Tom Acitelli Dec. 3, 2009, 2:08 p.m.
Not deviating from Swiss stereotypes regarding any matter politically charged, Piaget SA, the maker of gold and diamond-encrusted watches, has disavowed any connection to the 36-story office tower that bears its name. “Piaget the brand is not affiliated with this,” said spokeswoman Karen Blum in an email—“this” referring to the address 650 Fifth Avenue.
The tower gained its notoriety after federal authorities took steps to seize it in early November as part of what could end up being one of the largest counterterrorism land seizures ever by the U.S. government. The tower is now dealing with a nasty public-relations trial, and it remains to be seen how it will affect tenants and rents alike.
An amended complaint filed by the U.S. attorney’s office in the Southern District of New York on Nov. 12 seeks forfeiture of the 60 percent stake in 650 Fifth that a nonprofit organization called the Alavi Foundation holds, and alleges that Alavi funnels funds to the Iranian government–controlled Bank Melli. Legal procedure requires the landlord to post notice of the complaint in the building.
Bank Melli, which originated the mortgage and loans for construction costs of 650 Fifth, has been the primary recipient of rent generated from it since its construction. (Bank Melli later canceled the mortgage debt in a strange transaction with shell companies and Alavi.) As the Associated Press reports, “Bank Melli has been accused by a U.S. Treasury official of providing support for Iran’s nuclear program, and it is illegal in the United States to do business with the bank.” There is also a complaint against former Alavi president Farshid Jahedi on charges of obstruction of justice, for allegedly destroying documents that linked 650 Fifth to Bank Melli.
THE MODERN TOWER, made entirely from light brown granite, was designed by John Carl Warnecke and Associates, and erected for the Pahlavi Foundation (the Shah’s personal charitable group) in 1978. It replaced the DePinna’s department store, a sort of Brooks Brothers retailer between 51st and 52nd streets, that went out of business in 1969.
The Pahlavi Foundation, set up in 1973, was sued by Iran’s then-new revolutionary government in 1979, because the Shah had allegedly funneled $1 billion in oil revenue to it before being overthrown. The suit sought the Shah’s assets, including the Piaget Building. It went to the Supreme Court, where, in 1985, a ruling by the New York Court of Appeals was upheld, on grounds that the U.S. had no jurisdiction.
The building’s ownership then becomes unclear, although the Iranian government did take control of the Alavi Foundation (through political, not legal, means), according to the U.S. attorney’s complaint.
Though now nearly 25 percent vacant, 650 Fifth did sport classy tenants such as Citigroup, Mistral Equity Partners, Tower Capital Asset Management, Paradigm Global Advisors, Broadmark Capital and Sterling National Bank. Upmarket clothier Juicy Couture rents retail space. North American Watch, exclusive distributors of Piaget watches, rented in 650 Fifth until at least 1982, according to public tax documents. Piaget later became Movado Group and moved up the street in 1996 to 730 Fifth.
The reason Piaget and others sought space in the Plaza district gem is its abiding quality: location. As The New York Observer’s Dana Rubinstein reported, amenities are not what allow the building to command the rents it does. “It’s always been a fair building,” said Mark Weiss, Newmark Knight Frank vice chairman. “Never any better than that, but in a very good location.” Robert Emden of PBS Real Estate says that ownership concerns have cast a shadow over the property, which, though technically Class A, was not always thought to be in great shape.
Then the ownership concerns became very real.
In December 2008, an original complaint sought the 40 percent interest that Assa Corp., a shell company, held in the Piaget Building. Now the feds have the evidence to seize the larger portion owned by Alavi, apparently. The amended complaint alleges that proceeds from violations of the International Emergency Economic Powers Act, 50 U.S.C. §§ 1701 are forfeitable. (The act is used by presidents to stem financing of states and individuals considered a threat to the U.S., and Iran’s on that list.) Federal authorities also sought forfeiture of four mosques, including one in Queens, and other properties, from Virginia to California, that are also owned by Alavi. The properties are Alavi’s only revenue.
After the 1979 fall of the Shah, the Pahlavi Foundation’s leadership abruptly changed, according to the complaint. The foundation was known by various names, but became the Alavi Foundation in 1989, when it bought the building in a partnership with two shell companies—Assa Corp. and Assa Co. Ltd.—and the mortgage originally provided by Bank Melli was canceled. Assa Co. Ltd., an entity incorporated in the U.K.-controlled Channel Islands, is “owned by Iranian citizens who represent the interests of Bank Melli,” according to the complaint. The Alavi Foundation states on its Web site that it “receive[s] most of our money from the rental income of an office building in Manhattan.”
THE PIAGET BUILDING has been a plump cash cow for whoever gets the checks. Tucked in the heart of the Fifth Avenue corridor, the address’ marketability had been nearly indestructible for more than a quarter-century.
One Great Recession and a brush with rogue-state financing have changed that.
Though nothing should change for tenants if the asset is seized, vacancy in 650 Fifth Avenue has jumped from 14.1 percent to 24.2 percent, according to CoStar, since the original complaint was filed last December. Tenants will not be asked to leave anytime soon, if ever, according to assurances from the U.S. attorney’s office. The building has 81,000 vacant square feet and another 40,000 square feet of leased space being marketed for release or sublease, according to CoStar.
The U.S. attorney’s office has made it clear that the tenants are not at fault, despite having perhaps unwittingly bankrolled the Iranian Revolutionary Guard. “[They] remain free to use the properties as they have before today’s filing. There are no allegations of any wrongdoing on [their] part,” said Yusill Scribner, a spokesperson for the litigators.
In the event of forfeiture, the U.S. marshall would resell the building, and the tenants’ rights would be decided according to the terms of their lease. An entity would be appointed to maintain the property during the sale. Tenants and brokers are tight-lipped about the situation. Jones Lang LaSalle, the building’s listing agent, did not return phone calls. The Web site MrOfficeSpace.com shows at least four full floors available for rent.
Fifth Avenue has been hit hard by the recession, with resident retailers like Fendi, Gucci, Tiffany & Co. and Prada being replaced by the likes of Abercrombie & Fitch and Spanish bargain Banana Republic chain Zara. But 650 Fifth had fared relatively well—emphasis on had.
“As a veteran, as an American, I’m appalled at the idea that the money we pay to the landlord might be funding this regime,” Peter Brown, a vice chairman at tenant Kurt Salmon, told The New York Observer in mid-November.