Chelsea Terminal Building by Joe Wang

PROPERTY DUE DILIGENCE REPORT

PROPERTY DUE DILIGENCE REPORT Terminal Warehouse Building West Chelsea Historic District 261 Eleventh Avenue New York, NY 10001

Joseph Wang New York University December 5, 2015

King’s Handbook of New York. “A freight train exits onto 11th Avenue,” 1895.

Property Due Diligence

EXECUTIVE SUMMARY The following report is intended to provide investors with a summary of preliminary due diligence activities for the subject property located at 261 Eleventh Avenue, New York, NY 10001. The Central Stores, commissioned by the Terminal Warehouse Company at the height of the nation’s manufacturing and industrial boom, is one of a handful of buildings remaining in the West Chelsea Historic District that predate the era. Its application of the “American Round Arch” style exemplifies turn-of-the-century architectural sophistication, featuring a monumental entryway and twenty-foot-high vaulted ceilings that would admit entire freight-laden trains for unloading before plying down “Death Avenue” on the West Side. The warehouse quickly evolved into one of the world’s greatest industrial hubs, courting merchants from all corners of the world in search of fine goods to trade. After being divested of its Central Stores complex in 1947, the fortress-like warehouse experienced a series of rebirths. While it is recognized today for its versatile event space, the warehouse is perhaps best remembered in the minds of Gen Xers as home of “The Tunnel”, a legendary fixture in New York City nightlife shuttered by the Giuliani administration in 2001. The following report aims to provide the background information essential to a top-down review of the Landmarks Preservation Commission (LPC) designated property, including land details, title and ownership review, condition/improvement assessment, and zoning and land use restrictions. A statement on proposed use and redevelopment concludes the report, and may be considered for further viability and valuation assessment.

Property Due Diligence

PRELIMINARY DUE DILIGENCE REVIEW The primary address of the subject property is 261 Eleventh Avenue. The lot, boasting a net frontage of 203 feet and depth of 711 feet, occupies the entire block bounded by Eleventh and Twelfth Avenues and West 27 th and West 28th Streets. The property is registered under several non-standardized addresses, (261-279 Eleventh Avenue; 220-238 Twelfth Avenue; 601-651 West 27 th Street; 600-654 West 28th Street) and is identified as Lot 1, Block 673 by the Department of City Planning (2008).

Christopher D. Brazee. “261 Eleventh Avenue,” 1890-91, 1910-11, 1912-14.

PROPERTY DESCRIPTION The Terminal Warehouse Central Stores is a seven- and nine-story, 1.2-million-square-foot industrial warehouse complex located in the heart of the LPC-designated West Chelsea Historic neighborhood of Manhattan (see zoning map in Appendix A for designation boundaries). The Starrett-Lehigh building, a Modernist icon sits one block south of the property, marking the outer edge of the core of Chelsea’s art gallery district.

Property Due Diligence

Aerial View. Retrieved from SEC Edgar website http://www.sec.gov/edgar.shtml The property is also situated just three blocks below the Hudson Yards, the largest ongoing private real estate development in the history of the United States. The newly opened $2.4 billion climate-controlled extension of the 7 train, is located a half mile from the Eleventh Avenue entrance. The five boroughs are also accessible via the 39th Street Ferry Landing, while inter-city bus service is a five-minute walk to the Port Authority Bus Terminal. Tenants are free to engage in the natural beauty of the High Line, a converted viaduct that attracts over two million visitors each year to its sweeping cityscape views. The Hudson River Parkway, also nearby, offers pedestrian access to several of Chelsea’s “must-see” destinations, such as Chelsea Market, an enclosed urban food court and Chelsea Piers, a sprawling thirty-acre sports-and-entertainment complex. The Chelsea Waterside Park Dog Run offers pet owners a secure area to convene and socialize with others in the neighborhood, while the Jacob K. Javits Convention Center draws over one million attendees to the West Side each year.

Sinvin Real Estate. “Map miniature featuring nearby hotspots,” 2009.

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TITLE AND OWNERSHIP The Terminal Stores operates under the controlling interest of Waterfront N.Y. (WFNY | LLC), a singlepurpose Delaware limited liability company led by two independent directors. The property was originally purchased in 1890 for $650,000 by the Terminal Warehouse Company and sold over a half-century later for $5,250,000 (Security Discount Associates, Inc. v. Weissbaum, 1958). In 1983, Coleman Burke acquired the fee simple estate for $12.3 million in a bargain-and-sale transaction, converting the hallowed corridor into a selfstorage facility (refer to official deed in Appendix B). There are currently no liens, encumbrances, or restricted covenants recorded against the property. On July 28, 2012, WFNY and its founder entered into an agreement to refinance a first priority fee mortgage loan on the property for a principal sum of $75 million (refer to the terms of 2012 mortgage and consolidation agreement provided by the Securities and Exchange Commission in Table B1). The property owner is required to make periodic payments of interest until the loan matures in July 10, 2022. He is also allowed voluntarily prepay the mortgage loan on July 10, 2014 with a yield-maintenance premium. The property itself bears a temporary certificate of occupancy (â&#x20AC;&#x153;TCOâ&#x20AC;?), which has been renewed 29 times since 2003 (SEC, 2012) [see Appendix C for the original certificate of occupancy]. There are several outstanding modifications that WFNY must carry out prior to obtaining a permanent certificate of occupancy (SEC, 2012). Its foremost tenant, Chelsea Mini-Storage, is an operating business owned by WFNY. Chelsea MiniStorage currently leases 322,422 SF of its 530,697 square-foot-lot, or a total of 5000 units, to individuals on a month-to-month basis. It competes with five other storage-facilities housed in similar industrial buildings within a half-mile radius. A growing number of companies in TAMI-related industries are demanding flexible lease rights, including freedom of expansion and early termination, in an effort to remain agile with their business operations. When Quirky, a crowd sourced invention startup that entered into a co-occupancy agreement with Flextronics in 2011, liquidized their assets after filing for Chapter 11 bankruptcy in September, Flextronics assumed the remaining eight years on their 60,000-square-foot lease, which Quirky had expanded from 27,500-square-foot (Maurer, 2015).

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PROPERTY CONDITION ASSESSMENT BUILDING HISTORY The 125-year old property has an eventful past. It was purchased in 1891 by Brooklyn-born businessman William Wickes Rossiter as a group of twenty-five buildings occupying a single block. Rossiter, whose brother served as a treasurer for New York Central Railroad, unified the buildings to accommodate twenty-four acres of contiguous warehouse storage space (Miller, 2012). Rossiter’s warehouse was not only the oldest building in the district, but also the first of its kind to boast direct river, rail, and road access. Its arched window openings, corbelled cornices, and thick, cavernous entryways exemplified the “American Round Arch” style (Miller, 2012).

Left: “Arched windows on 28th street brick façade,” 2012. Retrieved from flickr.com. Right: “Fire-proof doors,” 2012. Retrieved from flickr.com. The property suffered a major fire in September 1900 that claimed $150,000 in prized antique collections and theatrical sets. Remarkably, due to the building’s fire-proof construction, all but two of the Central Stores’ twenty-two storage sections escaped unscathed; fire doors designed to reinforce each of the twenty-five sections remained resilient in high temperatures (Miller, 2012). The Terminal Warehouse Company grew to new heights over the next two decades as they positioned themselves at the forefront of the Rossiter Stores in Midtown and Erie and Lehigh Railroads (Miller, 2012). Nearly all available warehouse space in the building was leased in the Gilded Age to accommodate “general merchandise storage (free or bond), freezing and cold storage”, and especially “furniture storage”; by 1919, all nine floors were leased to O’Neill-Adams Company for furniture storage (Miller, 2012).

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New York Terminal Warehouse Company. “Storage unit advertisement,” 1895. The erection of the High Line and Starrett-Lehigh in 1934 marked the end of street rail systems. As traffic was rerouted from Eleventh Avenue to the elevated viaduct, the once vital tracks that advanced the Terminal Company to the forefront of the city’s bustling rail yard operations became gritty and obsolete (Hughes, 2015). After lingering in disuse for half a century, the warehouse was snapped up by Burke, who converted the building into a storage facility. (Miller, 2012). As West Chelsea evolved into a thriving neighborhood for creative tenants, the Terminal Warehouse building experienced a number of upscale conversions. (Brazee & Most, 2008) Before art galleries and showrooms began to take up residence in the ground floor main corridor, “club kids” Rupaul and Amanda Lepore dominated the rave club scene at The Tunnel, a 90s-era nightclub located in the main corridor hat modified its pre-twentieth century work showers into progressive unisex bathrooms. Approximately 50% of the building is utilized as a self-storage facility, while 22% is currently leased as office space. It is ripe for adaptive reuse, a to-be mecca for high-end retail, startup innovation, and destination dining. As development at the Hudson Yards nears completion, upwardly mobile residents will continue to flock to the neighborhood in search of affordable living solutions with convenient access to Midtown and Downtown Manhattan.

FLOOD RISK LEVEL

Property Due Diligence

The subject property is located in low-lying infill land vulnerable to inundation. West Chelsea’s unique subsurface geography exposes the property to a high risk of flooding from storm surge in the event of a coastal storm or hurricane. Situated eleven feet above sea level in the 100-year floodplain, the Terminal Warehouse is exposed to a one-percent-or-greater annualized chance of inundation. The flood risk is visually depicted in the Digital Flood Insurance Rate Map (DFIRM) and indicated by the property’s designated floodzone, Zone AE, base flood elevations (BFEs) and floodplain boundaries (Department of City Planning, 2015).

NYC Department of City Planning. “Floodzone Map,” 2015 The Department of City Planning (DCP), which cooperates with West Chelsea through the Resilient Neighborhoods Initiative, relies on the support of community members in developing hyperlocal strategies that can be quickly implemented in a major flood event. Although the district was particularly hard-hit by Superstorm Sandy in 2012, the Terminal Warehouse did not report any significant flood-related damages or losses (Department of City Planning, 2015). Regardless, it is crucial for building owners to maintain future compliance with regular National Flood Insurance Program (NFIP) regulations and the city’s Zone One contingency plan in order to ensure the safety of tenants.

BUILDING VIOLATIONS As of December 5, 2015, the Department of Buildings (DOB) holds property owner WFNY responsible for one outstanding Environmental Control Board (ECB) violation. While online records demonstrate that for penalty dues was received by the DOB earlier in the year, an amended report demonstrating appropriate correction of unsafe conditions pursuant to Local Law 11 regulations has not yet been filed and approved. These regulations, shaped by a public tragedy in 1998 that unfolded around a 16-year-old girl who was fatally struck by a falling brick, are enforced through a $10 billion borough-wide inspection of all buildings greater than six stories in height (Brazee & Most, 2008).

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A site visit to the 125-year-old property will reveal tell-tale signs of architectural aging that the average New Yorker would not otherwise find threatening to the public, such as a loose brick or slightly leaning parapet. Pursuant to the safety ordinances specified in Local Law 11, however, these tell-tale signs demonstrate unsafe conditions that must be rectified within the time frame set out by the DOB. The building violation reflects the owners’ current status of non-compliance with façade inspection measures, and should not engender doubt as to the building’s formidable construction. The seven-story brick sections of the building are built according to “slow-burning” mill construction specifications, while nine-story sections are distinguished by their steel-frame construction (Brazee & Most, 2008).

ZONING AND LAND USE CONSTRAINTS In July 15, 2008, the former Central Stores complex became eligible for landmark designation; the LPC and New York State Office of Parks, Recreation, and Historic Preservation finally approved the warehouse as an individually landmarked building on the State National Register of Historic Places (Brazee & Most, 2008).

NYC Department of City Planning. “Zoning map,” 2015. Retrieved from nyc.gov/zola. The rezoned M2-3 subareas of West Chelsea are governed by special bulk regulations, pertaining to floor area ratios and parking requirements. Similar to the LPC-designated Baltimore & Ohio Terminal Warehouse and Starrett-Lehigh, the Terminal Stores is built well above permitted FAR; while the M2-3 district sets FAR at 2.0, actual built FAR for the property is 8.3. Moreover, maximum base heights before setback are fixed at 60 feet in areas zoned M2-3). Performance standards regulating the industrial effects of noise, vibration, smoke, and odor are set relatively low for uses in the M2-3 subareas, provided subject uses are not adjacent to residential areas in neighboring districts (Johnson, 2013).

Property Due Diligence

Site modifications, as proposed in the 2005 rezoning resolution for the West Chelsea Historic district, are subject to the City Planning Commission’s (CPC) approval and must be consistent with the built context and character of the neighborhood. The resolution amended bulk and streetwall regulations and sanctioned the private use and development of unenclosed sidewalk cafés. The CPC also granted property owners permission to uses not permitted as-of-right in their original zoning resolution, in anticipation of growing demand for residential properties on the Far West Side. The Chelsea Land Use Committee (CLU), in a petition to expand the zoning designation of the Special West Chelsea District, noted the property’s natural capacity to house municipal facilities, such as the Department of Sanitation Vehicle Maintenance Facility (Johnson, 2013).

ONGOING PLANS FOR REDEVELOPMENT The facility is currently undergoing a three-year $50 million exterior renovation that will not only furnish a growing roster of office tenants with updated HVAC systems, but also rebrand the property as an open access public area (Hughes, 2015). The subject neighborhood, located within the Midtown South office market, caters to a mix of fashion, media, and technology-related firms that prefer to rent in older, low-rise structures. These tenants are also the ones driving demand for world-class dining fixtures and supermarkets capable of accommodating Chelsea Marketsized numbers. On March 5, 2014, the CLU and Manhattan Community Board 4 (CB4) held a joint public hearing to approve a master plan for the construction of ground-level storefront platforms and canopies. The committee also expressed their unanimous support for the immediate installation of storefront infills and exterior lighting that illuminate the building’s imposing façade (Berthet & Mackintosh, 2014). The plan further stipulates the removal of non-original white paint from the building’s distinguished façade and the incorporation of a continuous glass canopy bordered by an applied steel channel (refer to the letter addressed to the LPC in Appendix D, confirming the CLU’s approval of an application for an exterior renovation master plan). In their letter, the co-chairs of the CLU emphasize the importance of maintaining the building’s “fanciful castle expression” in guarding its “distinctive identity and advertised safekeeping in the manner of an armory” (refer to architect’s depiction of exterior lighting, used as supporting material during the 2014 hearing in Figure D1).

Property Due Diligence

RECOMMENDATIONS FOR ADAPTIVE REUSE The projected rise in demand for large-footprint office loft conversions in the constrained West Chelsea submarket calls for the creation of a extremely efficient framework of adaptive reuse using key sustainability indicators. The property’s proximity to the Hudson River and nearby green spaces are prized tangible assets that would entice any private multifamily developer or real estate investor; the number of mixed-income residential developments in West Chelsea is expected to soar, along with the number of developers who opt-in to Mayor Bill de Blasio’s Inclusionary Housing Program for remunerative tax abatements and exemptions. The warehouse’s “tunnel-like” expanse and four loading docks are an attractive to cash-strapped government operations that are restricted to manufacturing zoned areas, such as the United States Postal Service. Developers may explore the option with city officials of meeting the needs of citywide infrastructure and determining applicable financial incentives. Given the subject neighborhood’s current partnership with the city-sponsored FRESH initiative, converting the ground floor into a full-line grocery store would also provide a number of advantages. Fulfilling the needs of underserved locals will not only yield discretionary tax incentives, but also expose the adaptive reuse potential of underused buildings and vacant parking lots dispersed throughout the light-industrial zoned areas in West Chelsea.

Property Due Diligence

Appendix A West Chelsea Historic District Designation Map. Brazee & Most (2008).

Appendix B Bargain-and-Sale Deed. Department of Finance (1983).

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Table B1. Mortgage Term Sheet Summary. (2012). Found on free writing prospectus provided by Morgan Stanley Capital I Inc. Retrieved from sec.gov

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Table B2. Cash Flow Analysis. (2012). Found on free writing prospectus provided by Morgan Stanley Capital I Inc. Retrieved from sec.gov

Appendix C Certificate of Occupancy. Retrieved from a836-acris.nyc.gov

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Appendix D Letter to Landmarks Preservation Commission. Retrieved from Historic District Council.

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Figure D1. Photometric renderings of proposed exterior faรงade. Retrieved from HDC.gov

Property Due Diligence

References Berthet, C., Compton, J. L., & Mackintosh, B. (2014). RE: Terminal Stores [Letter written March 7, 2014 to Hon. Robert B. Tierney]. New York, NY: Manhattan Community Board Four. Retrieved from nyc.gov/mcb4 Brazee, C. D., & Most, J. L. (2008). West Chelsea Historic District designation report (Rep.) (M. B. Betts, Ed.). Retrieved from http://ezproxy.library.nyu.edu:6550/html/lpc Chelsea Terminal Building (2012). Structural and Collateral Term Sheet. Retrieved from SEC Edgar website http://www.sec.gov/edgar.shtml Hughes, C. (2015, February 10). High Line is expected to help a Chelsea site it hurt decades ago. The New York Times. Johnson, C., Compton, J. L., & Mackintosh, B. (2013). RE: Proposed Special West Chelsea District expansion [Letter written August 9, 2013 to Amanda M. Burden]. New York, NY: Manhattan Community Board Four. Retrieved from nyc.gov/mcb4 Maurer, M. (2015, September 23). Bankrupt startup Quirky disposes of 60K sf NYC office - See more at: http://therealdeal.com/blog/2015/09/23/bankrupt-startup-quirky-disposes-of-60k-sf-nycoffice/#sthash.LHodf85k.dpuf. The Real Deal. Miller, T. (2012, September 28). The goliath 1891 terminal warehouse buildings [Web log post]. Retrieved from http://ezproxy.library.nyu.edu:27712/2012/09/the-goliath-1891-terminal-warehouse.html New York City, Department of City Planning, MapPLUTO, Edition 06C, December 2006. Author: JM. July 15, 2008. New York City, Department of City Planning, Resilient Neighborhoods Initiative. (2015, October 22). Resilient Arts. Retrieved from http://ezproxy.library.nyu.edu:2727/html/dcp/ New York City, Department of Buildings. (1923). Certificate of occupancy (No. 6004). New York, NY. New York City, Department of Finance, Office of the City Register. (1983). Bargain and sale deed. New York, NY. Security Discount Associates, Inc. v. Weissbaum, 283 App. Div. 920 (1954). Windigo Architecture. (2014, February 20). [Photometric rendering of lighting at central entries].