230 Park Avenue, Room 659
Beleaguered as it has been since Leona Helmsley's 1989 indictment and eventual conviction and imprisonment on charges of tax fraud, Helmsley Enterprises, Inc. is still one of the largest real estate companies in the country. Through a labyrinth of subsidiaries, it owns some nine million square feet of commercial space and more than 5,000 apartments, as well as the 2,600-room Helmsley Hotel chain and a large development site in Fort Lee, New Jersey. A significant portion of this empire is situated atop some of the priciest land in the country, namely Manhattan. The company's most prestigious cash cow is the Empire State Building, which it leases and manages but does not own. After Harry Helmsley's death in 1997, about half of the company's real estate has been sold, bringing in an estimated $2.5 billion. Nine individual properties sold for more than $100 million apiece between 1997 and 2000.
Until the late 1980s, the crown jewel of the Helmsley fold was the inordinately lush 55-story Helmsley Palace (since renamed The New York Palace), located at Madison Avenue and 50th Street. Ironically, this was one of the few Helmsley properties not solely owned by Helmsley founder Harry Brakmann Helmsley and his wife, Leona, whom he married in 1972. Because of this, and because of what even the mainstream media have called Leona Helmsley's 'Queen of Mean' tactics, the Palace became the Achilles' heel that brought about Leona's downfall.
The genius behind the phenomenal success of Helmsley Enterprises was Harry Helmsley. In its pre-gossip column, pre-tabloid, pre-Leona days, the Helmsley name was synonymous with the best, biggest, and brightest in New York real estate. The word, handshake, and vision of Harry Helmsley was what the company's development was founded upon.
Rise of Harry Helmsley in the 1930s and 1940s
Helmsley was born in the Bronx, New York, in 1909 to a family of modest means. Following graduation from high school in 1925, he obtained a job with the small Manhattan real estate brokerage of Dwight, Voorhis and Perry, serving first as a mail room clerk for $12 a week. The brokerage specialized in buying, selling, leasing, and managing buildings in low-rent neighborhoods. Helmsley was soon elevated to the role of rent collector in the Hell's Kitchen district. 'That's how he learned the city from the street up,' recalled a Helmsley-Spear Inc. executive in a 1988 Crain's New York Business article.
Around the time of the 1929 stock market crash, Helmsley began free-lancing; that is, although he had no money of his own and his firm had none to spare, he began snatching up prime foreclosed properties by convincing banks the investments were sound and that he would manage the properties for them. During the 1930s Dwight, Voorhis benefited enormously from Helmsley's negotiating and managerial talents, and by the end of the Great Depression the young realtor was both a partner and chief spokesman for the firm, whose name was changed to Dwight, Voorhis & Helmsley and then Dwight-Helmsley, Inc.
Helmsley took his first major stride toward self-made billionaire status in 1938 when he assumed ownership--rather than management--of his first property, a ten-story office building on East 23rd Street between Fifth and Madison avenues. The property was scheduled to foreclose, and Helmsley used that informational leverage to acquire the $100,000 mortgage for a mere $1,000 down payment (all that Helmsley then had). New York contributor Nicholas Pileggi quoted Helmsley on the circumstances of the deal: 'The mortgage at the time was 3 percent, and it cost me $3,000 a year ... and I remember I had a hard time, but I was confident that I would be able to turn the building around. I was in the management business. ... I watched the building's expenses, such as fuel, electricity, and the payroll. I made sure that there wasn't one extra man on the staff. One extra employee could cost $3,000 in those days, and that made the difference as to whether I could pay the mortgage.' Shortly after World War II, Helmsley sold the building for $165,000. He had built his nest egg and earned himself a reputation as a fair, though tight-fisted, operator.
Even before the sale, Helmsley was busy leveraging his abilities and testing his hunches through several other deals. According to Richard Hammer in The Helmsley's: The Rise and Fall of Harry and Leona, 'His goal was to build Dwight-Helmsley into a major force in New York real estate and in the process turn himself into a mover and a shaker.' Foreseeing a postwar boom in the midst of World War II, Helmsley began to seek out bargain properties located close to Grand Central Station and other major commuter terminals. As before, he lacked the cash necessary to purchase them, but he discovered that he could retain part-ownership in exchange for signing away his five percent commission. Helmsley further sweetened these deals by contracting for the management of the buildings, which ensured him and the firm--now essentially owned by him--an ongoing stream of income.
Big Player After World War II
In 1949, wrote Jeanie Kasindorf in New York, 'Harry Helmsley entered the big time.' The impetus was Helmsley's meeting with Lawrence Wien, a highly successful real estate lawyer. Wien had become an expert at the tax and legal strategies of buying and selling properties. What he lacked was the knowledge and experience that Helmsley so obviously possessed, that of selecting the choicest pieces of New York real estate and negotiating the best possible prices. Wien offered Helmsley an informal partnership that amounted to a pioneering venture in real estate syndication, which later became a common practice in the hybrid form of the Real Estate Investment Trust, or REIT.
Real estate syndication involves assembling groups of passive investors to buy properties otherwise unaffordable by the principal investors, with the ultimate goal of seeking a high rate of return for all involved. During the next 30 years, Wien and Helmsley created nearly 100 such syndicates, with Helmsley putting up little if any of his own money while generally reaping high profits and lucrative management fees. One of the most complex--and certainly the most famous--of the Wien-Helmsley deals was the sale-and-leaseback of the Empire State Building involving Prudential, which eventually was completed in 1961.
Two other realtors in the Dwight-Helmsley firm, Alvin Schwartz and Irving Schneider, also were making a name for themselves and the company in the New York market. Around the time that Helmsley began teaming with Wien, Schwartz left the firm to join Spear and Company, which specialized in managing office buildings and was owned by Schwartz's uncles. In 1955 Helmsley was flush with syndication revenues and seized an opportunity to reunite with Schwartz, whom he valued, by purchasing Spear and Company for half a million dollars.
Helmsley renamed the expanded concern Helmsley-Spear, which within a decade or so would become one of the city's foremost brokerages. Helmsley himself won early recognition in 1958 when he was named Realty Man of the Year by his peers. Helmsley-Spear (later subsumed by Helmsley Enterprises) gained its prominence by first acquiring the well-respected Charles F. Noyes Company, which was used to expand Helmsley's portfolio in lower Manhattan. The later purchase of Brown, Harris, Stevens was equally important, for this venerable firm brought Helmsley into the arena of rental and cooperative apartment sales and management. Well-publicized legal battles, however, that arose from Helmsley's repeated attempts to convert residential complexes, such as the Parkchester in the Bronx, into condominiums later soured the mogul on this real estate area.
In the Hotel Business in the 1970s and 1980s
After fashioning Helmsley-Spear into the largest real estate management company in the United States by 1970, Helmsley turned his attention to the luxury hotel business, to which he had first been exposed years back when he purchased the St. Moritz with Wien. Despite his unquestionable achievements, Helmsley was still known disparagingly in real estate circles, according to Milton Moskowitz in Everybody's Business: A Field Guide to the 400 Leading Companies in America, 'as a frugal operator, a landlord who would `take a schlock property and run it as a schlock property forever'.' In an effort to undo this reputation and to build something from the ground up, Helmsley announced his plans to open the Park Lane Hotel, which was to be the first new luxury hotel built in New York City in a decade. On the heels of the Park Lane's hugely successful opening came Helmsley's divorce from his first wife and his marriage to Leona Roberts, an ambitious New York realtor who already had made her first million and had been hired by Helmsley to work at Brown, Harris, Stevens.
Leona allegedly exerted an enormous and increasingly detrimental influence over Helmsley, who up until that time was a retiring Quaker unaccustomed to palatial living or, for that matter, underhanded business dealings. Although he was still being hailed in 1980 by New York magazine as 'by far the most successful real-estate man in New York today,' with an estimated $5 billion empire, Helmsley was nearing the end of his reign. It was this same year that Leona was installed as president of Helmsley Hotels.
In her new position, Leona Helmsley oversaw the construction of Helmsley Palace, which Harry financed through a limited partnership with Leperq, deNeuflize and Company. The initial estimated cost of the Palace was $73 million, but Leona's numerous embellishments, and a layer of hidden costs that unduly benefited such Helmsley subsidiaries as Deco Purchasing Company (nominally headed by Leona's son from a former marriage), brought the total to $110 million by the time of its opening in 1981. When Harry Helmsley sought an additional $20 million from the Leperq investment group to help cover the overrun, he was met with firm rejection. In 1983 the Leperq group won a $3.5 million judgment against Helmsley for excessively high commissions charges related to Deco. Ironically, this same year Leona became chief executive of all Helmsley hotel operations.
In a devastating critique, Tom Shachtman commented in Skyscraper Dreams: The Great Real Estate Dynasties of New York: 'Leona's vision involved spending, not creating, and her business decisions were principally negative. Once she took the empire in hand, there were no purchases of outstanding properties, but a considerable decline in the maintenance of those Helmsley properties in New York and Miami that were not her main focus, and a steady exodus of competent middle-rank employees from Helmsley-Spear (the brokerage hub of the empire) who felt that the organization Harry Helmsley had created no longer had a future.' The impotency of the Helmsley empire was noticeably hinted at in a 1983 Forbes article, which mentioned Harry's grandiose but long-unimplemented plan to top the 1,454-foot Sears Tower of Chicago with a new skyscraper in his own beloved Manhattan.
Improprieties in the Early 1980s
Were it not for the Helmsleys' purchase of Dunnellen Hall, an $8 million country estate outside Greenwich, Connecticut, all might have been well. The purchase date of June 20, 1983 marked the beginning of a massive scheme, orchestrated by Leona, to defraud minority shareholders in the Palace and other Helmsley properties. In essence, the Helmsleys financed all of the remodeling of the estate, which approached astronomical proportions, through existing Helmsley subsidiaries. In addition, from 1983 to 1985, as the Leona Helmsley trial would later uncover, the Helmsleys evaded more than $4 million in state and federal income taxes. Many cited unadulterated greed as the reason for the scheme, but the amount the Helmsleys appeared to have gone to such great lengths to save paled in comparison to the actual taxes of more than $240 million the couple paid to the government during roughly the same period.
Whatever the case, the aging Harry Helmsley was declared unfit to stand trial in 1989. Following a final appeal of her conviction, Leona began her prison term on April 1, 1992. Meanwhile, as an abbreviated Forbes 400 notice dated October 18, 1993 put it: 'Harry still collecting receipts on empire while marking time, but estimated worth over $1 billion.' Meanwhile, a dispute between the investors in the New York Helmsley Palace finally led to that building being placed in receivership and sold for $202 million in 1993.
The Empire After Helmsley's 1997 Death
At that time, no clear successor to the Helmsley empire had been named, especially given the untimely death of Leona's son, Jay Panzirer. At one point, Schwartz and Schneider were said to have retained the option of buying Helmsley-Spear upon the death of Helmsley, but the Helmsley estate, according to Forbes and insiders, was to go to the Quakers. Leona Helmsley was freed from prison in February 1994, after having served eight months in a federal prison, plus several months at a halfway house and in her own home under house arrest. Harry Helmsley remained in frail health. In 1996, when he was 87, his long-time partners Schwartz and Schneider sued Helmsley and Leona, alleging that Leona's management had bilked money from Helmsley-Spear, leaving that company unable to pay the millions of dollars it owed them. Harry Helmsley was apparently too ill to personally manage his business, and the relationship between Leona Helmsley and her husband's partners was described in the New York Times (May 8, 1996) as a 'standoff.' The Helmsley portfolio included many aging buildings suffering from lack of maintenance, but the legal tangles of the strained ties between the Helmsleys and their partners made simple sale of assets difficult.
Then Harry Helmsley died in January 1997, leaving Leona his real estate portfolio in its entirety. Six months after his death, Leona announced that the Helmsley property was for sale. She settled the lawsuits against her with Schneider and with Peter Malkin, the son-in-law of Lawrence Wien. In 1997 Schneider and Schwartz took over Helmsley-Spear, and Leona was no longer involved in its management. But Malkin and Schneider continued to disagree, leading to another lawsuit by Malkin over improper management of the Empire State Building. The real estate investment bank Eastdil organized the sale of the Helmsley buildings that were not encumbered by lawsuits. The list of available properties was headed by the chain of 13 Harley hotels, followed by several notable Manhattan buildings such as 140 Broadway and the Graybar Building, which was located over Grand Central Terminal. Many of the other buildings were nondescript office buildings or commercial spaces, some in poor repair. Eager buyers took over the properties and in some cases spent millions on renovations. The new owner of 140 Broadway, Silverstein Properties, spent more than $60 million on renovations on the building Harry Helmsley developed in the 1960s. Included in the new décor was a 20-foot-long black granite memorial to Helmsley, which Leona had requested.
By 2000, about half the Helmsley properties had been sold, bringing in an estimated $2.5 billion. Vornado Realty Trust paid $410 million in 1998 for 1 Penn Plaza and also paid $165 million for 770 Broadway. The Starrett-Lehigh Building at 601 West 26th Street sold for $152 million in 1998. The new owners then spent $22 million on renovations. A group of apartment buildings on the Upper West Side went for $122 million in 2000. By that year, Helmsley had sold a total of nine buildings for more than $100 million each, and many more for lesser prices. Leona Helmsley continued to live in the Helmsley Park Lane in Manhattan and the Helmsley Sandcastle in Sarasota, Florida. Although the 2,600-room hotel chain was hers to sell, her personal attachment to her homes made this sale unlikely. Other properties were not easy to dispose of because of the complicated ownership structure. For instance, the Fisk Building at 250 West 57th Street in midtown Manhattan had 15 partners in its original ownership structure. Getting the heirs and remaining players to agree on terms of sale would have been a formidable feat. As for the Empire State Building, by 1997 it remained clouded by Peter Malkin's lawsuit against Helmsley-Spear. Although Mrs. Helmsley had a majority interest in the building's operating sublease, other partners had to agree to the sale. Malkin hired a private detective firm to investigate mismanagement of the building, as part of his attempt to dislodge Helmsley-Spear from its management contract. What seemed to be personal animosity between Malkin and Irving Schneider, who was 80 years old in 2000, looked like it would hinder smooth resolution to problems at the historic building. So it remained in the Helmsley portfolio.
By 2000, Leona Helmsley herself had reached the age of 80. That year, the position of chief operating officer of Helmsley Enterprises went to Patrick Ward, a 47-year-old former optometrist. Ward quickly made changes at the company, such as hiring new managers for some of the company's hotels, the Park Lane and the Carlton. Helmsley Enterprises still owned vast amounts of property, despite the scores of buildings that had already been sold. The future of the company seemed to rest on the disposition of the legal quarrels between co-owners of its properties. Given the age of the principal players, it also looked like heirs and successors might be the ones to resolve the future of the remaining Helmsley empire.
Principal Competitors: Vornado Realty Trust.