520 Madison Avenue
Tishman Speyer Properties, L.P. (TSP) is a large real estate developer--possibly the largest in the world--with headquarters in New York City and offices in several other U.S. cities and in European and South American countries. With a piece of both Rockefeller Center and the Chrysler Building, TSP has become Manhattan's most high-profile commercial landlord, thereby making its chief executive officer, Jerry Speyer--somewhat against his will--a celebrity developer. In addition to establishing office buildings in major urban locations, this private partnership creates mixed-use, retail, residential, and entertainment centers. It also provides planning services for large-scale developments and manages the conversion of underutilized tracts of land into such developments.
Tishman Predecessors: 1898-1976
Julius Tishman was an immigrant peddler who began building small tenements in downtown Manhattan in 1898. In 1910 he built a nine-story luxury apartment building on the Upper West Side despite warnings that no well-to-do New Yorker would live north of 86th Street. The project was successful, and he made a small fortune erecting more apartment buildings in this neighborhood during the next ten years. In 1923, he decided to put up an office building across from Penn Station, even though this area around West 34th Street and Seventh Avenue was mainly occupied by garment factories. Again, he was successful, and he followed by putting up more office buildings. Tishman Realty & Development Co. Inc. was established as a publicly traded firm in 1928, with Julius's son David as president. Shortly after, the Great Depression put an end to the firm's construction activities.
Tishman Realty & Development did not significantly renew its growth until after World War II, when it once again began constructing office buildings in New York City, including Manhattan's first fully air-conditioned office building and first metal-clad office building, under the direction of Norman Tishman, another of Julius Tishman's five sons. In 1950 the company began putting up office and apartment buildings on Wilshire Boulevard in Los Angeles, and within a few years it was the largest landlord in southern California. By 1958 the firm was operating 31 large office or apartment buildings and three shopping centers in five cities, with others under construction in Buffalo and Cleveland. In 1959 the company also began leasing office and factory equipment and aircraft. The following year it began constructing buildings for other developers as well as doing so for its own account, and a few years later it added a research subsidiary to help manufacturers apply new products and techniques.
Tishman Realty & Development moved into Chicago in 1962 to build the Gateway Center and soon had become the city's second largest office landlord. It divested itself of the last of its residential properties in 1967. By this time the company was under the direction of David's son Robert. After serving as the general contractor for the 100-story John Hancock Building in Chicago and for Renaissance Center in Detroit, the company won the contract to build the World Trade Center in New York.
The recession that began in 1970 hurt all developers, but Tishman Realty & Construction was especially hard hit because of the 44-story office building at 1166 Avenue of the Americas in midtown Manhattan that it completed in 1974. Two years later, with the building still vacant, Tishman defaulted on its construction loan from Citibank. This structure was said to have cost the company some $70 million to $80 million in cumulative losses--more money than had ever been lost before on a single building. Its management decided in 1976 to liquidate the company and use its assets for a cash distribution to the shareholders--of whom the largest group by far consisted of members of the Tishman family. Seventeen properties were purchased by the Equitable Life Assurance Society of the United States for $107.5 million. The remaining ones were sold for $78.5 million to Lazard Realty Inc., an arm of the investment house of Lazard Freres & Co. acting on behalf of a group of investors.
Making Its Mark: 1978-95
The nine Tishmans in executive positions had no intention of putting themselves out of work, however. Tishman Realty & Construction continued as a general-contracting subsidiary of Rockefeller Center Corp. under John L. Tishman until 1980, when 16 of the senior executive officers of the subsidiary bought it back. The former company's management and leasing operations became Tishman Management and Leasing Corp., with Alan V. Tishman in charge. The finance and development arm became Tishman Speyer Properties, with Robert V. Tishman--who had been president of the old company prior to liquidation--as chairman and Jerry Speyer, his son-in-law, as president and chief executive officer. All three successor companies took up quarters in the Tishman Building, the aluminum-clad high-rise at 666 Fifth Avenue that had served as the old company's flagship. Tishman Speyer started business with assets of $17 million from the dissolution of the old firm, a staff of 13, and two properties worth $65 million.
Tishman Speyer's first job, under contract to Lazard Realty as part of the sale, was to direct the land assemblage and construction of 520 Madison Avenue, a 38-floor slant-faced office tower clad in rose-colored granite. TSP took an equity interest in the property and moved its headquarters there after completion in 1981. The fledgling company also acquired and renovated five or six buildings at relatively low cost, tapping funds from the Lazard Realty-organized investment group. By 1981 Tishman Speyer had built enough equity from its projects to buy out this group. It then turned to Lester and Henry Crown of Chicago--the largest shareholders of General Dynamics Corp.--to fund joint ventures, forming both a development and an acquisition partnership with the family, and also took on Equitable as a limited partner. By the spring of 1983 Tishman Speyer had developed 12 projects in New York, Chicago, Atlanta, Houston, and Stamford, Connecticut, worth $1.2 billion. TSP's net equity in these projects was believed to exceed $100 million.
In 1983 Tishman Speyer completed $300 million more in construction to put it among the top ten commercial developers in the United States. The firm developed five major projects in Chicago, including a $200 million tower for NBC, and completed a 28-story building at One Brickell Square in Miami, overlooking Biscayne Bay. The Crown brothers' connections enabled TSP to secure Chicago's Continental Illinois National Bank & Trust Co. as the anchor tenant for 520 Madison Avenue in Manhattan, which was named the Continental Illinois Center. In 1984 Tishman Speyer formed a syndication company that would allow individual investors not as well-heeled as Equitable or the Crown brothers, but capable of putting up at least $500,000, to participate in the ownership of existing properties through private limited partnerships.
Tishman Speyer was also sharing the wealth from about $550 million worth of real estate with some of its own employees. Managing partners Tishman and Speyer took 60 percent of the income and tax benefits, while three general partners and a dozen limited partners shared in the remainder, an arrangement that could double or triple their basic pay. In order to quench competition within the firm, this partnership interest applied to all of TSP's projects and not only to the ones in which a given staffer was engaged. The actual construction was in the hands of hired outside managers supervised by TSP. A company executive told Ronald Derven of National Real Estate Investor in 1988, "The people on our staff come from either a design or construction background. We look over the shoulders of our contractors--second-guessing them if you will--to anticipate problems before they become insurmountable."
Tishman Speyer had, in the mid-1980s, the daring to undertake Manhattan projects outside the usual locations, completing the Saatchi Building at 375 Hudson Street, north of the financial district, in 1985, and turning the ruins of the old Siegel-Cooper department store, at 620 Sixth Avenue in the Flatiron district, into a retail complex. In 1986 the firm completed a 54-story tower for Equitable on Seventh Avenue--the first major office building on this avenue and a trendsetter as developers began moving farther west in midtown. But sensing that the market for new buildings would not last, Tishman Speyer began withdrawing from further construction. "We put 7 million square feet of development on the shelf between 1985 and 1987," Speyer later told Peter Hellman for New York. "The market was too hot," he explained. "It was worrisome." Instead, TSP began acquiring existing buildings, including ones in Los Angeles, Miami, and San Francisco.
By the fall of 1987 Tishman Speyer's portfolio had grown to 25 properties, with 18 million square feet of space owned or managed by the firm and a cumulative market value of $4.2 billion. Only 30 percent of this portfolio was now in New York, because the managing partners considered building in Manhattan increasingly difficult and costly. TSP projects underway at this time included three in Florida, two in Chicago, one in Durham, North Carolina, and a joint venture with Shearson Lehman Brothers Holdings Inc. to develop, finance, and market a $150 million office and apartment complex in Beijing for foreign executives and diplomats in China. This project collapsed in 1989, after Chinese security forces crushed a protest in Tiananmen Square.
By this time Tishman Speyer had begun work on its first foreign project, as developer of the MesseTurm, a 62-floor pyramid-crowned office tower in Frankfurt, Germany. It was completed in 1990 as the tallest building in continental Europe. The firm followed this up with some of the largest development projects in Berlin, capital of the reunified German republic. In 1996 TSP completed Friedrichstadt Passagen, a $500 million property with one million square feet of office, retail, and residential space fronting the city's historic Friedrichstrasse.
One Manhattan deal that proved attractive to Tishman Speyer was the purchase of 1301 Avenue of the Americas--the headquarters of J.C. Penney Co.--for $353 million in 1988. This 46-story, 1.8-million-square-foot tower was acquired in a joint venture with Trammell Crow Co. Once Penney moved to Plano, Texas, the prematurely aged 26-year-old building was vacant. The partners resurfaced the building's faded external panels and filled in the sunken entrance plaza, installing a Jim Dine sculpture. By late 1990, in spite of a recession, it was 80 percent rented by prestige tenants and had been renamed the Credit Lyonnais Building.
Spanning the World: 1995-2000
Tishman Speyer essentially marked time in the early 1990s as the U.S. economy slowly recovered from recession. One of its few losers was 1515 Broadway, a 54-story midtown Manhattan office tower purchased in 1985 in partnership with Equitable and other investors. This venture resulted in bankruptcy and an end to TSP's relationship with Equitable. By 1995, however, the firm was ready to raise its profile again in its own backyard, by paying $306 million, in partnership with Goldman, Sachs & Co. and David Rockefeller (who also brought in Europe's super-rich Gianni Agnelli and Stavros Niarchos), to purchase Rockefeller Center from Mitsubishi Estate Co., Ltd. and rescue it from imminent bankruptcy. Although the high-profile 12-building center included six million square feet of commercial and retail space, it was $900 million in debt, and Mitsubishi had incurred $2 billion in losses. Ninety percent of the space was leased, but at relatively low rates, while operating costs were high. Tishman Speyer wound up with only a 5 percent stake in the complex but, as manager, brought in blue-chip tenants such as Christie's International plc and Cablevision Systems Corp. as well as fashionable retailers Banana Republic, J. Crew, Kenneth Cole, and Sephora. The center turned profitable in 1998 and earned $45.3 million in 1999.
Another Manhattan classic dropped into the Tishman Speyer portfolio in 1997, when a TSP investment fund established in partnership with Travelers Group Inc. and Shearson Lehman Brothers purchased the mortgage of the Chrysler Building and adjoining 666 Third Avenue for $220 million. Speyer acknowledged that the 77-story Art Deco landmark was in need of renovation and said the firm anticipated spending about $100 million to replace elevators and the heating and air-conditioning systems. By 2000 the venerable tower was packed with tenants paying as much as $100 a square foot. The following year TSP and Travelers sold a 75 percent stake in the Chrysler Building to TMW, a German investment group, for a reported $300 million. TSP continued to manage and lease the building. Also in 1997, TSP and Travelers Group formed a joint venture for ten office buildings previously held by Travelers, including 125 High Street in Boston, a recently built 1.5-million-square-foot complex that included twin towers with an atrium between them, three restored 19th-century buildings, and a city fire station. The other properties consisted of buildings in Florida, California, and the Midwest, as well as one other building in Boston.
Tishman Speyer was also active in Europe and South America. In addition to the previously completed German projects, the firm was, in 1998, developing a three-million-square-foot Berlin mixed-use complex, including a new train station, and, with Sony Corp., a two-million-square-foot complex near Potsdamer Platz with retail, entertainment, and office space, including Sony's new European headquarters. TSP also was developing an office building in Krakow, Poland, and had developed properties in France and Great Britain. The firm had joined with Brazil's largest construction company to erect the nation's tallest building, a 36-story office tower in Sao Paulo. This was followed in 2001 with the announcement that the partners would join with Deutsche Bank to put up a four-tower office complex in the city. TSP had nine overseas offices in 2001.
Tishman Speyer took a trip down memory lane in 2000 when it purchased--in collaboration with a group that included the Crown family and TMW--the former Tishman Building at 666 Fifth Avenue. Also in 2000, Tishman Speyer completed 101 West End Avenue, a 35-story, twin-tower residential rental complex between West 64th and 65th streets in Manhattan.
Tishman Speyer was also active in California. In San Francisco, the firm purchased the Chevron Corp. buildings at 555 and 575 Market Street in 1998 for about $190 million after selling 525 Market Street the previous year. When Chevron moved out of the city and new-media businesses started to fail, however, the buildings began to empty. Construction of two office towers in Mountain View and Santa Clara was scheduled to begin in 2000. In southern California, Tishman Speyer purchased Santa Monica's MGM Plaza in 2000 for $353 million, with funding from partners who included Travelers. This six-building office complex covered a whole city block.
Tishman Speyer had, in 2001, offices in nine U.S. cities and in Berlin, Buenos Aires, Frankfurt, Krakow, London, Madrid, Paris, Sao Paulo, and Warsaw. Since its formation the firm had developed or acquired a portfolio of more than 48 million square feet of constructed area, valued at over $10 billion. According to Jerry Speyer in a New York Times Magazine entitled "The Anti-Trump," TSP achieved an average annual rate of return of 47.5 percent between 1993 and 1998.
Principal Subsidiaries: Tishman Speyer Properties Inc.; Tishman-Speyer Realty.
Principal Competitors: Boston Properties, Inc.; Brookfield Properties Corp.; Equity Office Properties Trust.; Silverstein Properties, Inc.; Vornado Realty Trust.