When Kent Swig first ran the numbers, they were so shocking, he ran them again.
It was 1998. On one side, there was Midtown Manhattan, where most of the city’s real estate titans had made their bets, where vacancies were low and where prices were steep. Then there was the area below City Hall in Lower Manhattan—an area that didn’t even really have a name, but that as far as Swig could tell had the same city government, the same transportation system, and similar demographics. The hotels there had solid occupancy. The retail and office scene was robust. Zoning laws had even been modified to allow landlords to convert antiquated office stock to hotels or condos. Why, then, were prices there so much lower?
A few days earlier, a broker had approached Swig with a chance to take over a bid on the old Bank of New York Building at 48 Wall Street. Swig, who’d been looking to do his first big development deal, had toured the property and been blown away. He had always been a history buff, and the building had a compelling story. Built in 1929 in the Colonial Revival style on land owned by the Alexander Hamilton–founded Bank of New York, the imposing stone façade on the corner of William Street stood watch over the famous thoroughfare synonymous with finance. Standing on the street, gazing upwards, was like looking back in time.
ADVERTISEMENT
From its base, 48 Wall rose more than 15 stories before retreating off the street, its majestic limestone towers telescoping in a series of setbacks that culminated in a slender spire topped with a huge sculpture of a federal eagle. Just above the lobby level, three tall-arched windows looked out on the narrow street, and from outside Swig could glimpse the building’s grand interior. Inside, a cantilevered marble staircase led up to an old banking hall on the second floor, where three enormous brass chandeliers hung from vaulted ceilings above floors hewed of checked marble.
The deal came with generous terms. The bank was selling the building in preparation for a move to One Wall Street, which it had acquired after a merger. But it promised to stay in the building for a full year after the deal closed and continue to pay rent, which would give Swig time to cook up plans. After a year, it planned to vacate the entire building, with no pesky holdout tenants standing in the way of whatever vision Swig had for the site. There were plenty of options—it could be commercial, residential, or a hotel.
More than 20 groups had bid. The auction was in its second phase, but one of the three finalists, Vornado Realty Trust, the giant real estate investment trust founded by the pugnacious Steve Roth, was dropping out. Was Swig, the broker asked, interested in stepping in?
Swig’s calculations showed that land in the area was worth about $200 a square foot. But a bid of $37.5 million—considered high enough to win the day—would pencil out to only about $130 a foot. He’d be getting the site for $20 million less than it was worth—before factoring in the beautiful, cash-flowing office building sitting on it.
“It didn’t make sense!” Swig would crow years later.
It didn’t make sense if you were an optimist, like Swig. Despite a penchant for elegantly tailored business suits and cufflinks, the 37-year-old Californian always looked as if he’d be more comfortable in a T-shirt, board shorts, and flip-flops, thanks to his light eyebrows, perpetually sun-cooked lips, and shaggy blond locks.
Swig was undisputed real estate royalty—the grandson of the legendary Benjamin Swig, who had built the famed Fairmont Hotel chain and left his descendants the 50-story W.R. Grace Building on 42nd Street—as well as the son-in-law and protégé of Harry Macklowe, the scrappy, self-made builder of “midnight demolition” fame.
Though there were some pioneers in the area—a Bronx-born former lawyer named Steve Witkoff had started out buying properties in Washington Heights and seen promise in Downtown—most looked at the area and saw a glut of antiquated, unwanted office space. They saw the dark days of the recession that had just passed and the long list of speculators ruined when the market had taken a dive. They saw risk.
But Swig saw opportunity. He was ready to make a big bet on New York, which had recovered from the financial despair of the 1970s and the crime of the 1980s and 1990s and was now being seen as a safe, profitable place to do business under Mayor Giuliani. If the “investment thesis” brewing in Swig’s head checked out, it wouldn’t just be the one building he would buy in the area. There was no telling how big a chunk of the Downtown apple he might bite off.
Swig had grown up 3,000 miles from New York, surrounded by horses, chickens, and dogs in a bucolic stretch of California’s Marin County, just down the road from where George Lucas would build Skywalker Ranch. After starting out buying small retail stores in Iowa in the 1930s, Benjamin Swig had formed a partnership with Jack Weiler and began building what would become a $1 billion empire. The Swigs retained a number of Manhattan holdings including 1411 Broadway, 437 Madison Avenue, 711 Third Avenue, and the Grace Building, names that Swig can still recite today with the same ease that others recall long-deceased childhood pets.
From the very first time Swig visited the city when he was 10—staying at the Carlyle, visiting the Statue of Liberty, taking the Circle Line around Manhattan—he was enthralled. The city back then was gritty and in decline. But Swig could see his future. “The energy—the soul—I’d never felt anything like it,” he said decades later.
It would take a little while, and Swig would go a rather circuitous route, but he would return.
After majoring in Chinese history at Brown, Swig moved to China, living for five months in a city south of Shanghai called Hangzhou. There, he took daily jogs with a People’s Liberation Army minder, who followed his wide-eyed charge by bicycle and diverted him away from areas of the town that were off-limits. Swig returned to San Francisco for law school, intent on mastering international law and going back to China. But his fate as a real estate scion intervened.
Swig’s father got cancer, forcing Swig to step in and run the family business. He was surprised to find he enjoyed the creativity of the work and that his affable nature made him a natural dealmaker. And when his father grew sick a second time, Swig put together the deal that would change his life. After a partner backed out of an acquisition in Los Angeles, Swig was charged with finding a replacement. Swig had been reading about Macklowe’s developments in New York City and decided to cold-call and pitch him the deal. Not only did Swig persuade Macklowe to fly to L.A. and invest, he set off a relationship that would have a profound impact on both men’s personal and professional lives.
In 1986, when Swig moved to New York for a few months to manage some of his family’s investments, Macklowe invited him over for dinner, ostensibly to “meet his family.” In reality, Macklowe was playing matchmaker—introducing Swig to his daughter, Elizabeth. Macklowe, it seems, was looking for both an acolyte and a son-in-law. Liz found out, canceled dinner, and went out with a friend instead.
Some things are just meant to be. That night, Swig was to meet an old law school pal at Saloon in Yorkville when he was spotted in line by Liz. She recognized him from her father’s office and approached him, and the two started talking. In 1987, Swig moved to New York permanently, married Liz, and began apprenticing under Macklowe.
It was a job that offered Swig a crash course in the skills one needed to excel in New York real estate: creative thinking, media management—and bare-knuckled grit and ruthlessness.
Macklowe tapped him to oversee the construction of a Midtown hotel just off Times Square on West 44th Street. The hotel was already mired in controversy. In an incident that would make Macklowe notorious, his contractors had cleared the way for construction by demolishing a pair of single-room-occupancy buildings that sat on the site. They chose to do so in the dead of night, just hours before a citywide moratorium on SRO demolitions—triggered by the homelessness crisis—was to take effect. Eager to beat the deadline, the contractors demolished the buildings with no permits and neglected to turn off the gas, which could have caused an explosion.
In a city where gentrification and development had already begun to roil local politics, what would become known as the “midnight demolition” set off a firestorm and gave Harry Macklowe a dirty name. And though the district attorney eventually exonerated Macklowe of his contractors’ actions, he was still forced to pony up $2 million in fines. The incident would be mentioned by default in every piece of press he received for years to come.
The name Macklowe, the New York Daily News said at the time, is “a watchword for everything furtive and underhanded in the real estate business.”
“He’s willing to bet the house, and he is a scoundrel,” longtime New York Times reporter Charles Bagli, who covered Macklowe for decades, would later recall. “So something is going to happen in the end. And of course, it always infuriated him that the midnight demolition, which happened in the ’80s, haunted him for the rest of his life.”
Swig assumed the role of spokesperson for the project, allowing Macklowe to deflect. It seemed a small price to pay, for the development offered Swig a direct role in one of the more remarkable transformations in recent New York City history, that of Times Square.
Macklowe’s site was located just two blocks up and one block over from “the Deuce,” a stretch of West 42nd Street between Seventh and Eighth avenues that Rolling Stone had deemed “the sleaziest block in America” and that later inspired David Simon’s HBO series. Once a middle-class entertainment center, Times Square had ceded that role to Lincoln Center in the mid-1960s, according to Columbia professor Lynne Sagalyn, whose Times Square Roulette documented the revitalization efforts.
“During the 1970s and 1980s, West 42nd Street became synonymous in the minds of a worldwide public with violence and crime, flaunted deviance and pornography and urban decay,” Sagalyn wrote. The waiting rooms and concourses of the nearby Port Authority Bus Terminal, meanwhile, were a favorite homeless hangout. They served as both a hunting ground for shysters looking to scam new arrivals to the city and an entry point for a seemingly endless supply of would-be criminals to step in and replace those who had been arrested.
“If you city planners set out to make a place for dope peddlers, you couldn’t plan anything as good as Times Square,” one young drug dealer told two sociologists tasked with studying the area in the decade of Swig’s arrival, according to Sagalyn’s book. “I get off the bus from Detroit without a penny in my pocket. I walk up to the blood bank on Forty-second street, where I sell a pint of my blood, take the money, and go just four doors away where I can buy me a knife. I use the money left over to go into one of them all-night movies, where I slit open the back pocket of the first sleeping drunk I see. I take his money down the street, buy myself an ounce of smoke, find myself a doorway, and begin selling. I’ve been in town less than an hour and I’m already in business.”
Macklowe’s development site was located just outside the bullseye of the sleaze, at 145 West 44th Street between Sixth and Seventh avenues. On the block was a “hot-sheet” hotel, where prostitutes and their johns came and went at 30-minute intervals at all hours of day and night. Yet there was reason for optimism.
Even in the years before Swig’s arrival, across town in the Midtown East business district, the wrenching bankruptcies of the mid-1970s had become a distant memory. And by the early ’80s, development on the East Side had hit such a frenzied pace that many were worried the area was becoming overbuilt. So in 1982, the city had designated a West Side “growth area” from Sixth to Eighth avenues between 40th and 60th streets, an area that hadn’t seen construction since the early 1970s. To entice developers west, the planning commission offered a zoning carrot, allowing developers to build 20 percent higher. It also created urgency: Any project without foundation walls up by May 13, 1988, would lose the bonus.
By the time Swig arrived in 1987, the zoning bonus had brought over many developers. And the looming deadline set off a frenzy of last-minute activity. Plywood barricades and scaffolding were everywhere on the streets around Times Square, and to the north a small army of hardhats was engaged in a frenzy of demolition and digging. Bruce Eichner and VMS Realty were building a 450,000-square-foot office tower on Broadway and 46th Street. Up on 52nd and Broadway, Rudin Management was at work on a 35-story office tower. Larry Silverstein was assembling a project on Seventh Avenue at 47th Street, where he planned to build the Palace Hotel.
Macklowe was not afraid to delegate, and he gave his charge wide powers. Swig was an eager pupil.
He’d be up and working at 6:30 a.m., break for dinner with Liz and get back to it until midnight. “Harry said, ‘Here’s the project, you know, go forth.’” Swig recalled. “I had not been a developer of any project before, so there were a lot of things to learn. I was probably working 18-hour days. It was one of the greatest graduate programs anybody could ever do.”
Swig did everything from hiring the architects and engineers to purchasing all the furniture, fixtures, and equipment. He did the research, designed the hotel, laid it out, and later set up a management company to operate it. Macklowe sat in on weekly project meetings with the architects and the construction teams.
Swig also learned, and then refined, the art of New York City urban combat—an art that would come in handy when he was building his own development empire in the 2000s.
To deal with the hot-sheet hotel, and to keep riffraff off the block, Swig formed a block association with other owners and ran it with Larry Feldman, a developer who was putting up a 40-story office tower on 45th Street between Sixth and Seventh avenues. The members paid dues and had walkie-talkies, which they used to share problems and note suspicious goings-on. They even persuaded the local police to run a sting: The married owner of the problem hotel was promptly busted attempting to solicit an undercover cop. That gave the developers the leverage to make him clean the place up, and things on the block began to improve.
Swig identified a key competitive edge for the new hotel. At the time, all of the city’s conference spaces required off-site lodging. He suggested to Macklowe that they offer conference space on the premises. The area allocated for conference space eventually grew to three floors and became an integral part of the hotel. The project, a glassy 52-story 638-room structure, would come to be known as the Hotel Macklowe (today, it is the Millennium). It hosted a number of marquee events, including the marathon World Chess Championship between Garry Kasparov and Anatoly Karpov in 1990.
By the early 1990s, Swig had moved on. The end of his apprenticeship was hastened by the same factors that would take out a number of prominent developers: the great crash of the late 1980s. Macklowe filed for Chapter 11 bankruptcy on one apartment building and would eventually turn the Hotel Macklowe over to Chemical Bank to avoid foreclosure. As new development ground to a standstill in the early 1990s, and Macklowe struggled to stay afloat, both he and his protégé agreed: It was time for Swig to put out his own shingle and show the world what he could do.
As Swig sat in his office analyzing the Bank of New York deal and contemplating Lower Manhattan all those years later, he was struck by the similarity to the situation he had encountered in Times Square. Some of the lessons he learned under Macklowe clearly applied here. The first was that New Yorkers were so jaded, they often missed changes that were obvious to everyone else.
“New Yorkers sometimes know so much about their own city that they don’t look at it with fresh eyes,” Swig said.
Many were still nursing a financial hangover from the go-go 1980s. Spurred by favorable tax laws promoting office development and the Wall Street boom times, Downtown developers back then had kicked into high gear. And by 1986, more than 10 million square feet of office space had been created in Lower Manhattan. Then came the calamitous “Black Monday” stock market crash in October 1987. Massive layoffs, company closings—most notably the collapse of financial giant Drexel Burnham Lambert—and the belt-tightening of the recession followed, and office vacancy rates in the area spiked to record highs. Those tenants that remained had their pick of the space, and many moved out of the old stock and into the newest buildings.
By 1994, an estimated 25 million square feet lay vacant, an amount equivalent to all the available office space in Pittsburgh. Most of the empty space was in huge pre–World War II buildings, cursed with asbestos, low ceilings, unsightly columns, aging equipment, and floor plates designed for an era in which typists and secretaries ringed the outer areas of every office.
In 1993, a 325,000-square-foot building at 5 Hanover Square, assessed at $14.3 million, sold for $9 million, or $28 a foot. The following year, the 300,000-square foot 30 Broad Street, assessed by the city at $18.9 million, sold for $6.4 million, or $21 a foot. But just as in Times Square, there was some hope.
Several years earlier, City Hall had convened a task force on Lower Manhattan, and the Real Estate Board of New York, the industry’s biggest trade group, had lobbied for aggressive action. It was already clear from the experience of the Upper West Side and other areas that people were returning to Giuliani’s New York en masse. They needed places to live. If Downtown could be turned into a 24-hour district, if transportation could be improved, perhaps that old office stock could be put to better use—perhaps it could be converted to residential.
The area, city planners noted, was already anchored by Battery Park City on the west shore and the South Street Seaport and South Bridge Towers on the east shore. Some predicted redevelopment would proceed along the shores, then move inland.
In Times Square, Swig believed the construction of the Hotel Macklowe and other big projects had fundamentally altered the character of the place. But nobody seemed to see it. And even if you didn’t agree with that, it seemed to Swig, it was hard to deny the impact the long-delayed implementation of the Times Square Redevelopment Project had on the area. Yet it took years for people to realize that Times Square had changed.
“You ask New Yorkers, ‘What’s your opinion of Times Square?’” Swig would explain decades later. “‘It’s seedy. It’s prostitutes. Never go there.’ Then all these new buildings came up, and now, ‘What do you think of Times Square?’ ‘It’s seedy. It’s full of prostitutes and crime. Never go there.’ Okay. “Then a unique thing happened. All the infrastructure, millions of square feet, brand-new hotel rooms, residential, all there. And you still ask New Yorkers, ‘What do you think of Times Square?’ ‘It’s seedy, crime-filled, prostitutes,’” Swig concluded, throwing up his arms in exasperation.
Only after The Lion King had opened in 1997, Swig recalled, did New Yorkers, at the theater with their children, begin to look around, open their eyes and say, “Where am I?!” “Their eyes were open because of The Lion King, and then all of a sudden, everybody goes, ‘Oh my God, Times Square!’” Swig said.
As he contemplated the deal, Swig thought about his grandfather, who had a plaque on his desk that read, “Nothing can be achieved if all possible objections must first be overcome.” Swig liked that people thought his studying Chinese history was unusual. Now he liked that people didn’t see what he saw Downtown. The key to success, Macklowe had taught Swig, was “vision.” You needed to see what others didn’t. And you needed to have enough faith in your vision to follow it.
It was something Swig felt so strongly about that he sought to cultivate a persona that emphasized his uniqueness, injecting some pizzazz into the staid conservatism of the real estate world. He donned sharp suits, in grays and navy blues, but matched them with purple shirts, soccer ball cufflinks, beaded bracelets, and a tequila string around his wrist. He built a closet in his Midtown office to store his surfboards, which he showed off to visitors. He decorated the walls with expensive art by edgy icons—a huge Warhol print of Mao Zedong with pink and blue lips, a Damien Hirst painting depicting a needle with blood on it.
“You can think out of the box, you can be as creative as you want,” Swig would later say. “Just because it hasn’t been done doesn’t mean it’s not a great idea. Everything has issues and problems, and if you get limited or intimidated by every obstacle that you confront, you’re never going to get anywhere.”
Swig decided to bid on the Bank of New York building. And he won.
To buy the property at 48 Wall, Swig and his partner, David Burris, also a Macklowe alum, teamed up with the Corsair Group, a real estate investment bank. And by the time Swig won it, he was convinced he’d scored the deal of a lifetime. In the Times, Bagli dubbed Swig’s winning bid “surprising” and warned that the price fed a “rising fear that the market is out of control.”
Just three years earlier, a 525,000-square-foot office building down the street at 25 Broad had sold for $10 per foot, less than one-tenth the $123 a foot Swig and Burris had bid to win their prize. But Swig’s timing, in this instance at least, would prove fortuitous. And the buy would be the first of many—a preamble to one of the most epic spending sprees of the early aughts, and a journey that many in the industry would later recall as the most emblematic of the times, leading to one of the great busts of the cycle.
Excerpted from THE NEW KINGS OF NEW YORK by Adam Piore, published by The Real Deal.
