its executives predicted when they prodded city and state officials for tens of millions of dollars in tax breaks to build a new office tower, records show.
The surge of extra cash from the $175 million sale on November 7 was so large that it wiped out the need for much, if not all, of the taxpayer money the Times asked for. The company said it needed the money to help construct more spacious corporate offices in Times Square and thus avoid moving 750 workers to New Jersey.
Opponents of the project have dubbed it a "sweetheart" deal resulting from the Times' enormous political clout, a charge the company denies. Now, some say the Times should turn over its windfall to the taxpayers who have subsidized the 52-story tower to be built on Eighth Avenue between 40th and 41st streets.
"I think it's pretty outrageous," said Scot Cohen, who runs his family's B&J Fabrics, which had to move from a store rented since 1958 so that the Times could demolish a 16-story building against its owners' will. "That money should go back to the taxpayers, because that's where that money came from in the first place. I don't feel that the Times has any more right than anyone else to have the taxpayers buy them a new location and then profit from it."
Officials at the city and state agencies that negotiated the deal said they don't want to revise it, and the Times defended it.
"The financial environment," spokeswoman Catherine Mathis said, "is significantly different than it was in 1999, when interest rates were higher, and property values in Manhattan have increased substantially over that time."
But according to city documents and to an expert consultant who helped make the deal, it was clear from the start that the Times had vastly understated the amount of cash it would generate by selling 229 West 43rd Street.
The Times proposed the deal to city and state officials in an October 19, 1999, letter from vice chairman Michael Golden. He offered two "scenarios": The Times would remain on 43rd Street but move 750 jobs to a new facility in Edison, New Jersey, or it would sell its headquarters and build a new one in Times Square. He claimed it would cost the Times $135 million more over 30 years to keep the jobs in New York, and indicated that he expected government to fill the "gap."
That claim relied heavily on a projection that the newspaper company would fetch just $45 million for the sale of its present building.
But according to a January 21, 2000, memo from the city and state consultants on the deal, the 43rd Street building was worth far more. "Based on our analysis, the building is worth approximately $110-$125 million," said the memo, which was released under the Freedom of Information law. "The NYT Proposal estimated the value at $45 million."
The consultants were right.
The Times reported to the Securities and Exchange Commission this month that it had "sold its headquarters for more than it initially estimated." The profits on the $175 million sale, after subtracting taxes and transaction costs, would be $105 million to $110 million, the Times disclosed.
That meant the company pocketed up to $65 million more from the sale than it had predicted in 1999. According to data provided by accounting and real estate experts, that wipes out all or most of the $135 million "gap" the Times claimed to face.
Michael Gargano, who authored the memo that correctly identified the 43rd Street building's value, said people involved in the talks knew from early on that there was no true "gap." The Times was "futzing around," said Gargano, managing director of Argent Ventures. "They just wanted to show there's a big gap."
But Gargano said the city and state officials got a great deal in the public's behalf.
The primary reason, he said, was that they had pushed the Times to erect a stunning new building that is already setting a new standard for office architecture in Manhattan. "We insisted that in order to do a deal, they would have to wow us," Gargano said. "It would have to be something special."
The plans, designed by Italian architect Renzo Piano with the Fox & Fowle firm, have been widely praised. (Previous published accounts have said the Times sought the more "adventurous" design, not the city or state.)
Gargano said the deal was "smart economics" because the Times was able to build a larger tower that will generate more in property taxes. He also said it was difficult to find a builder for the site.
Under the deal, the state condemned the land on behalf of the Times, forcing the owners to sell. The former owners charged that taxpayers will wind up handing the Times and its partner, Forest City Ratner Companies, $100 million or more to subsidize the project.
The taxpayer tab still isn't known, but there is evidence to support the opponents' charge.
The deal calls for the Times to get $26.1 million in tax breaks, but the real price for the public depends on the additional cost for the land. Under the deal, the Times and Forest City will buy the property, but get money back from the city for any costs above $85.6 million. They'll do that by deducting the money from payments that substitute for property taxes.
The costs are still being negotiated with many of the former owners. But as the Voice reported in 2002, an internal city memo predicted that the cost would be "huge" and a city official's affidavit said city coffers could be tagged for as much as $79 million, besides other subsidies for the deal.
Another developer, Gary Barnett of Intell Management and Investment Company, had said he offered to build a 50-story office tower on the site without the "cap" the Times is getting, the Voice had reported. State officials questioned whether he could deliver; Barnett replied at the time that he developed the 50-floor Planet Hollywood building in Times Square without a public subsidy.
Mathis, the Times spokeswoman, said the deal still makes sense as negotiated because the company's costs are rising. "Not only is there general inflation, but there is every reason to believe that we are facing rapidly rising prices, particularly for the interiors," she said, adding, "Our package was similar to incentives offered to other builders."
She put the Times' profit on the sale of its headquarters at $90 million by including the Times' cost of leasing the building back for three years while it awaits completion of its new offices. That's still double the original prediction.
After the Voice report in 2002, Mayor Michael Bloomberg ordered an internal review of the Times deal, which was inked in the last month of the Giuliani administration. No change was made.
But Bloomberg has shown a willingness to revise previously announced deals; in May 2002, he proposed that the New York Stock Exchange double its investment in a heavily subsidized tentative deal, already three years old at the time, for a new complex that ultimately was not built. In a speech the following year, he said he had ended the practice of giving what he called "corporate welfare" to companies that were never likely to leave the city. More recently, he has called for Cablevision to renounce its annual tax break for Madison Square Garden.
But city and state officials at the agencies that dealt with the Times said they would not change the agreement.
"We can't unilaterally go and open a deal that was made in 2001," said Ron Jury, spokesman for the Empire State Development Corp., adding that the deal has revitalized a portion of Eighth Avenue.
Janel Patterson, spokeswoman for the city Economic Development Corp., noted that the city rejected Forest City Ratner's effort to reopen the deal to get low-cost Liberty Bonds financing. "We stand by the original deal we reached with the company and the developer of its new building, Forest City Ratner," she said. "A deal is a deal."
Paul Moses, a former city editor at Newsday, is a freelance writer.
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