Unmasking Three Mismatched Heavies Who Won and Lost the Drake
Laura Kusisto June 7, 2011, 5 p.m.
In the early summer of 2008, Arthur G. Cohen rode the elevator to Harry Macklowe’s 21st-floor office in the G.M. Building wearing a black suit and bright pink dress shirt. Mr. Macklowe, sporting navy blue pinstripes and a multibillion-dollar real estate empire under siege, signed away his beloved Drake Hotel site to an enterprise called CMZ for $850 million.
CMZ is one of the more bizarre development teams ever assembled in the city, yet its existence has remained hidden until now from all but a handful of insiders. One-time top developer Mr. Cohen joined Washington lobbying czar Paul Manafort and Brad Zackson, a scrappy former righthand man to Fred Trump Sr., in a baffling boom-time enterprise. They looked at billions of dollars’ worth of properties such as the Drake, the Manhattan House, the Helmsley Hotel and two Bahamian islands—but with some of the world’s best real estate almost in their grasp, they never bought a single trophy property.
By late 2008, their international investors began to lose confidence and withdraw. Executives exchanged frantic, sometimes accusatory emails. The company’s phone and Internet connections were repeatedly cut off. Hundreds of pages of public records, as well as multiple employee accounts and internal company documents and emails, all obtained by The Observer, provide a verifiable tale of the hubris and demise of these would-be kings of Manhattan real estate.
With their tower dreams in shambles, Messrs. Cohen, Manafort and Zackson never closed on the Drake, arguably the most valuable development site in North America, which instead went to California-based CIM for less than half their offer. “It will be beautiful,” an inside source said. “But it will be the CIM tower. It could have been the CMZ tower.”
In 1995 a boyish Brad Zackson posed for Crain’s’ “40 Under 40” list in one of his few media appearances. His Dynamic Group’s portfolio of Queens apartment buildings had made the 34-year-old a multimillionaire, with a staff of 50 under his command. “I got the reputation as the person to call when a building was in trouble,” he told the business trade then.
Ten years later, the market was booming and the broker without a college education had built a modest fiefdom in the boroughs, gaining access to society’s inner circle through the Trumps and by dating actress Lori Singer. “Name a developer in the city,” said a former employee, “and Brad can show you the scar.”
Mr. Zackson set his sights higher—much higher—on a 2,000-acre emerald development parcel in the Bahamas. Eleuthera Island’s Sound Point was to be a destination for Palm Beach’s elite, with a casino, a P.G.A. golf course and a hotel. The small-potatoes New York developer struggled, however, to come up with financing and to navigate the labyrinthine Bahamian bureaucracy, so he teamed up with international players Messrs. Cohen and Manafort.
Mr. Cohen, now past 80, has his fingerprints all over Manhattan’s trophy real estate. He helped build the Olympic Tower with Aristotle Onassis on Fifth Avenue and the mammoth Worldwide Plaza, and he’s partnered with heavyweights from William Zeckendorf Sr. to Larry Silverstein. “There was a time when every deal had Arthur Cohen,” said Andrew Albstein, an attorney who worked with CMZ. “If there was a deal to be done in New York, you had to go through him. He could do anything … He was in construction, commercial, residential, financing—anything and everything.”
In 1998, Mr. Cohen paid $4.5 million to resolve claims that he funneled millions of dollars in loans into several dubious New York City construction projects, the largest settlement of its kind to that date. In the subsequent decade, Mr. Cohen faded from view, but he was salivating for a comeback.
He joined with Mr. Manafort, a long-time Republican strategist and senior adviser to Ronald Regan, Bob Dole and both George Bushes. The lobbyist brought political savvy and an uncanny ability to conjure investors, such as Ukrainian billionaire gas king Dmitry Firtash, for projects.
The trio started working together in 2007, and formally created a company called CMZ in June 2008. They planned, according to the initial partnership agreement and employee accounts, to create a billion-dollar fund to invest in distressed properties when those were still hard to come by.
Times proved very good indeed. Mr. Zackson moved a staff of half-a-dozen into a 25th-floor office in Mr. Cohen’s Paramount Building at 1501 Broadway. “At first I thought Brad was like a god,” said another former employee. “There was Paul and Arthur, and I thought, ‘Wow this must be, like, big time.’”
From early on, the power dynamics were unsettling, employees say, with the polished Mr. Manafort making only rare appearances in the office and Mr. Cohen providing only a trickle of funds. Mr. Zackson had a car and driver and a Lincoln Square spread, but groveled for money for day-to-day office expenses. “Everybody feared Arthur Cohen,” said one former employee. “Brad would just kiss his ass and do all of the work for their deals. ‘I need money for my wife,’ he’d say. He was living this big, high lifestyle and couldn’t afford it.”
With property prices about to peak, CMZ began bidding with frantic ambition. By then, they were in contract for Eleuthera Island and also began seriously eyeing a sprawling Soho development, encompassing three full city blocks, on the site of the St. John’s Terminal right on the Hudson River. It was going to be a four- to five-star MGM Mirage hotel, with 600 rooms and a five-acre private yard.
Everything else halted for the biggest prize of all, the former home of the Drake, at 440 Park Avenue, where CMZ wanted to partner with Harry Macklowe to build a soaring 65-story hotel/residential/office tower. Then the tiny acronym CMZ would finally pack a global punch.
Joseph Sitt, the local developer best-known for his controversial Coney Island plan, introduced CMZ to the Drake site in early 2008, but after an initial meeting he wasn’t invited back. Negotiations with Mr. Macklowe began and nothing was too far-fetched in that prelapsarian era of early 2008. It would be the Valentino tower! Nay, the Armani hotel/office/residential complex!
Finally, it was settled: 65 stories of Bulgari glory, including a mall with hologramed walls for retailers to advertise, a spa and a private club.
The purchase price: $850 million, with a tiny deposit. “If we receive $25mm, I would never give Harry more than that as a deposit and I would probably give him less—but this strategy will only work so long as we have no competition,” an attorney told Mr. Zackson in an email.
“Right on,” he replied.
Not that CMZ had anything like that kind of money, but back then you didn’t need it (just ask Mr. Macklowe, who shortly before had been spotted $7 billion from Deutsche Bank for a seven-skyscraper spree). Much of the equity was initially to come from French fund Inovalis, which agreed to arrange nearly $500 million, with confidence, according to a June 2008 letter from Chairman Stephane Amine, that the Bulgari brand “will ensure the project’s ability to generate nearly $3B in value.”
By the end of that summer Inovalis grew wary of the Drake deal. Gregg Hayden, an adviser to the fund, wrote in a text message to The Observer from China that CMZ “proved ineffective.”
The appraisal of the site came back in October at $780 million, well below the agreed price, but Harry Macklowe wouldn’t budge. The Drake site by then was slipping through Mr. Macklowe’s fingers anyway, as Deutsche Bank moved aggressively to foreclose.
Mr. Manafort then met with Ukranian billionaire Mr. Firtash, a part owner of Eural Transgas, in Kiev, and secured the promise of an initial $112 million for the project, but that fell apart when Mr. Firtash became distracted by an investment in troubled Bank Nadra back home. Grasping, Mr. Zackson wrote in an email in March 2009: “I have an idea to bring [Donald] Trump in on the Drake. I think it solves a lot of issues right away.”
By then, though, the Drake deal was basically dead, and CMZ too was in trouble.
Most employees were working for free all along, sustained by the promise of huge commissions when the big deals closed. By winter 2009, they were leaving in a steady trickle, until the company today has been reduced to Mr. Zackson and one assistant working from a single desk out of a borrowed office at 1501 Broadway.
“I’m sure there were a lot of people who thought they were going to make a lot of money out of the [Drake] transaction,” said Stephen Delman, an attorney who works with the company, “so they suffered personal financial adversities, but that really wasn’t a function of closing up shop.”
Nonetheless, the lights were about to go out. “Arthur, I expect the phone and internet to be cut off any moment,” another lawyer that worked with the company wrote in an email to Mr. Cohen in May. “The office will then not be able to operate, it will cease to function, callers will be told the number has been disconnected and there will be no point any of us coming in.”
Mr. Zackson was on the brink of losing the company he had built. As things unraveled, he poured his frustrations out in a virtually incomprehensible email: “Paul it s hard to take Arthur when I am place I am he is just plain dumb about real estate how I let him take me with his bulls hit and no $ I never came to him for this kind of $ he was the 10 percent now he give me $5000 last week and thinks he helped and how to get back overhead…I just can not live this way keep my head up.”
In another frantic email, Mr. Zackson wrote: “Arthur You and I do not have an end like this This is plane wrong, leaving me with all the headaces from our partnership and killing me and my company. Brad.”
Mr. Zackson met The Observer on a recent Tuesday afternoon in a conference room in his lawyer’s office on the 29th floor of 515 Madison. Now 51, he wore an untucked navy golf shirt and khakis, his small eyes still boyish but set off by deep dark circles. He twitched nervously, deferring many questions to his lawyer and speaking softly, in fragments, between sips of green tea.
“We, as a company, looked at just about everything in New York,” he said. “Just about every site that Darcy Stacom sold, every other major broker sold, Manhattan House, the St. John’s center. A lot of projects that we are very fortunate that we came close to and didn’t win because a lot of them are distressed sites right now.”
Mr. Manafort is no longer actively involved, according to Mr. Zackson, who is developing a 37-acre shopping center in Chicago with Mr. Cohen. Dynamic has also become an investor in renewable energy. (Messrs. Cohen and Manafort did not respond to multiple requests for comment, nor did Mr. Macklowe.)
Despite the private feuding, Mr. Zackson maintains a childlike admiration for his mentor, Mr. Cohen. “He has not lost any skills,” Mr. Zackson said. “He works very hard. He works us very hard.”
But past dreams of becoming one of the city’s great development teams are gone.
At the end of the interview, Mr. Zackson showed The Observer some weighty music boxes, private New Year’s gifts to Arthur Cohen from mall mogul Sam Zell. Mr. Zackson wound up one from 1999. A song, privately commissioned by Mr. Zell from Paul Simon and heard only by a handful of people in the past 12 years, floated forth:
“The problem is all inside your head,” she said to me.
“The answer is easy if you think less logically.
I’d like to help you all get rich at 23.
There must be 50 ways to make a billion.”