Maintain the tune to Billy Joel’s ‘We Didn’t Begin the Fireplace’ in thoughts (South Pacific, Walter Winchell, Joe DiMaggio) and swap in among the greatest names in actual property: Harry Helmsley, Steve Roth, Darcy Stacom, Sarah Korein.
The multimillion-dollar rent dispute at One Penn Plaza between the Korein household and Roth’s Vornado Realty Belief is simply as prescient and chaotic as Joel’s 1989 hit.
It options the Yankees Corridor of Famer Joltin’ Joe because the face of Bowery Financial savings Financial institution, which in 1970 struck a fateful deal to promote the block throughout from Madison Sq. Backyard to Helmsley. There’s a $1-a-year sublease that both did or didn’t get terminated 1 / 4 century in the past. And there’s a controversial resolution from actual property’s most bemoaned Manhattan decide, whose retirement in the course of the case might show extraordinarily consequential.
Alongside the way in which, the case has revealed trade secrets and techniques which might be extensively acknowledged however not often spoken out loud: the allegiances New York’s high brokers need to highly effective landlords and the way the sausage will get made on contentious property value determinations.
Take a deep breath and observe alongside.
Wright here have you ever gone?
Within the late Sixties and early Nineteen Seventies, the Penn Plaza space was a part of a giant city renewal undertaking. The unique Pennsylvania Station was demolished and changed by Madison Sq. Backyard, and the encircling space was eyed for many new workplace buildings.
The block throughout from MSG — West thirty fourth to West thirty third streets between Seventh and Eighth avenues — was owned by the Bowery Financial savings Financial institution1. Well-known for its McKim, Mead & White-designed department at 130 Bowery, the financial institution was based in 1834 to encourage the European immigrants deciding on the Decrease East Facet to construct up financial savings.
By the Nineteen Seventies, it was the largest financial institution within the U.S. by deposits, and its spokesman was Joe DiMaggio2.
Bowery Financial savings operated financial institution branches on every finish of the block, at 430 Seventh Avenue3 and 470 Eighth Avenue.
However it didn’t have a lot use for the mid-block parcel in between the branches. So in 1970, Bowery Financial savings bought that piece to Mid-Metropolis Associates — a partnership between Harry Helmsley4, Lawrence Wien, Metropolitan Life Insurance coverage and the Equitable Life Assurance Society.
Mid-Metropolis developed the positioning into the Worldwide-style One Penn Plaza designed by the structure agency Kahn & Jacobs, which assisted Ludwig Mies van der Rohe and Philip Johnson on the Seagram Constructing. The two.5-million-square-foot One Penn was identified for its signature “1” signal atop the 750-foot tower.
Bowery Financial savings wished to maintain management of its financial institution branches and retain among the block’s growth rights. So it structured the deal as a 125-year floor lease to Mid-Metropolis, which then subleased the financial institution department parcels again to Bowery for $1 a 12 months.
Per the phrases of the lease, the lease was scheduled to reset on June 17, 2023, at which era it will be set at 6 p.c of the honest market worth of the land. That worth was to be decided by a panel of three appraisers, which the lease — fairly consequentially — specified wanted to be “neutral.”
The sublease, in the meantime, was set to run out on July 9, 2020, three years earlier than the lease reset, and had an choice to renew.
Bowery and Mid-Metropolis agreed that if the sublease had been in place when the lease reset arrived, the appraisers must take it under consideration when valuing the property. The reasoning is much like a rent-stabilized constructing. If the below-market sublease is in place, the property is value lower than it will be unencumbered, that means the brand new 2023 lease can be lower than if the sublease was left to run out.
I love the ’80s
Helmsley completed One Penn in 1972 at a price of about $100 million. And regardless of early troubles, leasing the tower in the course of the 1973-to-1975 recession, the constructing was practically totally occupied by 1978.
The subsequent 20 years noticed a whole reshuffling of the most important gamers on the block:
1984: Bowery Financial savings bought the bottom underneath the whole block to Sarah Korein, a Hebrew instructor turned notoriously robust investor with “bare-knuckle ways cloaked by grandmotherly allure,” based on her obituary within the New York Instances.
Korein died in 1998, and one among her heirs, Leo Korein, now runs the household empire, which incorporates the bottom underneath Lever Home and 430 Park Avenue.
1995: The Bowery Financial savings Financial institution struggled by way of the Eighties and in 1995 was bought to Greenpoint Financial savings Financial institution, which took over its branches — together with the sublease on the One Penn block.
1998: Following Harry Helmsley’s loss of life in January 1997, his firm Helmsley-Spear (led by Leona Helmsley and Peter Malkin) bought One Penn Plaza to Vornado for $410 million.
It was the centerpiece of a push by Vornado5 (which on the time was headquartered in New Jersey) into Manhattan. Roth’s firm additionally purchased 4 million sq. toes of properties within the space, together with 2 Penn Plaza and 11 Penn Plaza, for $650 million from developer Bernard Mendik.
New leases on life
Vornado wished to get management of the retail on both finish of the block, so in 1999 it purchased Greenpoint Financial savings Financial institution’s sublease for $36 million.
Roth’s firm leased the areas to tenants together with Duane Reade, Financial institution of America and Swarovski, offers that generated tens of millions of {dollars} in income.
For causes that aren’t solely clear, Vornado and Greenpoint Financial savings recorded the transaction in metropolis property information as a termination of the bottom lease — a choice that got here underneath scrutiny 23 years later.
The deadline approaches
With six months to go earlier than the lease on the bottom lease was scheduled to reset, the Koreins and Vornado in late 2022 needed to choose the appraisers.
This turned out to be simpler mentioned than carried out.
The Koreins mentioned they’d bother discovering a dealer who would work reverse Vornado.
“For Manhattan actual property brokers, Vornado is a extremely related and sought-after shopper,” wrote the Koreins’ lawyer, Brett Dockwell of Haynes & Boone6, in a lawsuit towards Vornado over the lease reset.
“As a result of landlords like Vornado pay the commissions for each the owner’s and the tenant’s brokers, remaining in Vornado’s good graces may be very important to a dealer’s livelihood,” added Dockwell, who has a monitor document of coping with floor lease disputes just like the Crowne Plaza Lodge in Instances Sq. and the Gramercy Park Lodge.
The household mentioned they tried to rent a number of brokers — together with Stacom7, Bob Knakal and Doug Harmon — and all turned them down.
They finally employed David Pearson of Pearson Realty Companies; Vornado appointed Stacom, then at CBRE.
Mark-it: correction
On the day earlier than Vornado notified the Koreins that it chosen its appraiser, the REIT filed a memo in metropolis property information that it mentioned “corrected” the lease termination with Greenpoint Financial savings 23 years earlier.
Vornado and Capital One (which acquired Greenpoint’s successor in 2007) mentioned the 1999 settlement wasn’t really a termination of the lease however as an alternative an project of the lease to Vornado. If that had been the case, it will imply that the sublease is in place and Vornado would pay much less lease underneath the reset.
This, in fact, is a serious level of disagreement.
“We agree that the query on this case — the central query — is what did the events intend in 1999, and the events being Greenpoint and the defendant, after they executed the give up settlement,” Dockwell mentioned at a listening to in October 2024.
Figuring out the intent from 1999 is tough, Dockwell acknowledged, as a result of the individuals at Greenpoint who signed it will not be a part of the case.
“Not one of the individuals who had been concerned within the execution of the 1999 give up settlement, to my information, are concerned within the case at this level,” he mentioned. “Actually none of them has put in an affidavit or something on this case.”
Vornado’s lawyer, Janice MacAvoy8 at Fried Frank, mentioned Vornado made a mistake in 1999 when it characterised the deal as a termination, and that the legislation permits each events to return and proper the document.
“Which will get to the authorized challenge that’s on the core of this case,” she mentioned.
A cockamamie ruse?
The Koreins filed a lawsuit in Manhattan courtroom in March 2023 arguing that it’s less than the appraisers to find out whether or not the sublease is legitimate, and the appraisal course of can’t transfer ahead till the matter is settled.
They requested the decide overseeing the case, New York Supreme Court docket Decide Lucy Billings, to strike Vornado’s “corrected” lease from town’s property information and declare that the sublease now not exists, and due to this fact shouldn’t be thought of by the appraisers.
“This a case the place attorneys sitting across the desk provide you with cockamamie concepts on a strategy to benefit their shopper,” Dockwell mentioned. “And it is a ruse that’s supposed by the defendant to skirt its obligations underneath the bottom lease to pay lease for the premises which it occupies and which it generates substantial income from.”
Billings dominated in Vornado’s favor the next August, saying the REIT and Capital One had been “free to rewrite the settlement to cancel the termination, revive the sublease, and assign quite than give up it to [Tenant].”
The Koreins appealed the choice. However not lengthy after Billings retired and the case was transferred to State Supreme Court Judge Arthur Engoron9, a decide with a historical past of controversial selections in actual property circumstances.
Engoron oversaw the civil fraud trial that the New York Legal professional Normal Letita James introduced towards Donald Trump and the Trump Group in 2023, arguing that he inflated asset values to safe favorable loans and insurance coverage phrases.
Engoron discovered Trump liable and issued a penalty of $450 million. An appeals courtroom later threw that penalty out, saying it was extreme and unconstitutional.
However Engoron’s status among the many actual property group is tied most firmly to a 2019 resolution the place he blocked the event of a handful of residence towers in Two Bridges, even though the towers had been as-of-right based on the world’s zoning.
“These are enormous towers. I’ve lived within the metropolis my complete life. You possibly can’t simply do that as a result of the zoning permits it,” he mentioned in words that real estate rues to this day. “I simply can’t consider that is the case.”
An appeals courtroom later overturned Engoron’s ruling, which many in actual property noticed as validation that he had overstepped his authority.
Level setting
Whereas the Koreins had been interesting the sublease challenge, the appraisal obtained underway.
Their appraiser, Pearson, initially proposed a price of $1.9 billion.
Stacom got here in on the full different finish of the spectrum. She mentioned the property had “no true financial worth” and would have been unmarketable due to the depressed state of the market on the time.
In 2023 there hadn’t been a single actual property deal within the nation north of $100 million, Vornado lawyer MacAvoy famous.
“Now, we additionally have to degree set and recall what the valuation date right here was,” she mentioned throughout a courtroom listening to. “It was June of 2023, which was smack in the course of the worst business workplace market in many years. There have been spiking rates of interest. SOFR [the Secured Overnight Financing Rate], as Ms. Stacom states in her report and affirmation, … had spiked 10,000 p.c, your Honor. Rates of interest had been uncontrolled. There was uncontrolled inflation, frozen capital markets, continued work-from-home fears, so many different points that had been detailed in Ms. Stacom’s report and in her affirmation.”
Stacom finally acknowledged that somebody would have purchased the land — even in such a depressed market — and opined that it had a good market worth of $180 million.
With the 2 sides up to now aside, they needed to discover a third appraiser. The Koreins and Vornado agreed on mortgage dealer Jonathan Estreich10 of Estreich & Firm, who started working as chairman of the appraisal committee.
The appraisal course of took 18 months, throughout which era the panel met 26 instances and heard testimony from two dozen specialists.
However issues began to get contentious. The Koreins mentioned that Stacom began threatening the opposite two appraisers.
“Stacom allegedly mentioned that if issues didn’t go her approach, One Penn (or its proprietor, Vornado Realty Belief or some Vornado entity) would sue Estreich and Pearson, and that Stacom would ‘destroy’ Pearson in the true property enterprise,” Engoron wrote in courtroom papers. “Estreich admonished Stacom, who apologized the subsequent day.”
MacAvoy acknowledged that Stacom misplaced her mood and raised her voice. However she mentioned the dealer was making a normal assertion in regards to the panel risking litigation if it didn’t observe the appraisal procedures, and wasn’t making a menace.
The Koreins, nonetheless, mentioned Stacom’s phrases had an affect, and that afterward Estreich went off and labored on his personal. The panel was scheduled to carry closing deliberations over a interval of 5 – 6 days beginning on March 24, 2025, however the Koreins mentioned that by no means occurred.
“The litigation menace by the defendant’s appraiser shut down these deliberations,” Dockwell mentioned throughout a courtroom listening to. “What we’re saying is that [Estreich] was intimidated sufficient by this litigation menace that he shut down deliberations.”
“Any individual in New York actual property would, you realize, take a litigation menace from a celebration like Vornado severely,” the lawyer added. “They’re to not be trifled with. , they’re a forceful adversary to have.”
Estreich finally got here again to the others with two valuations, relying on the litigation over the sublease. He mentioned that if the sublease had been in place, the property can be valued at $250 million. If not, it will be valued at $337 million.
Vornado was paying the Koreins $2.5 million a 12 months in lease. Estreich’s vary would improve the annual lease funds to between $15 million and $20 million.
The Koreins’ appraiser countered with a valuation starting from $320 million encumbered by the sublease to $400 million unencumbered. However Estriech declined to regulate his opinion, and Stacom, however her earlier skilled opinion that the land was value basically $0, agreed together with his figures.
The appraisers delivered their 2-to-1 report on April 22.
That they had lengthy agreed that the choice can be “unreasoned” — that means that they wouldn’t explain how they arrived at their figures.
Engoron mentioned that trial judges are used to coping with main disagreements amongst events, however this one took the cake.
“This courtroom has not often, if ever, seen such Rashomon-like variations in perspective,” he wrote. “Was the appraisal course of perfunctory, secret and suspicious? Or was it substantive, open, impeccable?”
The juicy half
The Koreins moved to vacate the appraisal resolution, arguing that Stacom wasn’t neutral (because the 1970 floor lease between Bowery Financial savings and Mid-Metropolis dictated) and that Estreich refused to observe process and deliberate with the 2 different appraisers after Stacom’s menace.
Engoron mentioned he discovered the appraisal course of to be troubling and suspect.
“Specifically, [Estreich] appears (most likely because of worry of being sued) to have withdrawn from any significant contact with the events, to have delegated a lot of his tasks to an underling, and to have issued an award that’s not simply ‘unreasoned’ however inscrutable,” he wrote in an October 31, 2025 resolution.
“Possibly value determinations, like legal guidelines, are like sausages, greatest not seen being made; however events and courts ought to really feel moderately assured {that a} course of meant to be honest was really a course of, not only a shot at nighttime, or worse.”
Regardless of this, Engoron’s resolution at first appeared like it will aspect with Vornado. He mentioned the courtroom was constrained in its means to simply accept the Koreins’ objections over Estreich’s course of, and that the appraisal wasn’t so low that the courtroom might reject it.
However then the tone of his resolution shifted: “Now right here comes the juicy half,” he wrote.
Engoron famous that because the appraisers’ deliberations had been on the point of start, Stacom left CBRE and launched her personal advisory agency. A press launch asserting the brand new firm included a quote from Roth, saying Stacom “might be getting many essential and sophisticated assignments from us.”
This, Engoron determined, created an “egregious look of impropriety.”
“This Court docket finds that Stacom’s doable partiality to Vornado, and thus to One Penn, was so poisonous to equity that solely blatant acquiescence, not current right here, would qualify as wavier,” he wrote. “The appraisal course of was flawed, and this Court docket is not going to let the appraisal stand.”
Engoron vacated the appraisal.
Let’s be frank
As luck would have it, Engoron retired on the finish of 2025 and the case was reassigned to New York State Supreme Court docket Decide Lyle Frank.
In January, Vornado appealed Engoron’s order, saying he ignored case legislation and exceeded the Civil Follow Legal guidelines and Guidelines (CPLR) for vacating.
In her authorized temporary, MacAvoy mentioned the decide based mostly his ruling on a choice from 100 years earlier than the CPLR was enacted. And she or he famous that the press launch he cited went out in February 2025 — a 12 months after the appraisers issued their closing report.
“A single, generic laudatory assertion made by the CEO of One Penn’s guardian firm about potential future enterprise with the appraiser’s new agency doesn’t come near displaying the required partiality,” MacAvoy wrote.
The enchantment is on the courtroom’s docket for the September time period.
Within the meantime, the dispute has captured the eye of the true property group. It’s pulled the curtain again on the value determinations course of and name-dropped loads of massive time brokers who allegedly obtained caught up in trade politics.
What is likely to be much more outstanding is what’s nonetheless hidden from the general public eye. A lot of the case is filed underneath seal.
“That’s as a result of Vornado is the most important landowner within the Penn District, and what it argued on this continuing shouldn’t be one thing it desires within the public, as a result of it mentioned it was value zero, and the largest dealer in Manhattan mentioned it was value zero,” Dockwell mentioned throughout a listening to.
It’s a head-scratching argument to make, contemplating that the Koreins additionally filed a movement to seal paperwork.
Maybe the one response is the Piano Man’s: “We didn’t mild it, however we tried to combat it,” he sang.
