How 477 Madison Avenue Tore the Slifka Family Apart

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Now, for the first time, Randy Slifka, the plaintiff at the center of a slew of lawsuits, has shared his side of the story about the fight over his family’s prized real estate property with Commercial Observer.   

“Unfortunately, as a result of a series of actions that have taken place, I believe that it was necessary to file litigation against some of the key players that were involved in the distribution of value resulting from the sale of 477 Madison,” Slifka told CO. “I’m a fiduciary and a trustee, and, as such, I have an obligation to stand up for the rights and interests of the [Slifka family] trusts that I’m trustee on.” 

For the last 12 years, various members of the Slifka family have been locked in a vicious dispute over the control and dispensation of value tied to the sale of 477 Madison Avenue, a 24-story office building off East 51st Street in Midtown Manhattan that sold for $258.2 million to RFR Holding in June 2019. 

The Slifka family made its fortune through Joseph Slifka’s mid-20th century New York City real estate development career. One of his major office developments in the 1950s was 477 Madison, where the Ford Foundation initially served as an anchor tenant. Joseph purchased the property outright from New York Life Insurance Company in 1984, whereupon he bifurcated the family’s ownership in the property, having the fee interest subject to the leasehold under the ground lease. 

His son, Alan Slifka, founded Halcyon Capital Management, an investment firm that held $10 billion in assets under management upon his death, and also served as the first chairman of Big Apple Circus. Today Alan’s son, Randy, works as managing director of Slifka Asset Management, a family office that invests in private equity, venture capital and hedge funds. 

But, as Tolstoy once told us, each unhappy family is unhappy in its own way. 

In a series of lawsuits, Randy now claims that his aunt, Alan’s 94-year-old twin sister, Barbara, and her legal advisers acted improperly to deprive him and his fellow trustees of millions of dollars attached to the fee-interest of the office building  — in other words, the intrinsic value of the building and land. 

Randy has additionally sued law firm Paul, Weiss, Rifkind, Wharton & Garrison, and attorney Peter Fisch, a partner at the firm, who represented Barbara during the allocation of the trust associated with the sale of the building. The suits accuses the firm of engaging in “outrageous, unethical conduct” and “legal malpractice,” and of “abetting breaches of fiduciary duty, unjust enrichment, and fraud,” allegedly committed in the allocation of proceeds associated with the sale of 477 Madison Avenue. 

A statement issued by Paul Weiss called the lawsuit “frivolous and harassing.” The law firm fired back more strongly in an Aug. 15 motion to dismiss filed in New York State Supreme Court, calling Slifka’s legal malpractice lawsuit “nonsensical” and accusing Slifka of being motivated by “personal animus and an appetite for vengeance.”

“Defendants vigorously dispute that they did anything wrong in the sale or the allocation,” wrote attorneys for Paul Weiss. 

“It’s incredibly sad that it has to be litigated,” said Slifka during a mid-July conversation with Commercial Observer. “However, Barbara, my aunt, who at one point I was very close to, I believe does not understand the facts or her obligations surrounding the sale of the building, and at age 94 it’s not surprising.”

As for Barbara’s legal and financial advisers at Paul Weiss, he accused the venerable law firm of seeking to enrich itself by improperly advising Barbara on the leasehold side and Barbara and other members of the family on the fee-interest side. 

“Paul Weiss had a clear conflict of interest,” Randy Slifka emphasized. “There’s just no way they should’ve been representing both sides of the transaction — the operating lease and the fee interest — without a conflict waiver.” 

Family feud

Upon the 2011 death of Alan Slifka (Randy’s father), his estate, which was now being managed by Barbara and Randy’s brother David Slifka, sold 47.5 percent percent of his leasehold interest in 477 Madison — the right to operate the building and take cash from rents — to Shorenstein Properties, the esteemed property management and real estate investment firm, for $48 million. After the closing, Shorenstein began to run the building’s day-to-day operations. 

Barbara controlled the other 47.5 percent of the leasehold interest, while a number of individual trusts connected loosely to Randy and his two brothers, David and Michael, controlled the remaining 5 percent of leasehold interest. 

As for the lucrative fee-interest — the value of the land and the building itself — that amount was divided roughly 50-50 between trusts associated with Barbara and trusts associated with Randy and his two brothers, who each held roughly a 12 percent title to the property’s fee interest value.  

It was only when Barbara and Shorenstein began their unilateral attempts to sell the property in 2017 that a long-simmering boardroom battle exploded into all-out commercial real estate warfare. 

Randy Slifka sued to halt the sale, but lost. However, that was only the beginning of the family conflict, especially once it became clear to Randy that a multiyear appraisal process to determine 477 Madison’s underlying value gradually began to favor the leasehold interest over the fee interest. Such a shift would enrich Shorenstein and Barbara at the expense of him and his siblings, who all had minimal interest in the leasehold but controlled 51 percent of any fee interest proceeds. 

Due to the way Randy’s grandfather, Joseph, set up the trusts, both the fee interest and the leasehold interest were bundled into one entity to reap the benefits of any proceeds derived from a future sale of the building. As Barbara’s attorney Peter Fisch explained during his testimony to the American Arbitration Association, “It was a zero-sum situation. Every dollar allocated to the fee versus the leasehold … came out of the other’s pocket.” 

In what could only be called a pivotal decision in retrospect, Paul Weiss, Michael Hecht, and Shorenstein took the lead in managing the appraisal process, excluding Randy from the decision making, as he did not have his father or his grandfather’s commercial real estate experience.

“Unfortunately, there was not a lot I could do other than watch what took place and deal with the consequences,” he said. “There’s very little that I could’ve done to influence the allocation process since I was cut out of it.”

Value add

Beginning June 1, 2017, Landauer (a division of brokerage Newmark (NMRK)) appraised the value of the fee interest at $173 million and the value of the leasehold at $101 million. Within a month, Landauer dropped the appraisal value of the fee interest down to $80 million, while increasing the leasehold interest to $116 million, according to legal documents.  

Two years later, on June 24, 2019, Newmark itself appraised the value of the fee interest at $73 million and the value of the leasehold at $112 million.

In a separate June 2019 appraisal, brokerage Cushman & Wakefield (CWK) appraised the value of the fee interest at $50 million and the value of the leasehold at $76 million. 

When determining the value of the fee interest, the two firms assumed the property would be a vacant lot by 2039 — vacant and without a building — even though purchaser RFR Holding had never indicated plans to demolish it, according to the lawsuit. 

Furthermore, by initially treating the building as a vacant shell, which it wasn’t, Newmark appraiser Christopher Peckholdt dropped the value of the fee by $93 million over a single month, even though nothing changed with the building, according to court documents. 

“Absent a nuclear bomb striking Manhattan, valuing 477 Madison as a parking lot just doesn’t make any sense,” said attorney Bob Weigel, a partner at Gibson Dunn, who is representing Slifka in a lawsuit against attorney Michael Hecht, a trustee who acted as an adviser to Barbara. “It was an exercise in just how easily appraisals can be manipulated.”  

The lawsuit Slifka has filed against Paul Weiss argues that the law firm hired the brokerages and that the appraisal of 477 Madison “was heavily influenced” by the past business relationships Shorenstein had with both Newmark and Cushman & Wakefield, as well as by the exclusive access to the latter’s appraiser that Paul Weiss provided Shorenstein. The suit also argues that the appraisals of 477 Madison became “progressively more skewed” in favor of Shorenstein and Paul Weiss’s client, Barbara Slifka.  

Cushman & Wakefield provided no comment on the matter. Newmark did not respond to a request for comment. Peckholdt did not reply to repeated requests for comment.

The lawsuit initiated by Slifka and his attorney, James P. Bonner, a partner at Fleischman Bonner & Rocco, against Paul Weiss repeatedly emphasized a key point central to any objective appraisal: the leasehold expired in 2039, with no renewal option, and the value of the leasehold would diminish over time following the 2019 sale. 

An appraiser uninvolved with 477 Madison — though with decades of experience assessing New York City office properties — confirmed the view of Slifka’s team to CO. 

“If the ground lease does not have a renewal option, and the ground lease remaining term is under 20 years, I would expect the value to be higher with the fee simple, not the ground lease,” said the appraiser, who asked not to be identified.  

“I know that Paul Weiss never asked my brother, Michael, or myself to confirm that the allocations were acceptable to us or that the appraisal process was acceptable to us,” Randy said. “If they had, I obviously would’ve retained professionals to evaluate them.” 

Slifka also didn’t mince words on Shorenstein’s motivation for the gross disparities in assessed values. 

“Obviously, Shorenstein was highly incentivized to try and have one side of the transaction significantly improved if they could,” he said. “The record is pretty clear.” 

The San Francisco-based real estate firm, which was founded in 1946, only held claims to proceeds allocated to the leasehold from the sale of 477 Madison, not the fee interest.  

Moreover, Randy Slifka believes his Aunt Barbara, who did not respond to request for comment through her adviser and accountant, Michael Hecht, was left in the dark about how the proceeds of the sale were being allocated and that she was being taken advantage of by her financial advisers. 

“I believe she had no idea. No idea about the process, no idea about the allocation,” he told CO.  

Fateful verdict 

To an unbiased onlooker, it might seem like Randy Slifka is merely a scion crying foul about spilled milk, and that he should be grateful for receiving roughly $17 million from the $95.1 million fee-interest payout. (Barbara Slifka and Shorenstein received $143.5 million in the allocation on the leasehold side.) 

But a three-judge arbitration panel ruled last year that his arguments have more than a little merit. 

On Sept. 9, 2022, the panel unanimously found Barbara Slifka (and by extension her representatives at Paul Weiss) “committed multiple breaches of her fiduciary duties” and “improperly allocated to herself and her affiliates of Shorenstein Properties” roughly three times the value of their interest in the leasehold and “wrongfully and unfairly” limited Slifka to one-half his value in the fee interest. 

“It is therefore clear that Barbara and her advisers had aligned themselves with Shorenstein against the fee with respect to the allocation process and viewed members of the fee, other than David Slifka [Randy’s brother], as potential threats,” concluded the arbitration ruling.  

“Bad faith on Barbara’s part is also reflected in the fact that her advisers entered a ‘common interest’ agreement with Shorenstein against Randy to ensure he would not have access to the most basic of information regarding the allocation process,” the ruling stated. 

The panel awarded Randy an additional $16 million to be paid by Barbara from the portion she derived from the leasehold. This amount has been paid out, according to Slifka’s attorneys. 

Moreover, the three-judge panel found that the appraisal work done by Newmark and Cushman was riddled with “critical flaws.” The judges also described the decision to reverse the fee-to-leasehold value allocation ratio from 63 percent and 37 percent, in favor of the fee, to 39.5 percent and 60.5 percent, in favor of the leasehold, “a truly remarkable outcome.” 

During the arbitration, an appraisal report submitted by an independent claimants expert, Daniel F. Sciannameo, valued the fee interest at $200 million and the leasehold at $50 million — an 80-20 ratio in favor of the fee — and one the three-judge panel called “the only reliable valuation report in evidence.”  

The arbitration panel found that due to the flawed appraisal process, Shorenstein Properties walked away with $46 million more than they should have received, a distribution “far in excess of what its share of the leasehold was worth.” 

A representative for Shorenstein said the firm had no comment on the lawsuits or allegations. 

If the arbitrators’ ruling was damning for Shorenstein, it was even more damaging to Paul Weiss, due to the conclusion it made about Barbara Slifka’s ability to make informed decisions about the direction of the sale and the allocation of proceeds. 

The arbitrators ruled that Barbara’s own testimony, and the underlying evidence, made it obvious that “she was totally oblivious to the appraisal process,” and that she’d been led astray by her advisers. 

“Unsurprisingly, there is no evidence indicating that Barbara exercised any informed judgment whatsoever in approving the allocation of the sale proceeds entrusted to her as a fiduciary of both the Leasehold and the Fee,” the arbitrators ruled. 

The arbitrators ruled that Fisch and Paul Weiss “had conflicts of interests of their own” because they served as counsel to Barbara and also represented the trust entities attached to both the fee and leasehold, “which had diametrically opposed interests vis-á-vis the allocation.”

But because the arbitrator’s ruling applied only to Barbara Slifka and her role as trustee over the sales proceeds, and not to Hecht, Fisch or Paul Weiss, Randy Slifka has filed two additional lawsuits that are now making their way through the court system. 

Slifka has sued Hecht, a trustee of Barbara’s trust, for “breaches of fiduciary duty and unjust enrichment,” and for aiding his aunt in her own breaches of fiduciary duty in regards to allocation of the trust proceeds by serving as her longtime adviser, accountant, and co-executor of her estate.  

“I’ve known Michael for many years, I know him quite well,” said Slifka. “It’s unfortunate that he is in this position, but he is a trustee of the trusts, as well, and yet it was necessary for me to sue him as a result of his conduct.” 

The lawsuit against Hecht is seeking $31.7 million returned to Randy Slifka’s trusts. 

Aaron Crowell, an attorney representing Hecht, said his client has no comment. 

In a Sept. 6 motion to dismiss filed in New York Supreme Court, Crowell argued that Hecht could not have violated any fiduciary duty to the family trusts “because the trust had no role in the allocation [of sales proceeds].” The motion to dismiss added that “these allegations are callous and “inherently incredible.”

Slifka’s other legal action — a malpractice lawsuit against Paul Weiss and partner Fisch — is seeking $101 million in damages.  

Meanwhile, Paul Weiss has launched a spirited defense, seeming to allude to the fact that Randy initially sued his aunt to halt the sale of 477 Madison and has filed numerous other legal actions over the last six years. 

“Mr. Slifka’s claims are completely without merit and will not succeed. The firm acted appropriately in all respects at all times,” said Laura Van Drie, senior communications manager for Paul Weiss. 

Van Drie added that “Mr. Slifka is a serial litigator.” She said that on Aug. 15 the firm filed a motion to dismiss the lawsuit, and that it “looks forward to its prompt dismissal.”

A judge has yet to rule on the motion to dismiss.

Correction: An earlier version of this article stated Paul Weiss’ motion to dismiss was denied. A judge has granted Michael Hecht’s motion to dismiss, but allowed the plaintiffs to refile, and has yet to make a ruling on Paul Weiss. 

Brian Pascus can be reached at bpascus@commercialobserver.com.