N 9 -2 0 8 -0 8 1
JANUARY 30, 2008
A. EUGENE KOHN
FRANK MONTERISI
JOSH KUNTZ
The Time Warner Center: Mixed-Use Development
When our office was at the corner of Madison Avenue and 59th Street, I used to look out the window and
stare at the empty Coliseum on Columbus Circle. All distances from New York are measured from the statue at
the center of that circle. I figure that if New York is the center of international business and culture, and this
site is the center of New York, then I believe we are building at the center of the world.
— Stephen M. Ross, The Related Companies, founder and CEO
On February 4, 2004, Related Companies CEO Stephen Ross stood outside the lavish grand
opening party for the Time Warner Center, New York City’s, and Related’s, newest and most
controversial mixed-use development. Located on Columbus Circle at the southwestern corner of
Central Park, this 2.8 million square foot (sf), $1.7 billion “Gateway to the West Side” was a long time
in the making. From conception to finish, the Time Warner Center’s development spanned three New
York City mayoral administrations, three grueling request for proposal (RFP) processes, one failed
developer-financier partnership, avid and concerted community opposition, the 9/11 terrorist
attacks, two fatal construction accidents, and a large fire only months before the scheduled opening
(see Exhibit 1 for a timeline of key events).
While Ross had successfully marketed nearly all of the Center’s space, questions remained over
the long-term viability of the project. Mixed used development on such a scale posed a particularly
large risk in Manhattan, where almost all properties were dedicated to a single use, or at best had
ground level retail. Fifth Avenue’s Trump Tower combined above-ground retail with office and
residential space in a prestigious retail location, but over the two decades since its 1983 opening had
seen retail performance falter.1 Upper floor retail in mixed use development had succeeded in
Chicago’s WaterTower Place, but the several other successful urban mixed use developments—
Boston’s Copley Place and Toronto’s Eaton Centre, for example—had but one or two upper floors of
shops, not the seven of WaterTower Place.
The Center had already benefited from an upturn in the residential property market, but the
situation could have easily differed. The real question was whether retail rents would hold up longer
term. This issue was doubly important given that Ross had sold Time Warner a substantial amount of
the Center’s office space at cost in order to assure an important commercial client. Doing so meant the
residential, hotel, and retail space would be responsible for much more of the Center’s profitability.
________________________________________________________________________________________________________________
Lecturer A. Eugene Kohn, Frank Monterisi, Josh Kuntz, and Global Research Group Senior Researcher David Lane prepared this case. HBS cases
are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of
effective or ineffective management.
Copyright © 2008 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685,
write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be
reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical,
photocopying, recording, or otherwise—without the permission of Harvard Business School.
208-081
The Time Warner Center: Mixed-Use Development
Related Companies2
Ross founded the Related Housing Companies in 1972 with a business plan that built uniquely on
his training as a tax lawyer and his experience as a financial executive. He envisioned an affordablehousing company that would both build apartments and handle tax-credit financing. The finance side
business would generate a steady income stream, he explained, but “the big picture was in
development.”
Throughout the 1970s, Related focused on developing quality, government-assisted, multifamily
housing developments. Simultaneously, the firm established its finance business to profit from tax
incentive programs created by the federal government to promote affordable housing. The financial
side of Related’s operations bundled tax credits from developers and sold them to investors looking
to offset their own tax bills. In 1997, Related spun out most of this business as the separate company,
CharterMac.
Throughout the 1980s and 1990s, Ross and his team gradually broadened their focus from
affordable housing into a wider range of mixed-use, office, and luxury developments. The cash flow
from the affordable housing and finance businesses allowed Related to carry the cost of large project
teams through the ups and downs of the real estate cycle, a distinct advantage over real estate
developers attempting risky, large-scale projects without a similarly reliable source of funds.
To manage growth, Ross organized Related into three divisions—Development, Management,
and Financial Services. The result was a fully integrated company focused on mixed-use and
multifamily development with a property portfolio worth billions. As described on its website,
Related’s strategy was to “find value-added opportunities in markets with high barriers to entry.”
When he unveiled his ambitious plans for what became the Time Warner Center in the early 1990s,
Ross put this strategy to the ultimate test.
The Process
The Site3
Columbus Circle, Manhattan’s only traffic circle, was located at the southwest corner of Central
Park, at the intersection of 59th Street and Central Park West (see Exhibit 2 for a map). All distances
from New York were measured from the statue of Christopher Columbus, which stood prominently
at the Circle’s center.
In 1954, the New York Coliseum was built on the Time Warner Center site, and served as New
York’s convention center for 30 years until the opening of the Jacob Javits Center at 34th Street and
11th Avenue. The Coliseum’s loss was an opportunity for the Metropolitan Transit Authority (MTA),
the municipal transportation agency that controlled the vacant building and the valuable ground
beneath. Saddled at the time with ongoing financial difficulties, the MTA was eager to sell the site
and allocate the proceeds to capital improvement projects.
The location was spectacular. At the convergence of several subway lines, a popular tourist
destination, and the meeting point of Manhattan’s West Side and Midtown, the Coliseum site was a
developer’s dream.
2
The Time Warner Center: Mixed-Use Development
208-081
The First Request for Proposal
In 1985, the MTA agreed to a $455 million development plan submitted by Boston Properties with
the financial backing of Salomon Brothers. The futuristic Moshe Safdie design towered 925 feet in the
air, however, drawing the ire of the influential Upper West Side Community Board, which was led by
Joseph Rose—a member of an influential Manhattan real estate family who in 1994 was named
chairman of the City Planning Commission—and publicly supported by luminaries including
Jacqueline Onassis. The board brought lawsuits contending that the building would cast depressing
shadows on Central Park.
In response to community opposition, Boston Properties returned in 1988 and again in 1989 with
scaled down designs from David Childs of Skidmore, Owings, Merrill. Despite the improved
reception to revised building design, the developers’ partnership began to fall apart. Real estate
prices tumbled, and Salomon Brothers pulled out in 1989. In the depressed market, the MTA and
Boston Properties began exploring interim uses for the Coliseum, including a retail center anchored
by Kmart. With nothing finalized by 1994, Boston Properties withdrew its proposal.
Over the following two years, the City Planning Commission (now headed by Joseph Rose)
worked with the MTA on design guidelines that would be acceptable to all parties. Rudy Giuliani,
the new mayor, also re-energized the process in an effort to bring much needed tax revenue to the
city. (Any proceeds from the property sale would accrue to the state-funded MTA, but the city would
be entitled to future property tax revenue.) While Giuliani did not have formal veto power over New
York City development, his powers of appointment and inherent status as the primary spokesman
for the city’s interests gave his voice considerable influence.
Building a New Team
The whole time, Stephen Ross watched out his office window as nothing happened on the
Coliseum site. With the real estate market beginning to rebound, he sensed an opportunity to
compete in the next round of bidding. However, with a project of this magnitude, he would need to
assemble a powerful team.
For equity financing, Ross turned first to Bill Mack, founder and senior partner at Apollo Real
Estate Advisors, a leading real estate financier. Mack had long seen potential in the site; his father, a
contractor, had demolished the site to make way for the Coliseum in 1952.4 Apollo signed on to
provide $255 million in equity.
For retail expertise, Ross approached Ken Himmel, renowned in the industry for his success in
developing multi-level “vertical retail” at Chicago’s Water Tower Place and Boston’s Copley Place.
His expertise was valuable—up to this point in time, multi-floor retail had failed miserably in New
York City. Himmel agreed to partner with Related, and eventually joined the firm on a full-time
basis.
For the design, Ross scored a coup by recruiting David Childs as the team’s architect. Given their
track record and experience with the Columbus Circle site, Childs and his team from Skidmore,
Owings, Merrill were a natural fit. In addition, Himmel brought in Howard Elkins of Elkus/Manfredi
to design the Center’s retail element.
3
208-081
The Time Warner Center: Mixed-Use Development
The Second RFP
In 1996, the MTA initiated a second RFP with more specific guidelines around public access and
integration with the local community. “We never were trying to design the building for the
architects,” explained Rose. “We were trying to incorporate values into the project.” Nine companies
responded to the RFP, and by spring 1997 officials winnowed this group down to five finalists: Forest
City Ratner, Millennium, Related, Tishman Speyer, and Trump.5
In July, word leaked out that the MTA would recommend Millennium’s proposal, ostensibly for
financial rather than aesthetic or architectural grounds. Anxious to cash out and avoid another
decade-long struggle, state officials were reportedly attracted to Millennium’s agreement to pay over
$300 million at signing (as opposed to waiting until any litigation was resolved).6 Sensing that such
short-term focus was not in the city’s best interests, Giuliani called a press conference where he
lashed out at the agency, claiming, “The MTA has really no concern for the future of the city. All they
are concerned about is how much they make.” Giuliani announced that he would veto the deal. 7
The mayor used the moment to flex his political muscle. Giuliani insisted that a 100,000 sf cultural
and theater space be included in the development—free of charge, with no tax credit or increase in
buildable FAR in return. Deputy Mayor Randy Levine elaborated, “We told them that it was never
about money, that this was about a series of things, price being only one. The most important things
is the way the project enhances the neighborhood, because New York City has to live with this for the
next 50 or 100 years.”8
The Third RFP
As the third RFP process began in mid 1997, Ross considered the conflicting interests of the state
(the MTA) and the city (Giuliani), which shared authority over the site. “Each of these parties puts an
emphasis and a priority on somewhat different things,” explained Carl Weisbrod, former president of
the city’s Economic Development Corporation. 9
The MTA wanted two things: to maximize the price a developer would pay for the project, and to
choose a proposal that would pass public, city, and state scrutiny. “In the end,” Ross remarked, “The
MTA wanted certainty. They wanted to avoid being shot down by Giuliani, and they wanted to
avoid the court battles they had endured in the failed Boston Properties deal.”
Giuliani had a different set of interests. On one hand, he wanted to create an enduring landmark
and appease the powerful community groups. On the other, Ross believed that Giuliani wanted to
use this development opportunity to assert his power as mayor. In March 1998, the third RFP
included detailed requirements for a theater to house Jazz at Lincoln Center, a non-profit arts
organization.
Ross figured that he could improve his bid by embracing the theater space as a central element in
his design. Most other bidders, he figured, would stick the theater in the least valuable space in order
to minimize its financial drag on the project as a whole. To do otherwise may not have been the
economically rational decision, but Ross argued that the site was about more than just dollars and
cents: “I always thought that this was one of the last sites that had truly grand potential. . . . This
would be one of the buildings that would define New York City.” Ross elaborated, “You have to be
an optimist to take on a massive job like this. Putting this development together, we had to not only
understand how much of each property type to plan for now, but how much the market would
accept in five years time.”
4
The Time Warner Center: Mixed-Use Development
208-081
Time Warner: The Last Piece of the Puzzle?
At this point, Ross still believed that he was at a disadvantage relative to the competition.
Millennium remained the frontrunner given the aggressive financial concessions its management had
made. The Ratner bid had also garnered attention—designed by Cesar Pelli, it featured a Sears
department store that would generate new jobs and tax revenue for the city. 10 Ross did not want to
lose the site, but worried that overbidding might easily bankrupt his company.
Ross gambled that he could improve his position by pre-selling office space in the project to a
large company. Doing so would bolster the project’s credit rating while also assuring a significant
tenant. “This was a major turning point,” Apollo’s Bill Mack said. “One thing that won the day was
the foresight to see that this would work as office space without at tax abatement at a time when no
new office buildings were being built in New York.” Given its prominent Midtown location, the
Related team decided to target major media and entertainment companies, whose headquarters
clustered in the area.
When Ross met with Time Warner CEO Dick Parsons, he knew that the company was not looking
for new space. In fact, Time Warner still had several decades left on its existing lease. But as Ross
explained to Parsons, “This isn’t just about renting space. It is about showcasing your company as a
unique, cutting edge media company and creating an icon for New York City.” The meeting lasted
only 15 minutes. Parsons sat through the pitch in silence. At then end, Ross recalled, he looked up
and said, “Let’s do it. I will have board approval within 60 days.”
The basic terms of the deal called for Related to sell office space to Time Warner at cost plus a
modest development fee. Time Warner agreed to issue a letter of credit for the office space, thereby
effectively providing financial backing for the development in case it ran into financial distress. Time
Warner’s equity commitment totaled $56 million.
Ross explained the merits of the deal: “Time Warner got office space at cost that later they could
easily sell at a premium. We pre-sold the office space and lined up a development partner that no one
would flinch at. We placed Jazz in a prominent location and worked very hard to sell our design to
all the constituents. Now the MTA and the city knew that our development plan was a serious one.”
With these elements in place, Related bid $345 million for the land and an additional $17.25 million to
start demolition seven months early. With a final bid of $362.25 million and a commitment to pay the
cost to build Jazz at Lincoln Center, Related received word that it was the winning bidder on July 28,
1998.
The Project
The Design
Childs imagined the development as an integral part of the city, reclaiming an underutilized piece
of Manhattan. He split the building into two towers, visually extending 59th Street in deference to the
existing grid of city blocks. The design also accentuated the curvature of Columbus Circle and
followed the direction of Broadway as it cut through the city. To accomplish these goals, the team
moved the south tower forward and designed the two towers as parallelograms, maximizing Central
Park exposure (see Exhibit 2).
5
208-081
The Time Warner Center: Mixed-Use Development
With 2.1 million sf of buildable FAR, the site represented more usable space than the Empire State
Building. The complex plan called for four property types—hotel, office, residential, and retail—plus
the theater. To determine a viable mix of property types, the Related team set out to understand the
state of the current market. In 1997, New York real estate was again showing life after a long
stagnancy (see Exhibit 3). Manhattan rents were trending up as vacancy rates declined, and there had
been no major office construction for years (see Exhibit 4). Related settled on the following allocation
for the towers (see Table A and Exhibit 5).
Table A
Allocation of Space in the Towers
Tower
Mandarin Oriental
Related/Apollo
Time Warner
Source:
North
Both
South
Zone Square Footage
218,000
510,000
712,000
Gross Square Footage
275,000
591,000
866,000
Company documents.
The fact that the Center was designed as a single unit, in which all of its components came on line
simultaneously, created additional challenges for the mixed use complex. As Himmel described it:
The mega-structure model does not allow for phasing and locks you into decisions about
planning and design and marketing years in advance. What it means quite simply is that you
better have a firm vision for the program and project. You’d better have deep relationships
with tenants and users, and you’d better be prepared to create a framework for retail,
restaurants, and entertainment that is both innovative and flexible. The changes that will occur
over a typical five year development process will be very frustrating, but necessary to get to
the best solutions and end product.
The Vertical Retail Challenge
Designing what became known as the “Palladium” retail area at the base of the building was a
major source of debate. It incorporated 338,000 net rentable sf (369,000 gross sf) of retail space and
101,000 zone sf of theater space (175,000 gross sf). According to Ross, “It was a natural convergence
point. With so much human traffic around the site, we knew that the engine to development would
be retail.” From an economic standpoint, Related was counting on high rents from retail tenants to
provide returns after the residential condominium apartments had been sold. The shops, restaurants,
and public areas would be the Center’s face to the surrounding community, generating most of the
foot traffic.
It was Ken Himmel’s job to make vertical retail viable in Manhattan, but as he put it: “Taking on
the daunting challenge of vertical retail in Manhattan in the year 2000 was nothing short of insanity
according to most development veterans here in the city. After all, the likes of Trump, Vornado, and
Tishman Speyer had all dabbled with this in the past and had met great resistance to it.” Street level
space always commanded a high price, but securing high rents for retail on upper floors would be
problematic. Himmel estimated that the second, third, and fourth floors would rent for a discount of
40% to 50% relative to space on the ground level. In response the team generated an innovative
strategy: they would locate very high-end restaurants, such as Thomas Keller’s Per Se, on the third
6
The Time Warner Center: Mixed-Use Development
208-081
and fourth floors. As “destination” restaurants with world-renowned chefs, Himmel figured that a
street level location was less important (and the privacy and views perhaps more important). For the
other floors, Himmel focused on premium retailers he hoped would draw shoppers but also fit the
desired image of the building.
The cultural center was another design challenge. Childs controlled the project’s master plan, but
Lincoln Center hired its own architect, Rafael Vinoly, for the Jazz space. Emboldened by the mayor’s
support, the team from Jazz insisted on placing the theater at a prominent ground level location.
After considerable debate, the parties reached a compromise that gave ground floor signage to Jazz @
Lincoln Center while placing the actual theater in the front of the fifth floor, looking out at Columbus
Circle. The Related team hoped that theater traffic would be drawn to the upper retail floors,
enhancing the Center’s value for all its tenants (see Exhibit 6).
Financing
Related estimated the development budget at $1.72 billion. The land cost alone totaled $485
million, including payment to the MTA, the cost of Jazz @ Lincoln Center, and transaction costs.
Constructing the building was estimated at an additional $853 million over three years. Total soft
costs, including marketing and consultant fees, were expected to run to an additional $402 million.
A 50/50 joint venture with Apollo provided the bulk of the equity financing. Related agreed to
manage the development process and contribute 10% of the equity. Apollo would provide the other
90% of the capital and receive a preferred return of 9.5% on the first $166 million, and a 20% preferred
return on the balance of the equity. Any profit over that amount would be shared equally.
The equity was carved into pieces. Time Warner contributed $56 million for the space it would
own. Mandarin Oriental and Related/Apollo contributed $49 million each to build the hotel space.
Related/Apollo provided $283 million for the rest of the building. Finally, Lincoln Center became
owner of the theater space for the bargain price of $10. (Exhibit 7 details the development budget and
Exhibit 8 details the capital structure.)
In addition to the equity, GMAC provided $1.3 billion in debt financing, the largest construction
loan in history at the time. This included a $1.1 billion construction loan at 8.5% interest and a $200
million mezzanine loan at 18.0% interest.
Marketing
Selling the Residences
With the major partners in place and Himmel working on the retail component, Related hired
Susan DeFranca to oversee the sale of 198 apartments comprising 450,000 sf within the Center. Most
of the apartments were located above Time Warner in the south tower, with the remaining 65 above
the Mandarin Oriental in the north tower. At the time, Related expected the costs of these ultraluxury units to total an average $1,000 per sf. Offering prices would start at $1,500 per sf, in hopes of
raising a gross total of over $900 million.
Given the risk inherent in leasing the Center’s retail space and the fact that a significant portion of
its office space had been sold at cost, residential pre-sales would spearhead the overall financial
7
208-081
The Time Warner Center: Mixed-Use Development
returns of the project. In part this was because DeFranca needed to begin marketing the residences
before Related could publicly announce any of its retail or hotel clients. Her job was also complicated
by the need to assure prospective residential purchasers that their privacy would not be threatened
by the activities and associated traffic brought by the Center’s hotel, offices, and shops.
DeFranca positioned the building as “Five-Star Living” based on (1) an ideal location, (2)
unparalleled Central Park views, (3) inspired architecture, (4) award-winning amenities, and (5)
sophisticated technology. The sales effort got underway in August 2001, selling $250 million worth of
units in the first few weeks. Momentum stalled after the terrorist attacks of September 11.
Newspapers across the globe ran stories on the same theme: Who now would want to spend
millions of dollars on an apartment in a high profile Manhattan building that featured a North and a
South Tower? DeFranca was also faced with fears on the part of prospective buyers that North Tower
views would be obscured by the adjacent Trump Tower.
Pricing Prospects
In the face of these challenges, the marketing team debated approaching Mandarin with a
proposal to rebrand the North Tower apartments as the “Residences at the Mandarin Oriental.” The
tagline would be, “Become a permanent guest at the Mandarin.” But DeFranca’s team worried that,
although the pitch might appeal to worldly ultra-luxury buyers familiar with the Mandarin brand,
few in the United States knew anything of the hotelier. As a result, the team was unsure about how
much their proposal was actually worth.
In addition to the condominium apartments, the ultimate returns on the Center would depend on
market conditions upon completion of construction. Related estimated that the office space in the
North Tower other than Time Warner would amount to 211,000 net sf that could rent at $85 per sf.
The Mandarin would likely charge an average $700 to $800 a night for the hotel rooms. With 251
rooms, the hotel would generate a stabilized net operating income of $28 million after two years.
Retail totaled 290,032 sf plus an additional 47,935 sf in restaurant space. Related forecasted a
blended average of $90 per sf for retail and $85 per sf for the restaurants.
Finally, Jazz @ Lincoln Center would occupy 174,000 sf with a commanding view. A retail tenant
might pay $85 to $150 per sf for the space. Hard construction costs on the space were forecasted at
over $350 per gross sf.
Synergy or Entropy?
As Ross paused at the threshold of the Time Warner Center entrance to take in the view of Central
Park beyond Columbus Circle, he contrasted all the hard work he and his team had already invested
in this mixed use project with the returns that Related earned on single use residential projects. In a
typical luxury rental building that included an affordable housing component, Related was realizing
a 10% annual return on cost. For luxury condominium projects, the return had been rising
significantly since the late 1990s. In contrast to initial expectations, the costs of the Time Warner
Center residences in reality averaged a total $1,500 per sf, and had been offered for sale at $2,500 per
sf. In the Mandarin Oriental and Time Warner, Ross had reliable long-term partners in the Center.
The only remaining question was whether the huge structure would prove itself greater than the sum
of its parts.
8
The Time Warner Center: Mixed-Use Development
Exhibit 1
Time Warner Center Timeline of Key Events
1985
Initial MTA/Boston Properties Deal
1994
Boston Properties Deal Collapses
1996
Second RFP Submission
Fall 1997
Third RFP submission
Spring 1998
Final RFP submission
July 1998
Developer selection
January 2000
Demolition commencement
July 2000
Land closing
August 2000
Construction Commencement
July 2001
Loan closing
February 2002
Steel topping out
October 2002
Building topping out
August 2003
First residential closing
August 2003
Time Warner units conveyed
September 2003
Jazz units conveyed
October 2003
Mandarin Oriental opening
February 2004
Full opening
Source:
208-081
Related internal documents.
9
208-081
The Time Warner Center: Mixed-Use Development
Exhibit 2
Source:
Exhibit 3
Source:
10
Model of Columbus Circle and Environs with Time Warner Center Mock-up
Related internal documents.
Investment Returns by Property Type
National Council of Real Estate Investment Fiduciaries, http://www.ncreif.com, accessed April 2007.
The Time Warner Center: Mixed-Use Development
Exhibit 4
Manhattan Office Data, 1980-1997
Average
Vacancy
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
Source:
208-081
5.0%
2.5
3.4
4.8
5.6
7.2
7.0
7.1
8.4
10.5
13.3
13.0
12.8
13.2
10.5
9.4
8.1
6.1
Class A/Midtown
Average Rent
(per sq. ft.)
$49.83
63.46
65.83
58.39
57.45
56.28
55.96
54.34
54.87
53.25
51.28
46.97
41.43
38.65
38.39
37.75
37.85
40.91
New Construction
(‘000 sq. ft.)
250
1,649
4,158
6,498
3,303
6,606
5,430
7,402
2,700
7,832
4,804
170
2,254
0
0
0
0
Cushman and Wakefield, as cited in “Market Supply and Demand Assessment,” Taub Urban Research
Center, 2001, http://urban.nyu.edu/g35/market.html, accessed April 2007.
11
208-081
The Time Warner Center: Mixed-Use Development
Exhibit 5
Time Warner Center, Project Area Summary
FAR
Gross
Usable
Rentable
Sellable
AOL Time Warner
Podium/North Studio
South Tower
Total
712,419
473,303
392,348
865,651
378,642
313,878
692,521
492,235
408,042
900,277
Palladium (Retail)
Public Spaces/Circulation
Services Areas
Retailers
Restaurants
Total (Retail and Office)
40,615
26,131
259,121
42,836
368,693
59,270
38,134
378,139
62,497
538,040
—
—
—
—
—
—
—
290,032
47,935
337,967
One Central Park (Residential)
North Tower
South Tower
Health Club (South Tower)
Club Allocation (North Tower)
Total
184,669
324,791
—
6,773
516,233
208,915
382,517
—
8,542
599,974
—
—
—
—
—
161,670
288,358
—
—
450,028
Mandarin Oriental Hotel
Hotel Program
Club Allocation (North Tower)
Total
218,112
6,773
224,885
274,590
8,52
283,132
—
—
—
—
—
—
Class A Office
Total
175,095
175,095
193,258
193,258
158,293
158,293
211,057
211,057
Jazz at Lincoln Center
Total
101,000
101,000
174,603
174,603
—
—
—
—
1,676
1,676
146,477
146,477
—
—
2,100,000
2,801,133
Parking
Total
TOTAL
Source:
12
Related internal documents.
The Time Warner Center: Mixed-Use Development
208-081
Exhibit 6 Cross-Section of the Time Warner Center facing onto Columbus Circle, Parking to Jazz at
Lincoln Center
350,000
leasable
square feet
7 levels
(Concourse
II,
Concourse
I, Ground,
Mezzanine,
Second,
Third, and
Fourth
Floors)
300,000
leasable
square feet
of retail
50,000
leasable
square feet
of a unique
collection
of New
York’s
finest
restaurants
55,000
square feet
of public
space
Source:
Related internal documents.
13
208-081
The Time Warner Center: Mixed-Use Development
Exhibit 7
Time Warner Center, Summary Development Budget
Total
$GSF
Cost
Land
Jazz at Lincoln Center (FAR Allocation)
Site Acquisition (FAR A)
MTA Additional Parts
MTA Closing Costs
Transfer
3.07%
Financing
2.00%
Mortgage
2.75%
Land Loan
8.75%
Environmental
Land Legal Fees
Brokerage Services
Other Land Costs
Title Insurance
Total Land
$22.19
123.16
6.16
0.55
3.74
1.43
1.80
4.42
7.03
0.22
1.43
0.68
0.38
$173.18
$ 62,144,570
345,000,000
17,250,000
1,531,087
10,482,567
4,000,000
5,041,667
12,370,188
19,684,773
618,839
4,000,000
1,911,620
1,078,280
$ 485,113,590
Hard Costs
Construction Cost
Contractor Contingency
Escalation
0.00%
Hard Cost
4.52%
Force Majeure Insurance
Tenant Improvements
Fixtures and Equipment
Systems
Total Hard Costs
$264.38
7.63
0.00
12.26
1.34
11.42
6.63
0.92
$304.58
$ 740,762,169
21,361,865
—
34,346,202
3,750,000
31,982,620
18,571,302
2,587,402
$ 853,361,560
Soft Costs
Proposal Costs
Preconstruction Costs
Permit Costs $0.50
Consultant Fees
Testing and Inspections
Developer Overhead
Leasing/Sales Commissions
Real Estate Taxes
Insurance
Project Legal Fees
Accounting Fees
Marketing
Financing Costs
Administrative Fees
Mortgage
Predevelopment Cost
Construction Interest
Mezzanine Interest
Operating Deficit
Soft Cost Contingency
Total Soft Costs
$0.33
1.83
0.50
19.13
0.88
15.60
9.24
9.91
8.93
5.84
1.88
10.83
12.80
0.66
10.96
1.71
29.17
0.0
1.61
1.76
$143.58
$931,906
5,112,791
1,400,567
3,594,513
2,464,183
43,708,463
25,872,826
27,767,713
25,010,213
16,356,486
5,269,066
30,326,862
35,846,635
1,857,074
30,708,333
4,796,613
81,722,674
—
4,497,684
4,932,792
$ 402,177,393
$6.07
0.00
0.00
$17,000,000
—
—
8.34
23,375,000
$633.57
$1,718,682,973
Force Majeure Insurance
Working Capital
Cost Deductions
Developer Fees
DEVELOPMENT COSTS
Source:
14
Related internal document.
208-081
Exhibit 8
-15-
Time Warner Center, Summary Capital Structure, Profits, and IRR
CAPITAL STRUCTURE
AOL Time Warner
Retail
Residential
Mandarin Oriental
Class A Office
Parking
Total Cost
Debit
Debt/Cost
521,263,246
262,491,245
584,535,743
253,913,968
63,233,603
33,245,168
1,718,682,973
465,200,000
106,827,154
355,308,955
129,000,000
27,878,979
15,784,912
1,100,000,000
Mezzanine
—
89%
41
61
51
44
47
200,000,000
30,000,000
230,000,000
Total Equity
56,063,246
155,664,091
29,226,787
94,913,968
35,354,024
17,460,256
388,682,973
% on Cost
Time Warner
Mandarin
Apollo
Related
56,063,246
—
—
—
—
—
56,063,246
—
—
—
49,394,484
—
—
49,394,484
—
140,0997,682
26,304,108
40,967,536
31,819,162
15,714,231
254,902,719
—
15,566,409
2,922,679
4,551,948
2,535,462
1,746,026
28,322,524
11%
59
5
37
56
53
ASSUMPTIONS
Date of Opening
Parking
Office
Retail
Hotel
6/1/2003
7/1/2003
8/3/2003
9/1/2003
Date of Sale
Exit Scenario
NOI
5/31/2005
5/31/2005
5/31/2005
8/30/2005
4,277,711
12,243,367
29,124,133
27,967,143
Cap Rate
8.00%
8.00
8.00
9.00
NET PROFITS
Residential Sq. Ft.
$2,011
IRR ANALYSIS
Apollo/Related
Apollo
Related
Apollo/Related
Apollo
Related
472,551,429
297,630,382
174,921,048
31.80%
25.59%
63.49%
Source:
Related internal document.
Note:
Apollo’s Return is higher than Related’s because their deal included a clause in which the original equity investment was returned to the investors during the course of the development.
The Jazz at Lincoln Center cost is allocated to each component by square-foot allocation.
208-081
The Time Warner Center: Mixed-Use Development
Endnotes
1
For an otherwise positive assessment of the project that cites the “retail boutiques that line most the
atrium…” as having had “mixed success,” see Carter B. Horsley, “The Midtown Book: Trump Tower,” The City
Review, www.thecityreview.com/trumpt.html, accessed January 22, 2008.
2
This section draws upon material found on the Related Companies website, “Related History,”
www.related.com/index.asp?model=relatedHistory&view=1&slideid=1, accessed April 2007; and Alex Frangos,
“Dual Track: Affordable-Housing Empire Fuels Developer’s Upscale Aims,” Wall Street Journal, August 22, 2006,
via Factiva, accessed March 2007.
3
This section draws on material in David W. Dunlap, “At Columbus Circle, a Circuitous Path to Columbus
Centre,” New York Times, September 6, 1998, available from Lexis-Nexis, www.lexisnexis.com, accessed January
23, 2008.
4
David W. Dunlap, “At Columbus Circle, a Circuitous Path to Columbus Centre,” New York Times,
September 6, 1998, available from Lexis-Nexis, www.lexisnexis.com, accessed January 23, 2008.
5 Clifford J. Levy, “5 Developers Are Said to Be Finalists for Coliseum Project,” New York Times, April 30,
1997, available from Lexis-Nexis, www.lexisnexis.com, accessed January 23, 2008.
6
Clifford J. Levy, “Coliseum Deal Is Governed by Financing,” New York Times, July 26, 1997, available from
Lexis-Nexis, www.lexisnexis.com, accessed January 23, 2008.
7 Clifford J. Levy, “Mayor Vows to Veto Coliseum Sale, Citing Long-term Issues,” New York Times, July 27,
1997, available from Lexis-Nexis, www.lexisnexis.com, accessed January 23, 2008.
8 Clifford J. Levy, “Mayor Vows to Veto Coliseum Sale, Citing Long-term Issues,” New York Times, July 27,
1997, available from Lexis-Nexis, www.lexisnexis.com, accessed January 23, 2008.
9
Clifford J. Levy, “Building on a Shaky Foundation,” New York Times, July 31, 1997, available from LexisNexis, www.lexisnexis.com, accessed January 23, 2008.
10 See Charles V. Bagli, “Time Warner Joins Bidding for Coliseum Development,” The New York Times, April
30, 1998, available from LexisNexis, www.lexisnexis.com, accessed January 30, 2008.
16