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Tower in Times Sq., Billboards and All, Earns 400% Profit

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June 19, 1997, Section A, Page 1Buy Reprints
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One Times Square, the skinny tower that is an international landmark and that has been home to the New Year's Eve ball drop for nearly a century, is being sold to German investors for nearly four times the price paid by Lehman Brothers a little more than two years ago.

Lehman Brothers, which was ridiculed by many real estate investors when it paid $27.5 million for the 22-story building, has signed a contract to sell the property to the Jamestown group, a German investment firm, for about $110 million, according to three people familiar with the negotiations. The building is vacant and, aside from a possible theme restaurant in its base, is likely to remain mostly empty, continuing to serve as little more than a gigantic billboard.

The rapid escalation in price has little to do with the value of the real estate itself, but more to do with the fact that the rather unremarkable building sits at the epicenter of a suddenly thriving Times Square, an area bursting with the construction of new theaters, entertainment spots, restaurants and a new office tower. And the dull white tower at the south end of Times Square is encased in the very thing that lends the area some of its pulsating, thoroughly commercial character: 10 massive billboards, 2 gigantic video screens and an electronic news zipper, all visible to 20 million visitors annually and 250 million television viewers on New Year's Eve.

A wedge-shaped island bound by 42d Street, Seventh Avenue and Broadway, One Times Square has become the most valuable and the most expensive signpost in all the world, said George Stonbely, president of Spectacolor Inc., a sign company that creates many of the billboards and electronic displays. According to people familiar with the Lehman transaction, the signs on the building generate roughly $7 million in net income annually.

''It's a very important icon, not just in the United States but throughout the world,'' Mr. Stonbely said. ''Times Square has become a corporate theme park for companies that are No. 1 in their categories or want to position themselves as a dominant brand. And there's only so much of One Times Square to go around. It's a very coveted location.''

Lehman Brothers declined comment, as did its partner in the building, the developer Jeffrey Katz.

''I can confirm that we have a contract,'' said Stephen Zoukis, a managing partner at Jamestown, which has an office in Atlanta, ''but since we haven't closed I can't say anything else about that transaction.''

Jamestown would be paying $1,000 per square foot for One Times Square, double the highest price ever paid for any commercial building in New York. Kato Kogaku, a Japanese company, set the previous record in 1986 when it paid nearly $500 per square foot, or $300 million, for Tower 49, at 12 East 49th Street.

''Lehman made out like a bandit,'' said Darcy Stacom, a real estate broker at Cushman & Wakefield. ''Nobody understood at the time how much signage income could mean to a transaction.''

Right now, German companies and real estate syndicators like Jamestown prefer to invest in the United States, and New York in particular, because of the perceived long-term value of the real estate and a fear that German currency will weaken with the advent of the European monetary union, according to John Glaister, president of Western Heritable Investment Company, who has worked with Jamestown on the acquisition of several properties in New York since 1994.

''Times Square to me is what New York is all about,'' Mr. Zoukis said. ''I'm not burdened by the anxiety some people have about the malling of Manhattan, or the Disneyification of Times Square. I think it's the direction cities are going in today. If you hang around Times Square you see throngs of tourists looking for something to do.''

Built in 1904 by The New York Times, One Times Square, with its tiny, cramped floors, has long outlived its usefulness as office space. Billboards and the Sony Jumbotron began appearing on the building in the 1970's, but it was not until recently that the tower became an essential signpost and billboards sprouted on all four sides of the tower, which became mostly vacant in the late 70's and had only a handful of tenants until last year. The most valuable signs adorn the north side of the building, which faces oncoming traffic from Seventh Avenue and Broadway and is visible from Central Park, at 59th Street.

Mr. Katz and Lehman Brothers also recently leased the interior of the building to Warner Brothers Studios for a large store and, possibly, a theme restaurant in the base, in a deal that would generate $2.5 million more a year for the new owners of One Times Square.

Warner Brothers, with its Batman, Bugs Bunny and Tweety Bird cartoon characters, would then be setting up directly across the street from rival Disney's giant studio store.

But what now looks like a spectacularly profitable deal for Lehman Brothers was not so apparent 28 months ago when the investment bank snapped up the property, upsetting competing bidders and the best laid plans of state and city officials. The tower has gone through a succession of owners beginning in 1961, when Douglas Leigh, a sign designer, bought the property for less than $5 million. By 1995 when Times Square was struggling to get back on its feet, the building was in bankruptcy court. City and state officials hoped that Banque Nationale de Paris, the French bank that held the mortgage on the property, would make a deal with Madame Tussaud's to create a high-tech museum and tourist attraction inside the tower that would help revive Times Square. Instead, the bank sold the property to Lehman Brothers for $27.5 million.

After raising the ire of public officials, Lehman Brothers appeared to stumble badly, as Pepsi and Minolta decided to discontinue their towering neon signs after a decade of lighting up the north side of One Times Square. Then Sony pulled the plug on its Jumbotron television screen, leaving the tower without tenants or billboards.

In 1996, Lehman Brothers brought in Mr. Katz, who owns Two Times Square, to handle the property. Panasonic and NBC put up their own television screen, paying about $2.4 million a year in rent, twice what Sony had paid. The fortunes of the building rose quickly as many entertainment companies and retailers followed Disney into Times Square, driving up rents in an area once known for peep shows, prostitutes and hustlers.

''Disney is what turned around One Times Square, 42d Street and the whole attitude about Times Square,'' said Jason Perline of Van Wagner Communications, a sign company active at One Times Square. ''But One Times Square has recognition throughout the world. The tourists know when they go home to Iowa or Scandinavia and show pictures of the building, everyone will know they've been to New York.''

A correction was made on 
June 20, 1997

A headline yesterday about the planned sale of One Times Square referred incorrectly in some editions to the percentage of profit the seller is expected to make. The owner, Lehman Brothers, bought the building for $27.5 million and has a contract to sell it for $110 million, which represents a profit of 300 percent, not 400 percent.

How we handle corrections

A version of this article appears in print on  , Section A, Page 1 of the National edition with the headline: Tower in Times Sq., Billboards and All, Earns 400% Profit. Order Reprints | Today’s Paper | Subscribe

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