The father-and-son team of Joseph A. Grotto and Joseph A. Grotto, Jr. of J. Grotto & Associates were awarded by the Real Estate Board of New York (REBNY) the 1994 Robert T. Lawrence Memorial Award for the sale of an 80,000 square-foot building on 58th Street.
This award winning deal is very interesting in terms of structure and ingenuity and it is worth examining more closely. The building involved in the deal was owned by Health Insurance Plan of Greater New York (referred to as HIP hereafter). The basic structure of the deal and its different stages from beginning to end are described by Figures 1 and 2 below.
Figure 1. Main Stages of the HIP Deal
Figure 2. Two Buildings Two Transactions Packaged in One
Ingenuity Elements of HIP Deal
Involve the parties in opposite roles (buyer, seller) in more than one transaction - The party that leases the property (HIP) sells back to the owner of the building the property that owned and occupied before moving to the new rented building (a sale-leaseback with a twist) - Advantage of this option is that it allowed the seller of the building HIP to link a benefit associated with its lease of the Devon-owned building (6 million free rent) with the sales price of its building to Devon - Similar logic can be applied in a straight sale-leaseback transaction. Therefore, having more than one transaction between two parties, where they are involved in opposite roles, allows for
linked inter-transaction benefits or
composite benefit package linked to both transactions
Determine sales price in both direct and indirect monetary benefits - HIP’s benefit from selling its property to Devon is determined in multiple forms, such as direct monetary benefit of 12 million and “indirect” monetary benefit in the form of a concession in the lease agreement between HIP and Devon - this trick allowed HIP to achieve an
above market price benefit from the sale of its property (18 million) by getting 12 million in direct monetary benefit and 6 million in “indirect monetary” benefit (free rent).
Maximize use of time element to get highest possible price from the market by using the option tool - This option allowed HIP to receive all extra sales proceeds above the 12 million in case a higher bidder could be found.
