Stuart Saft: Why the Brooklyn Kid Is Busy Breaking Up Buildings

Commercial Observer: So, you’re a Brooklyn kid?

Stuart Saft: Well, I moved out of Brooklyn [to Queens] when I was 4 years old. I barely knew five words and yet I never got rid of my accent. Now it’s too late. But being a kid from Brooklyn today is very different [compared] to what it was back then. It’s just amazing how Brooklyn has changed. One of my sons moved to Brooklyn Heights recently. It’s a lovely little apartment—but when I say little, I mean little.

Was it always your plan to work in real estate?

It’s been serendipitous—I never had any plans to do any of this. But the nice thing about not having any plans and no one having any expectations of you succeeding is that you really can’t fail. I went to Hofstra University during the Vietnam anti-war movement and figured I was graduating and going into the army—I had been a member of the Reserve Officers’ Training Corps because it paid $50 a month and college credits were $50 a credit.

One day, Dr. [Clifford] Lord, [Hofstra’s president], asked me what I was doing after graduation. I told him I was joining the army, and he said, “Well, I think you should consider going to law school.” I mean, nobody in my family had even gone to college, let alone law school. He told me about the law school admission test that I’d have to take, and it was in two weeks. My girlfriend [now wife], and I were out the night before the test partying, and I still had a little buzz the next morning, which calmed me down. The results came in and I had scored in the 98th percentile. So then I thought I should indeed go to law school.

What was your first job as a lawyer?

I found a job with a medium-sized firm on Wall Street doing corporate securities work. In those days real estate wasn’t something that [Manhattan] law firms did, because it was very meat and potatoes. One day one of my managing partners came in and said, “We have a pension fund manager here who needs to get a second mortgage on a shopping center in New Jersey.” I had never seen a real estate deal, and I had no idea what a mortgage was. I just started figuring it out and piecing it together. The guy came back a month later to do a second deal on a nursing home and a third deal the following month. These deals were around $400,000, which in the 1970s was real money.

Sounds like you got into the business at the right time.

Yes. Real estate was transitioning from being a small, local practice to being a real extension of finance. I was sufficiently curious about every aspect of it that I really got into it. Now I have been doing it for 40 years, and I love what I do. If I had planned my career out it never would have happened. But because I approached deals as they came along, it’s been fabulous.

Tell us about your time at the now defunct Dewey & LeBoeuf?

I was the global head of real estate there, and it was an amazing experience, even when the firm went into bankruptcy.

What are your thoughts on the bankruptcy, and the criminal charges against its executives?

I feel badly for Joel Sanders because I do not believe that he did anything wrong. Dewey & LeBoeuf’s bankruptcy could have been avoided. By January 2012 we—the Dewey & LeBoeuf partners—were aware of the firm’s financial condition and were acting aggressively to correct the problems.  We were a firm filled with great lawyers and strong practices and, if not for the press and the announcement of the District Attorney’s investigation, Dewey & LeBoeuf could have survived and paid off the debt.

What was your most memorable experience at the firm?

Well, one day in December 2008 I was asked if I could be in Detroit the next day. I said, “Sure.” So I went to Detroit with 10 of my real estate associates, and we spent the next three months doing the pre-bankruptcy planning for General Motors. We analyzed 350 million square feet of real estate around the world and I sat there with the board saying, “This is what you should keep, this is what you should get rid of, this is what you can probably sell for a different price.” We were living in the Renaissance Hotel and working in the basement. A couple of months later I get a call, and we were representing MetLife, which had just acquired all of AIG’s global subsidiaries [for $18 billion]. It was during the financial crisis, and big companies were trying to get rid of assets. And so we wound up representing MetLife and acquiring real estate in 65 countries. From day to day you never knew what would happen, or where you would be traveling to.

Do you enjoy traveling?

Oh, I love it. I do far less of it today than I did when I was at Dewey. I love traveling because nobody bothers you up in the air. You don’t get telephone calls—not yet anyway—and you can sit there and relax and think…I found out that I’m not afraid of heights a long time ago during the CitySpire bankruptcy and restructuring.

Pray tell.

Well, I had to go up to CitySpire’s roof because there was this whistling sound, this famous whistle [Saft was representing the board of managers of CitySpire when its developer filed for bankruptcy in 1991]. It was disturbing everyone in the city, and we couldn’t finish the restructuring without solving the problem of the whistle. So I had to go up to the roof—75 stories up—and look over the side to see what could be causing it. I learned there and then that I didn’t have a fear of heights.

The whistle was that loud?

I’ll tell you the story because it’s so funny, and now I can’t get sued because it’s two decades later: I never heard the whistle.

But, people complained. I was talking to someone who said that the whistle sounded like what happens when your car window is open just a little, not a lot. So, we went up to the roof, and we saw that the cupola covering the water tank was made of a series of five-inch plastic slats. We figured the solution to the problem would be to remove every other slat. We hired two construction workers for $3,500 and had them unscrew every other slat. I didn’t think it was going to work, but it’s now been 25 years and CitySpire never whistled again. We had engineers who said it would cost $3 million—we didn’t have $3 million, but we got it solved for $3,500. And that is when I learned you can’t believe things that engineers tell you.

The other thing was, I needed $5 million to get various parts of the restructuring done, and because the building was involved in a bankruptcy with $400 million worth of claims, nobody wanted to lend us any money. All of a sudden it occurred to me that we could finance the future common charges payable by the unit owners. I went to a European bank, and they said, “If you give us an opinion of counsel that this works we’ll advance the $5 million,” and we did. We finished the building and paid the money back, and I said to myself, “It’s crazy that condominiums can’t borrow money,” and so I drafted [state] legislation to amend the condominium act and allow condo boards to be able to borrow money. It took a couple of years, and it was enacted by both houses of the legislature and then vetoed by Gov. [George] Pataki because he thought it somehow affected rent control or stabilization.

I then had the bill introduced by two legislatures in Buffalo, so there were no fingerprints of rent control or rent stabilization on the bill. I had to modify the bill slightly, the governor signed it, and we got the condominium financing legislation passed. 

How can the legislation be improved?

Over the years I’ve written a new law and submitted it and I’ve taken the old law and added provisions to it—but nobody wants to think about it. Nothing has changed in the New York legislature in the past 100 years.

They started enacting rental laws in the 1920s because there was a shortage of affordable housing…At some point somebody has to recognize that maybe what they’re doing doesn’t work. But nobody wants to touch it because they don’t want to antagonize the voters, and basically our housing laws say that the law of supply and demand doesn’t work in the state of New York.

For every problem, the solution is “tax somebody” rather than trying to find out how to get the system to work. You have no affordable housing, and people need to leave New York. The governor seems to think this is somehow the fault of the private sector when in fact if the private sector could make a profit doing affordable housing they’d do it in a minute.

Ever think about getting into politics?

Never.

I understand you also helped a lender shed some CMBS loans during the crash [Sources have told CO that J.P. Morgan sold the loans to Deutsche Bank, but Saft declined to confirm this].

There was a major New York bank who was sitting with hundreds of CMBS transactions on their books, and they were concerned with how these CMBS transactions were going to be risk-rated by the government. They couldn’t have a single transaction where they sold 300 CMBS loans to a third party because that would go through government scrutiny. So they came to me and said, “Is there another way of doing this?” I said, “Yes, but it’s going to take forever and be expensive. You can enter into a separate agreement with [the acquiring] institution and convey the CMBS positions one at a time, and you don’t need government consent to do that, as long as there is no overarching agreement.” We went through the monumental task of analyzing, on behalf of the buyer, each and every CMBS transaction. It took months. But it was amazing because we found a legitimate way of solving a difficult problem.

What are you working on now?

Today we’re doing developments and acquisitions of huge buildings, and the thing I’m doing the most of is breaking buildings into pieces. For example, the Crown Building on 57th Street and Fifth Avenue, which was an office building that we divided it into three pieces. One piece is retail—that’s the first four floors. Then, the next 10 floors are going to be a hotel, and the next 15 floors are going to be expensive residences. What created a nightmare for us is it’s directly across from Trump Tower. So when we were starting construction, it was impossible to get anything done. We’re breaking many existing buildings into pieces today.

Why is breaking up buildings important?

The reason is that there’s different money coming from different sources who want to invest in different things. We’re also seeing this in a half-a-billion-dollar debt stack on a development deal for a mixed-use building on lower Fifth Avenue.

Where’s the money coming from?

Well, $100 million of it has come from a Chinese insurance company, $100 million from an Australian investment fund and $300 million from hedge funds and private equity funds, no U.S. banks. All of these funds are brilliant in their thinking, which makes the deals work and in a much safer way than when we’d go to a Citibank and arrange $200 million and Citi, with its regulators, could pounce on you at a moment’s notice.

This happened with Lehman Brothers, which financed a development we were doing down on Wall Street [Kent Swig’s simultaneous redevelopment of 25 Broad Street and the development of 45 Broad Street]. Lehman got into trouble, and our financing disappeared. So all of these offshore funds are thinking, “We’re going to make these loans, and if all goes well we’re going to be repaid our interest, get our fees, and it’ll be grand. If it doesn’t go well and we have to take over the project, we just bought a major New York building for 65 percent of the value on Fifth Avenue.”

It’s like when a lion kills a deer and the lion eats the first part, then you have the other animals line up. We’re basically structuring these financing deals that provide for how the carcass is going to get split up if something goes wrong. Everyone is going into this with their eyes open. It’s a much safer way of proceeding than when we had one bank and were at risk of the loan going bad and the bank going out of business.

There doesn’t seem to be any shortage of foreign capital coming into New York.

You’re right. But, I once had a conversation with an undersecretary of the Treasury, and it started in a funny way. He said, “I’m calling from the Treasury Department—you’re not being investigated.” Anyway, he called me to say that the U.S. Treasury Department was very concerned about all of this cash coming into New York City to buy apartments. I said, “I don’t understand your thinking. You have some sleazy dictator in Africa who is sitting on $500 million that you can’t get to, and he is coming to New York to buy an apartment for $50 million, which means that you, the Feds, can get your hands on the asset.” He said, “Well, we don’t think that anybody should gain from ill-gotten wealth,” and I told him that was parochial thinking.

Was any market cycle your favorite?

I really love it all, but the downturns are always a tremendous amount of fun. In a downturn, there is no money to throw at a problem, and it’s the best teacher.