Olympia & York Developments Ltd.

views updated May 23 2018

Olympia & York Developments Ltd.

2 First Canadian Place
Toronto, Ontario M5X 1B5
Canada
(416) 862-6100
Fax: (416) 862-5349

Private Company
Incorporated: 1969
Sales: C$4.00 billion (US$3.45 billion)

If not the largest, certainly one of the most respected real estate firms in the world is Olympia & York Developments Ltd. Olympia & York (O&Y) is the privately held creation of three brothers named Reichmann, and it has been at the forefront of large-scale office development for decades. The Reichmann brothers have assembled a staggering collection of the world’s finest office towers and a fair number of Canada’s leading industrial corporations as well, all the while maintaining a reputation for honesty and a passion for privacy unusual in the world of big-time real estate. By 1990 O&Y had built or was planning to build massive projects in a half-dozen of the world’s great cities, but its estimated US$31 billion in assets remain the exclusive property of the Reichmann family. O&Y’s chairman of the board is Renee Reichmann, the brothers’ mother and head of the family, though the title is honorary.

Albert, Paul, and Ralph Reichmann were born in pre-World War II Vienna, to a family headed by Samuel Reichmann, a prosperous merchant. Originally from Hungary, Samuel Reichmann led his family on a series of traumatic escapes from Nazi persecution of Jews, eventually settling in the free port of Tangier, Morocco. There Reichmann built a reputation for wizardry in banking while preparing his children for a life in business. Albert Reichmann, eldest of the three brothers, joined his father’s business; Paul Reichmann went on to Talmudic colleges in England, and in 1957 joined Ralph Reichmann and began another family exodus, to Canada, starting a tile import business in a Toronto suburb. An ancient-Greek-culture enthusiast, Ralph named his venture Olympia Floor & Tile Co. Within a few years he was joined by the rest of the Reichmann family.

Later the prospering tile company needed a new warehouse, and the Reichmanns built it themselves for about half of the contractor’s bid. They decided to pursue opportunities in suburban real estate, beginning with building more warehouses. The strong economy of the early 1960s provided ample room for expansion in Toronto industrial real estate, and the Reichmann family soon became known as a leading local builder of high-quality industrial space. The Reichmanns early learned the importance of streamlined construction practices, developing a knack for money-saving innovations that would later prove to be worth many millions of dollars. Their real estate business was organized in several companies. One of them was called York Developments, and in 1969 the three brothers consolidated their various concerns under the name of Olympia & York Developments Ltd.

The Reichmanns already had established a number of operating principles from which they would never deviate. They were scrupulously honest in their negotiating, earning a reputation as people whose handshake was as good as a contract. They built solid structures on-time and under-budget, maintained excellent relations with tenants, and came up with ingenious financing packages designed to keep ownership of all properties within the family. The brothers paid close attention to the desires of municipal and state government officials, whose cooperation became increasingly important as the size of their projects grew. The Reichmanns remained devoutly Orthodox, stopping all work by sundown every Friday and on Jewish holidays throughout the year.

In 1965 the brothers demonstrated the last ingredient in their formula for success—a willingness to gamble. When U.S. real estate mogul William Zeckendorf fell on hard times, the Reichmanns seized a chance to buy from him 500 acres of land just outside Toronto for $18 million. After selling off a few parcels to reduce debt, the brothers began a series of highly successful office buildings on the site. The Reichmanns were able to build the complex office structures with their usual efficiency, advancing from projects on the Zeckendorf purchase to bigger and more profitable ventures in Ottawa, Calgary, and downtown Toronto.

The brothers were as yet little known when they acquired a valuable piece of property in the heart of Toronto in 1973 and announced plans to construct the tallest building in Canada, a 72-story office tower called First Canadian Place. The proposal was considered too grand for Toronto’s market in some quarters—its 3.5 million square feet represented a 10% increase in the city’s available office space—but the Reichmann brothers went to work with their customary ingenuity. They devised a new method of construction in which all activity took place within the building; a complicated network of elevators and turntables moved supplies and men to where they were needed. The Reichmanns estimated that the technique saved up to 2.5 hours of labor per worker every day, a saving that became of critical importance when the building was slow to lease. Despite the leasing problems, the Reichmanns refused to cut their rents and eventually managed to raise them 350% during the four years it took to fill the building. First Canadian Place permanently changed the Toronto high-rise market and became the flagship of O&Y’s real estate empire.

Having amassed a net worth estimated at US$1 billion by the time First Canadian was finished in 1976, the Reichmanns began to look farther afield for their next project. In New York City, the National Kinney Corporation was trying to sell a block of eight Manhattan office buildings known as the Uris portfolio. At the time, the city was flirting with bankruptcy and its real estate market was severely depressed. It was not clear whether New York would retain its position as the world’s most important business center or slide into a decline. The Reichmanns concluded that, unless New York’s recession was permanent, the Uris land alone was worth more than the US$320 million asking price, and in 1977 they used the equity built up in First Canadian Place to finance the deal. Within a few years the glut of Manhattan office space had become a shortage as the local economy roared back, and the Reichmanns were able to triple rents while still keeping their eight new buildings nearly full. The Uris acquisition proved to be a tremendous coup for the Reichmanns, their investment of US$320 million growing in five years to an estimated value of US$3 billion, and providing an equity base sufficient to launch O&Y on to bigger developments.

O&Y moved on to The World Financial Center at Manhattan’s extreme southern tip. This Battery Park site, adjacent to the World Trade Center, had been entangled in political and financial difficulties since its creation out of landfill. Olympia joined 11 other bidders in a 1980 competition to gain approval for construction, and eventually emerged as the winner. World Financial Center was a gigantic project: six buildings with two-thirds as much space as the towering World Trade Center next door, 250,000 square feet of shops and restaurants, and four acres of well-designed public spaces. The project, in which the Reichmanns poured US$300 million of their own money, also provided for the construction of low-cost public housing in the area. The Reichmanns were able to do all of this with money borrowed below prime rate against their Uris properties, and by implementing the same highly efficient construction methods as they had used at First Canadian Place. At the same time, they were erecting another US$750 million of office towers in other U.S. cities, all during a period of severe recession. To land the prestigious tenants the World Financial project needed to assure its success, the Reichmanns took the unusual step of buying the buildings housing the tenants’ previous offices in exchange for long-term lease commitments. In this way both American Express Company and City Investing Company agreed to take large blocks of space.

The Reichmanns also had begun buying stock in major industrial corporations. In 1981 the brothers paid C$618 million, most of it, again, borrowed against the Uris properties, for about 90% of the stock in Abitibi-Price, the world’s largest manufacturer of newsprint paper. They soon added large pieces of MacMillan Bloedel Ltd., another forest-products company; Hiram Walker Resources Ltd., the liquor giant; and also bought into a number of other important Canadian real estate developers. In 1983 the brothers joined forces with Canada’s Bronfman family, taking a 13% interest in the Bronfman’s Trilon Financial Corporation, a fast-growing diversified marketer of financial services. During the next few years the Reichmanns increased their holdings in Hiram Walker to 49%, but in 1986 they lost a bidding war for control of the company and traded their stake for US$360 million in cash and a 10% share of its new owner, Allied-Lyons pic of the United Kingdom. More successful was a 1985 bid for Chevron Corporation’s 60% interest in Gulf Canada Ltd., one of the country’s leading oil producers; O&Y’s US$2.1 billion offer was accepted, and the brothers have since increased their stake to nearly 75%. Finally, in 1987, they took part in a restructuring of Santa Fe Southern Pacific Corporation, buying 19.6% of the enormous rail, oil, and real estate concern.

With all that, the brothers remain primarily real estate developers, and in 1987 they took charge of a yet vaster project in the United Kingdom. London’s Docklands, just east of the bustling city center, had been a severely depressed area for years due to England’s declining shipping business and the closure of most of the city’s docks. The local government had launched a project designed to transform a part of the Docklands, called the Isle of Dogs, into a new center of white-collar business the development foundered until the Reichmanns took over in 1987. In their boldest venture yet, the brothers financed construction of what amounts to a small city that will eventually provide 12 million square feet of offices in 24 buildings, one of them to be the tallest in the United Kingdom. The project, called Canary Wharf, is an enormous undertaking— the largest real estate development in Europe—and aims a permanent restructuring of London’s downtown office market, much as First Canadian Place changed the face of Toronto. The project’s future depends on construction of a new subway route and the upgrading of available rail service, as well as the success in attracting London’s prestigious clients with the promise of low rents and modern working space. If the London real estate market softens for any length of time, the Reichmanns could have trouble filling their new buildings.

During the late 1980s the Reichmanns invested in Campeau Corporation, Robert Campeau’s financially troubled retailing conglomerate. By January 1990 the Reichmanns had invested an estimated US$700 million in Campeau, including a US$250 million loan secured by eight Campeau-owned office towers. During 1990 the Reichmanns, as Campeau’s largest stockholders, took more control of the company. In March 1990 Campeau defaulted on its loan to O&Y. In September 1990 Campeau Corporation agreed to settle O&Y’s claims against it in a plan by which O&Y would become Campeau’s majority shareholder. However, the plan had to be approved by Campeau’s other creditors.

In 1990, the Reichmanns offered to sell 20% of their portfolio of United States real estate holdings. The Reichmanns owned altogether between 50 and 100 office buildings along with a sizable investment portfolio. Of perhaps greater value, even in a narrow business sense, their handshake is good around the world.

Principal Subsidiaries

Campeau Corp. (38%); Abitibi-Price Inc. (85%); Gulf Canada Ltd. (74%).

Olympia & York Developments Ltd.

views updated May 11 2018

Olympia & York Developments Ltd.

2 First Canadian Place
Toronto, Ontario M5X 1B5
Canada
(416) 862-6100
Fax: (416) 862-5349

Private Company
Incorporated: 1969
Sales: C$4.00 billion (US$3.45 billion)
SICs: 6552 Real Property Subdivides and Developers, except of cemetary lots

Of the many developers who fell victim to the real estate depression beginning in 1989, none was bigger or more highly respected than Canada’s Reichmann brothers, owners of Olympia & York Developments Ltd. (O&Y). Until the market took a turn for the worse in 1989, the Reichmanns enjoyed a career of unbroken and brilliant success, gaining a reputation as financial magicians while assembling the world’s largest collection of office buildings and a stock portfolio that included several of Canada’s leading corporations. Like most deal makers, however, Paul Reichmann and his brothers were gamblers who kept their interest in the game by continually raising the ante, a strategy that culminated in O&Y’s Canary Wharf development in London, the largest office complex ever conceived. Then the real estate market plummeted in 1989. Unable to maintain debt payments, O&Y was forced into Chapter 11 bankruptcy in Canada and the United Kingdom, and its holdings were parceled out among ninety-one lenders who had come to believe the Reichmanns infallible. The final reorganization of assets has not yet been settled, but even if the Reichmanns retain a good chunk of equity their reputation will never be fully repaired.

Albert, Paul, and Ralph Reichmann were born in pre-World War II Vienna to a family headed by Samuel Reichmann, a prosperous merchant. Originally from Hungary, Samuel Reichmann led his family on a series of traumatic escapes from Nazi persecution of Jews, eventually settling in the free port of Tangier, Morocco. There Reichmann built a reputation for wizardry in banking while preparing his children for a life in business. Albert Reichmann, eldest of the three brothers, joined his father’s business; Paul Reichmann went on to Talmudic colleges in England. In 1957 Paul joined Ralph Reichmann for another family exodus to Canada, where the two brothers started a tile import business in a Toronto suburb. An ancient Greek culture enthusiast, Ralph named his venture Olympia Floor & Tile Co. Within a few years, the rest of the Reichmann family joined him.

When the prospering tile company needed a new warehouse, the Reichmanns built it themselves for about half of the contractor’s bid. They decided to pursue opportunities in suburban real estate, and began by building more warehouses. The strong economy of the early 1960s provided ample room for expansion in the Toronto real estate market, and the Reichmann family soon became known as a leading local builder of high-quality industrial space. The Reichmanns learned early the importance of streamlined construction practices, developing a knack for money-saving innovations that would later prove to be worth many millions of dollars. Their real estate business was organized in several companies. One of them was called York Developments, and in 1969 the three brothers consolidated their various concerns under the name of Olympia & York Developments Ltd.

The Reichmanns already had established a number of operating principles from which they would never deviate. They were scrupulously honest in their negotiating, earning a reputation as people whose handshake was as good as a contract. They built solid structures on time and under budget, maintained excellent relations with tenants, and came up with ingenious financing packages designed to keep ownership of all properties within the family. The brothers paid close attention to the desires of municipal and state government officials, whose cooperation became increasingly important as the size of their projects grew. The Reichmanns remained devoutly Orthodox, stopping all work by sundown every Friday and on Jewish holidays throughout the year.

In 1965 the brothers demonstrated the last ingredient in their formula for success—a willingness to gamble. When U.S. real estate mogul William Zeckendorf fell on hard times, the Reichmanns seized a chance to buy from him 500 acres of land just outside Toronto for $18 million. After selling off a few parcels to reduce debt, the brothers constructed a series of highly successful office buildings on the site. The Reichmanns were able to build the complex office structures with their usual efficiency, advancing from projects on the Zeckendorf purchase to bigger and more profitable ventures in Ottawa, Calgary, and downtown Toronto.

The brothers were still relatively unknown when they acquired a valuable piece of property in the heart of Toronto in 1973 and announced plans to construct the tallest building in Canada, a 72-story office tower called First Canadian Place. The proposal was considered too grand for Toronto’s market in some quarters—its 3.5 million square feet represented a 10 percent increase in the city’s available office space—but the Reichmann brothers went to work with their customary ingenuity. They devised a new method of construction in which all activity took place within the building; a complicated network of elevators and turntables moved supplies and men to where they were needed. The Reichmanns estimated that the technique saved up to 2.5 hours of labor per worker every day, a saving that became crucial when the building was slow to lease. Despite the leasing problems, the Reichmanns refused to cut their rents and eventually managed to raise them 350 percent during the four years it took to fill the building. First Canadian Place permanently changed the Toronto high-rise market and became the flagship of O&Y’s real estate empire.

Having amassed a net worth estimated at US$1 billion by the time First Canadian was finished in 1976, the Reichmanns began to look farther afield for their next project. In New York City, the National Kinney Corporation was trying to sell a block of eight Manhattan office buildings known as the Uris portfolio. At the time, the city was flirting with bankruptcy and its real estate market was severely depressed. It was not clear whether New York would retain its position as the world’s most important business center or slide into a decline. The Reichmanns concluded that, unless New York’s recession was permanent, the Uris land alone was worth more than the US$320 million asking price, and in 1977 they used the equity built up in First Canadian Place to finance the deal. Within a few years the glut of Manhattan office space had become a shortage as the local economy roared back to health, and the Reichmanns were able to triple rents while still keeping their eight new buildings nearly full. The Uris acquisition proved to be a tremendous coup for the Reichmanns; their investment of US$320 million grew in five years to an estimated value of US$3 billion, providing an equity base sufficient to launch bigger developments.

O&Y moved on to the World Financial Center at Manhattan’s extreme southern tip. The Battery Park site, adjacent to the World Trade Center, had been entangled in political and financial difficulties since it was created out of landfill. In 1980 Olympia joined 11 other bidders in a competition to gain approval for construction and eventually emerged as the winner. World Financial Center was a gigantic project: six buildings with two-thirds as much space as the towering World Trade Center next door, 250,000 square feet of shops and restaurants, and four acres of well-designed public spaces. The project, in which the Reichmanns poured US$300 million of their own money, also provided for the construction of low-cost public housing in the area. The Reichmanns were able to do all of this with money borrowed below prime rate against their Uris properties, and by implementing the same highly efficient construction methods as they had used at First Canadian Place. At the same time, they were erecting another US$750 million of office towers in other U.S. cities, all during a period of severe recession. To land the prestigious tenants the World Financial project needed to assure its success, the Reichmanns took the unusual step of buying the buildings housing the tenants’ previous offices in exchange for long-term lease commitments. In this way both American Express Company and City Investing Company agreed to take large blocks of space.

The Reichmanns also had begun buying stock in major industrial corporations. In 1981 the brothers paid C$618 million, most of it, again, borrowed against the Uris properties, for about 90 percent of the stock in Abitibi-Price, the world’s largest manufacturer of newsprint paper. They soon added large pieces of MacMillan Bloedel Ltd., another forest-products company; Hiram Walker Resources Ltd., the liquor giant; and also bought into a number of other important Canadian real estate developers. In 1983 the brothers joined forces with Canada’s Bronfman family, taking a 13 percent interest in the Bronfman’s Trilon Financial Corporation, a fast-growing diversified marketer of financial services. During the next few years the Reichmanns increased their holdings in Hiram Walker to 49 percent, but in 1986 they lost a bidding war for control of the company and traded their stake for US$360 million in cash and a 10 percent share of its new owner, Allied-Lyons plc of the United Kingdom. More successful was a 1985 bid for Chevron Corporation’s 60 percent interest in Gulf Canada Ltd., one of the country’s leading oil producers; O&Y’s US$2.1 billion offer was accepted, and the brothers have since increased their stake to nearly 75 percent. Finally, in 1987, they took part in a restructuring of Santa Fe Southern Pacific Corporation, buying 19.6 percent of the enormous rail, oil, and real estate concern.

While these were sizable acquisitions by any standard, O&Y’s stock portfolio remained secondary to its real estate business, which continued to grow apace as the boom decade of the 1980s drew to an end. Real estate was the premier investment for lenders in the 1980s, and with money readily available new skyscrapers were constructed worldwide at an unprecedented rate. Although many economists predicted that this bull market would soon exhaust itself, the world’s most experienced lenders and developers continued building ever larger and more expensive projects. In 1987 the Reichmanns became interested in London’s vast Canary Wharf development, a municipal initiative whose goal was the transformation of former docks east of the city into a new corporate office center intended to rival the city’s centuries-old business district. Canary Wharf called for the eventual construction of twenty-four buildings containing twelve million square feet of office space to be connected to the city center by new rail and subway links. However, lack of financing halted construction until the Reichmanns agreed in 1987 to pump several billion dollars of their own money into the project and serve as its managing partners. The Reichmanns’ reputation as savants reassured other lenders, and development of Canary Wharf finally proceeded, promising no less than a restructuring of London’s commercial office market and the possible formation of a new center for business throughout Europe.

The Reichmanns’ most lucrative deals had occurred in the middle of real estate recessions (the Uris purchase in 1977 and the World Financial Center in 1980), prompting many observers to admire their courage and foresight when the market strengthened and their projects became gold mines. Canary Wharf, on the other hand, was initiated at the height of a real estate boom which had already enjoyed five years of solid growth. When the bottom fell out in 1989, the Reichmanns found themselves in serious trouble along with the ninety-odd banks and other lenders who had put their faith in the Reichmann mystique. To make matters worse, O&Y was also completing work on 55 Water Street in New York City, the world’s largest single office building as measured by square footage, and the brothers had become entangled in the decline of Campeau Corporation, the Canadian retailing conglomerate in which the Reichmanns were major shareholders.

Because O&Y was a private company, the Reichmanns were able to conceal the situation until late 1991, when the company admitted that it could not raise enough cash to “roll over” its commercial borrowings. The vacancy rate on its total holdings of forty-five million square feet was estimated at 17.7 percent, and in April 1992 O&Y called a meeting of its lenders to negotiate a reorganization of debt. In May its Canadian corporation went into Chapter 11 bankruptcy, followed shortly by the UK subsidiary in charge of Canary Wharf. (O&Y’s American subsidiary did not enter bankruptcy, however.) Creditors of O&Y Canada (the firm’s chief holding company) agreed in January 1993 to a five-year rescheduling of debt payments in exchange for about 80 percent of the company’s equity. In effect, its creditors decided that O&Y was worth more as a going concern with the Reichmanns as managers than would be its buildings if sold off piecemeal in a down market. The family would thus retain some equity and limited control of its tattered empire, but with the real estate glut predicted by some to extend past the year 2000, it remained to be seen whether the Reichmanns’ slice of the pie would have any tangible value.