Things are looking up

Few companies have nailed commercial real estate trends over the past decade like New York-based Millennium Partners, especially and most notably when it came to upscale, mixed-use development. Amid the real estate recession of the early 1990s, Millennium put together a landmark deal - Lincoln Square on the Upper West Side of Manhattan - that continues to set standards and serve as the guiding force for all Millennium projects across the United States. With ties to The Ritz-Carlton Hotel Co., Atlanta, and Toronto-based Four Seasons Hotels and Resorts, Millennium now has nearly $3 billion of development under way in Boston; Washington, D.C.; San Francisco; Miami; and New York. The company also is seeking approval for an upscale, mixed-use development in Atlanta.

Over the past decade, Millennium has dabbled in some suburban retail development, but the company's primary emphasis is on vibrant urban cores.

"They are all 24-hour cities, and they are all the key cities that people moved back into in the 1990s," says Christopher M. Jeffries, principal at Millennium Partners. "That pace will continue on into this century. These are all cities where there has been a demographic shift where as people have gotten older, the baby-boom generation has had a greater desire to move back into the city than generations priorto it.

"And the wealth factor - the accumulation of wealth in America during the 1990s - gives people the ability to afford more expensive and bigger apartments," he continues.

Along with Philip E. Aarons and Philip H. Lovett, Jeffries founded Millennium Partners 10 years ago. Aarons had been a New York City development official, while Lovett had worked with Jeffries in the apartment development business since 1987. A developer for nearly two decades and originally a real estate tax attorney, Jeffries only had to listen to tenants and other customers to formulate the plan for Millennium.

"As we built apartment houses during the 1980s, we saw consumers coming in and saying, 'Gee, wouldn't it be nice if you had hotel services? Wouldn't it be nice if there was a major sports club?"' says Jeffries. "It was really out of the expressions of interest from all of the various people that we saw during the times that we were building apartment houses that we began to craft or piece together the idea that would respond to that."

At the outset, mixed-use was not the real estate catch-phrase that it is today, and the idea of mixed-use, upscale made some squeamish. Still, Jeffries convinced a wide range of backers that people were ready for a new urban experience.

Piece by piece, Millennium assembled financial backing for Lincoln Square from New York-based Goldman Sachs and a group of German insurance companies. A tough real estate market also meant taking a unique approach: giving tenant partners such as Reebok International Ltd., SONY Corp. and Sports Club Co. a shot at an equity stake.

Lincoln Square was completed in 1996 and included a 13-screen SONY Theaters multiplex with a 3D IMAX theater; 250,000 sq. ft. of retail space that includes Barnes & Noble and Tower Records superstores; a 140,000 sq. ft. Reebok Sports Club/NY fitness center; The Phillips Club, Millennium's 200-unit extended-stay hotel; and 600 fully occupied luxury condominiums in three towers. The $500 million development encompasses 1.7 million sq. ft.

"Through a conservative capital structure that was roughly half equity or equity-like sources and half debt, we were able to bring in some partners, not only normal financial partners, but we were able to bring in Sony and Goldman Sachs, who actually were either renters or purchasers of components of the project," recalls Jeffries. "We were able to bring them in to make their investment early on and have their investment treated like equity. We had the normal equity sources, and then we had our users also providing equity.

"That got the banks over the hump during that difficult period," Jeffries continues. "There was also two-for-one coverage on the loan from the commercial portion of the building. It was a tremendously over-capitalized, conservative structure, and that was the only way to get it done."

And while Millennium Partners learned a great deal from developing Lincoln Square, having partners with deep pockets was the most important aspect of the deal, says Jeffries.

"Perhaps the single most obvious thing that we learned from all of this with Lincoln Square is that if you have deep capital sources - partners that can put up 30% to 40% of equity in a project and can afford to ride out any kind of bumps in the economy - then you are infinitely better off in this business than if you are thinly capitalized and betting on condominium development."

"Of course, we give up some of the profits to share with our partners," Jeffries adds. "But we do so many more transactions and so many more big deals that it allows us to do the most important project in each city, and that's really what we aspire to do - a project that leaves us in a position where we've created the No. 1 real estate location in any given city."

Setting the standard With the success of Lincoln Square, Millennium Partners had a platform in place to expand across the United States. On each project, Millennium works with New York-based Gary Edward Handel + Associates, which has its design hand in each Millennium development, in addition to a team of local developers and architects.

Last year in Boston, Millennium went so far as to buy the Ritz-Carlton - the longest continuously operated Ritz-Carlton in the country - for $122 million in order to have the rights to the Ritz-Carlton name in that city. That amount may be a high price to pay for a name, but, because of noncompeting rights, Millennium could not build the new Ritz-Carlton Boston Common at Millennium Place without first acquiring the city's Grande Dame hotel from Bethesda, Md.-based Host Marriott Corp. Millennium will continue the renovations that Host Marriott had already begun.

Similar to Lincoln Square in New York, Boston's $500 million twin tower Millennium Place consists of the 155-room Ritz-Carlton Boston Common, 270 luxury condominiums, 85 extended-stay apartments, a 100,000 sq. ft. health club, 50,000 sq. ft. of retail and a 19-screen Loew's theater. Residences run from the 15th floor to the 34th and 36th floors. In December 1999, Millennium closed a $307 million construction loan for Boston's Millennium Place with a consortium of American and German banks, the same group that has backed construction of Millennium projects in Washington, D.C., and San Francisco. Millennium Place Boston is slated for completion in 2001, and a sales center is scheduled to open this spring.

In Miami, Millennium has a similar $350 million project in partnership with Four Seasons that overlooks Biscayne Bay and includes 200,000 sq. ft. of Class-A office space.

But in Washington, D.C., and San Francisco, Millennium Partners had to take a slightly different approach.

The height of Millennium's towers generally runs in the 400 ft.-plus range, but zoning restrictions in Washington, D.C., require that new multifamily buildings be no more than 110 ft. tall. For both the $260 million Ritz-Carlton Hotel and Residences in the West End neighborhood of Washington, D.C., and the $125 million Ritz-Carlton Hotel and Residences, Georgetown, Millennium designed the buildings with massive, 100,000 sq. ft. floorplates and two lobbies at either end of the building. Such long, low buildings at the Ritz-Carlton Hotel and Residences left Millennium with interior courtyards the size of football fields, but the company plans to use that space for a private park.

The Georgetown site presented similar dilemmas plus the added dimension of building around a historical landmark - the smokestack of a former city incinerator. The hotel's lobby was built around the smokestack, and Ritz-Carlton decided to use the old incinerator building as a restaurant.

"Washington took us a little while longer to get through the approval process, but it wasn't that bad," says Jeffries. "Distinguishing yourself as a building where you can't use height was a challenge. This is a building that has floorplates of 100,000 sq. ft., an enormous horizontal development, but it's turned out extremely well."

In San Francisco, Millennium was a partner in developing SONY Metreon in the South of Market area. At 350,000 sq. ft., Metreon boasts a litany of theme restaurants as well as a 15-screen theater and adjacent IMAX theater, the flagship Discovery Channel Destination store and the Microsoft SF store. Because Metreon anticipates millions of visitors every year, Millennium Partners considered it best to build a residential component nearby but not as a part of the Metreon itself.

Again in partnership with Four Seasons, Millennium is developing the Four Seasons Hotel and Tower on Market Street approximately one block from the Metreon. The Four Seasons Hotel and Tower includes 80,000 sq. ft. of retail space, a 280-room Four Seasons hotel, 150 luxury condos, a 100,000 sq. ft. health club and a 500-space garage.

"The Four Seasons is still part of the fabric of South of Market Street in San Francisco," says Jeffries. "We think Metreon is an enhancement to our apartment house. It's just not part of the [Four Seasons] development."

Back in New York, Millennium has entered into a joint agreement with New York-based Ian Schrager Hotels to redevelop The St. Moritz Hotel into The Ritz-Carlton, New York. Millennium reportedly paid $95 million for Schrager's mortgage with Credit Suisse First Boston, and plans to spend an additional $150 million on renovations. Plans call for the flagship Ritz-Carlton, New York, to include 300 rooms and 14 luxury condos that are expected to sell for more than $10 million each.

Ties that bind Across the board, certain things link Millennium developments regardless of the city in which they are located. Of course, with upscale development, Millennium demands the finest finishes and crosses the globe to find them. The same goes for appliances and services for the company's condominium developments. But the brands associated with Millennium - Ritz-Carlton, Reebok, Sports Club, Four Seasons, SONY - add value in ways that are both tangible and intangible.

"What we've done is not use Millennium Partners as the brand name, but rather to use the brand name of our corporate customers who are our partners," says Jeffries. "That's most evident where we have a hotel partner and our buildings are named - The Four Seasons Tower in San Francisco or The Residences at The Ritz-Carlton in Washington, D.C., and Boston. Using their brand names makes our product better and allows the consumer to know that it stands for a certain level of quality."

Height is another hallmark. Millennium wants to build the tallest condominium development possible and give tenants unobstructed views.

"Height brings great additional value in the condominium development business, and the difference between sales prices at the top of the building and the bottom of the building are enormous," says Jeffries.

Obviously, the mixed-use concept binds Millennium developments. While upscale, mixed-use developments have caught on in several U.S. cities, Millennium's initial endeavors raised eyebrows.

"It was not obvious in 1990 that, if you put a movie theater complex in your development, it would actually increase values as opposed to a more traditional belief, which was that movie theaters will drag down residential values," says Jeffries. "We proved that, done in the right way, with the right partner, with the right architecture, the excitement and hustle and bustle of movie theaters and retail actually makes for a better living community. One of our strong foundations is that we weren't trying to run away from the energy and excitement of the city but rather embrace it."

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