At the time, it looked like yet another blunder for a banking behemoth with a history of real estate trouble.
In 1989, Chase Manhattan Corp. announced it paid $140 million for a 20-year-old office building with an asbestos problem in the worst real estate market in the COuntry.
The bank's stated plan to pump $100 million or so in renovations into the property in hopes of selling it in a few years for $700 million were greeted with skepticism in New York real estate circles.
The bank would be lucky to get any of its money back, some said.
Five years later, Chase officials have been boasting that a successful conclusion, if not imminent, may be on the horizon.
"The hard work has been done," said Victor A. Castellano, the senior vice president who headed the first stages of the turnaround project for the bank, before handing over the duties to vice president Russell A. Campbell.
The $700 million price tag still may be unrealistic, but market sources say the bank could well score a modest profit, based on the 2.3-million-square-foot building's 97% occupancy at a reputed average rent rate of $32 a square foot.
The 50-story tower at One New York Plaza, at the southern end of the city's hard-hit financial district, housed a major data center for the bank. Chase decided to exercise an option to buy the building at what seemed to observers to be the worst possible moment.
Not only was the bank itself planning to vacate about 1.3 million square feet and move into a more modern facility in Brooklyn, but Salomon Brothers and Thompson-McKinnon which 300,000 square feet and 160,000 square feet, respectively, were also relocating.
Chase's decision to exercise its option was partly defensive, Mr. Castellano admitted. Given the state of the New York market, he explained, the landlord was unlikely to pump any money into the money-losing property, and that jeopardized Chase's major operating systems during a critical transition.
"We wanted to make sure we had control of the building," he said.
Cynics noted that, given the generous tax abatements Chase received to build new quarters in Brooklyn, the bank could "profit" on the building even if it rented the space it was vacating at a below-market rates.
Instead, working closely with Edward S. Gordon & Co., a New York broker, the bank pursued a strategy of renovating the building's systems to compete with the newer buildings in the area.
Mitchell E. Rudin, a senior managing director of E.S. Gordon, said the building had several things going for it from the start, including large floors and high ceilings, a location in the financial district, parking facilities, and electrical improvements made by the prior tenants.
The group also got a break when a court decided that the presence of asbestos reduced the taxable value of the property. As a result of the decision the previous owner was rebated nearly $30 million of the $65 million in taxes paid over a five-year period, and Chase was able to lower operating costs by renegotiating its assessment to reflect the removal costs.
In addition to removing asbestos, the renovations included major upgrades of the cooling and electrical systems, as well as renovations of the lobby, elevators, and exterior of the structure.
Retail space that had been leased by a liquor store, a discount jeweler, and other decidedly untrendy tenants was also upgraded.
Now the space houses a more upscale group including a specialty coffee shop, a yogurt shop, and an Estee Lauder outlet.
In 1993 Prudential Securities leased floors two through 17, sopping up much of the space the bank had vacated. And the following year, Goldman, Sachs & Co. expanded its nearby operations into the upper floors of the building, where Salomon and Thompson-McKinnon had been perched. These were New York City's two largest leasing deals, Mr. Rudin said.
Last month, Prudential and Goldman each agreed to take additional space, and another tenant, the law firm of Fried, Frank, Harris, Shriver & Jacobson, extended its lease by 10 years, to 2009.
Market rumors are circulating that the bank is quietly shopping the building to investors. Mr. Castellano denied the rumors.
Now that the bank has vacated the property, however, it is classified as "other real estate owned," meaning that it must be sold eventually under federal banking laws.
Mr. Castellano said the laws require banks to dispose of foreclosed property within five years, but he noted that it is possible to get an extension.
"We don't feel any pressure. To the extent that return are good, it's difficult to walk away," he said. "We're getting an attractive yield on our investment."