Andrew Mathias took SL Green on a buying spree in 2010. Now he's got a new plan.
Things didn't go according to Andrew Mathias' original plan for 510 Madison Ave., a sleek, 30-story Manhattan office tower under development by Harry Macklowe. It was 2009, and Mathias was chief investment officer at SL Green Realty Corp., the New York-based real estate investment trust (REIT).
The largest office landlord in New York City, SL Green bought the Madison Avenue trophy's mortgage and senior mezzanine loan at a discount in December 2009. Mathias aimed to add the 350,000 sq. ft. tower itself to the REIT's portfolio through foreclosure. Macklowe sued to block that outcome, however, producing a legal settlement that gave the developer time to make good on the more than $253 million he still owed on the loans.
Now president of SL Green (NYSE: SLG), Mathias, 37, took the foiled foreclosure in stride, in part because he planned for contingencies. And he can take comfort in knowing that in less than a year, he guided the REIT to a profit of roughly $75 million from the deal.
Before buying the notes on 510 Madison, his team determined the investment was sound, whether or not the company came to own the underlying asset. According to published reports, the REIT paid less than $170 million for the mortgage and between $10 million and $15 million for the mezzanine loan.
When office REIT Boston Properties (NYSE: BXP) bought the project for $275 million in September, the developer paid off both notes at par, and SL Green was handsomely rewarded.
“That will go down unquestionably as the best, most opportunistic deal of this downturn,” SL Green CEO Marc Holliday said of the transaction at the company's annual investor conference in December 2010.
The shoe was on the other foot in a more recent SL Green venture. The REIT announced in January that it had successfully helped developer Joseph Moinian fend off an attempted foreclosure on 3 Columbus Circle, a 26-story office tower in Midtown Manhattan. A partnership headed by Related Cos. had purchased the $250 million mortgage as a means to gain ownership of the building.
SL Green provided a $138 million equity investment, and together with Deutsche Bank, a bridge loan to retire the mortgage and enable the developer to complete a renovation and leasing program for 3 Columbus Circle. In exchange for its part in the transaction, SL Green got a 50% stake in the asset.
“We were in a little bit of a reversed role there,” says Mathias. “That deal was a great example of the power of our platform. We were able to commit a large debt facility in addition to buying equity at an attractive basis.”
A brain for business
Those who have worked with Mathias or squared off with him across the negotiating table say he continually maps out potential outcomes in his mind, weighing holding periods and manifold exit plans even as he closes in on an acquisition. Adapting to shifting circumstances, as he did with 510 Madison, is his natural response to change.
“He has what I call a chess player's mind,” says Jonathan Mechanic, who chairs the real estate department at New York-based law firm Fried Frank. “He's seeing things multiple moves ahead.”
Mathias' contingency planning for various outcomes helps him react quickly and is part of the corporate philosophy at SL Green, according to Andy Levine, the company's general counsel. Levine credits Marc Holliday, chief executive officer of SL Green, with assembling a team of executives who weigh long-term outcomes in their decision-making.
“It's making sure we're two or three steps ahead of other players in the industry so that we don't get taken by surprise, and so we can also react well when an investment is going in one direction or another,” Levine says of SL Green's strategy. “Andrew is excellent at that. As part of the team that Marc has put together, we all try and have those same qualities.”
Mathias also is good at drawing analytical skills out of others without resorting to micromanagement, says Levine.
“He asks probing questions to make sure people understand the impact of the decisions they're making,” says Levine. “He tries to get them to think through each aspect of it and not just the decision, but one or two steps down the road, like what's going to happen if the investment goes one way or another?”
New York state of mind
Mathias gives credit for SL Green's recent growth to his team, and says the company was able to accurately call the bottom of the New York office cycle in 2009 because the REIT focuses on the local market. At the time, most investors were sitting on their capital and waiting for commercial real estate prices to stabilize.
Leasing activity was increasing in the company's portfolio, which includes more than 22 million sq. ft. of office space in the city. And in encounters with investors the world over, Mathias sensed a growing interest in New York real estate. He and his team determined that the market cycle had hit bottom, and kicked off an aggressive acquisition campaign in late 2009 that extended to both properties and structured finance instruments.
“A lot of people didn't think the market was going to turn around as quickly as it did,” says Mathias. “We made the appropriate call on the market and started to act aggressively in the end of 2009.”
In 2010, the company invested more than $704.6 million in Manhattan office properties alone, acquiring the more than 1 million sq. ft. 100 Church Street, the 604,000 sq. ft. 125 Park Ave., and a 55% interest in 600 Lexington Ave., which measures more than 300,000 sq. ft. Since 2001, the company has invested nearly $11.7 billion in acquisitions and completed more than $5.5 billion in sales, almost entirely of office properties.
“Any way you slice it — by dollar volume, by number of deals or by square footage of transactions — we were involved in more than 50% of the transactions in the market for 2010,” observed Mathias at SL Green's annual investor conference.
At the end of 2010, SL Green owned interests in 30 New York City office properties totaling approximately 22.3 million sq. ft. The REIT also owns 11 retail properties, four developments and three land interests, as well as partial ownership in 6.8 million sq. ft. in 31 suburban assets.
In early January, Mathias gave up his chief investment officer title to focus on his role as president of the REIT. The chief investment officer position that Mathias assumed in 2004 passed to two co-chief investment officers: Isaac Zion heads up equity or property investments, and David Shonbraun handles structured finance investments.
Both of the new chief investment executives worked directly for Mathias as senior partners before the promotions. “They're each facile and expert in their own areas, and they've had a great partnership the last couple of years overseeing the investment groups.”
As president, Mathias is instrumental in SL Green's leasing strategy, notes Levine, the general counsel. The leasing division is headed by Steven Durels. “Andrew's role as president is now greater than just investments,” says Levine. “And Andrew has got a pretty critical role, as you can imagine, in initiating and fostering relationships with lenders and joint-venture partners.”
The New York office market is stabilizing and the rapid run-up in prices has nearly run its course. SL Green devoted 2010 to building the portfolio, but as the market transitions to slow growth in 2011, the company will give equal focus to acquisitions and leasing, say Mathias. With attention on boosting occupancy and cash flow at SL Green's properties, Mathias' new responsibilities will keep him at the forefront of the company's profit-generating activities. “It will allow me to spend more time in the operational side of the business and get more involved in running the company,” says Mathias. “I'll be spending more time with shareholders [and] tenants.”
Untangling complex issues
Mechanic was representing Equitable Life Assurance in its sale of 1515 Broadway to SL Green when he met Mathias as that transaction closed in 2002. SL Green is now in the midst of a $60 million renovation of the property, which houses MTV Studios and the headquarters of broadcast giant Viacom International.
The purchase was complicated by thorny insurance issues affecting commercial properties in the wake of the 9-11 terrorist attacks, recalls Mechanic, as well as legal considerations relating to multiple parties on the seller's side in the deal. “It was a very complicated transaction, and Andrew did a fabulous job.”
Mechanic and Mathias occasionally meet for tennis or golf, although Mathias says he spends most of his leisure hours with his wife and three children.
As a philanthropist, Mathias participates in the Real Estate Board of New York's annual pro-am tennis tournament. The event benefits Clown Care at the Big Apple Circus, a program in which professional clowns visit hospitalized children. Mathias participates in the tournament every year, says Mechanic. “He takes those obligations to give back to the community very seriously.”
In the boardroom or in a social setting, Mathias is known for following through on his commitments, and that reliability has helped him forge strong relationships, according to Mechanic.
“In the spectrum of executives, Andrew would be at the younger end. Yet he's developed an extraordinary reputation in that time period,” says Mechanic. “My hat is off to him for that.”
Matt Hudgins is an Austin-based writer.