Starrett Corporation

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Starrett Corporation

909 Third Avenue
New York, New York 10022
U.S.A.
(212) 751-3100
Fax: (212) 759-7699

Public Company
Incorporated: 1922 as Starrett Brothers & Eken, Inc.
Employees: 1,575
Sales: $167.3 million (1996)
Stock Exchanges: American
SICs: 1521 General Contractors—Single-Family Houses; 1522 General Contractors—Residential Buildings Other Than Single-Family; 1542 General Contractors—Nonresidential Buildings, Other Than Industrial Buildings and Warehouses; 6162 Mortgage Bankers and Loan Correspondents; 6531 Real Estate Agents and Managers; 6552 Land Subdividers and Developers, Except Cemeteries; 7382 Security Systems Services

Starrett Corporation is a construction manager or general contractor of buildings, mainly in the metropolitan New York City area. Its services also include initial planning and development; property acquisition, financing, and management; consulting; and related services. The company built the Empire State Building, other Manhattan high-rises, and a number of large New York City housing projects. Its Levitt Corp. subsidiary, successor to the company that built the three Levittown housing developments in the Northeast, was developing, building, and selling residences in Florida and Puerto Rico in the 1990s.

Starrett, 1922-77

Paul Starrett got his start in construction in Chicago in 1887 with Burnham and Root, which designed and built some of the earliest skyscrapers. Later he was president of George A. Fuller Co., the largest construction concern in the United States. In 1922 he founded Starrett Brothers & Eken with his brother William and Arthur J. Eken, a Fuller associate. (Another Starrett brother headed the Chicago office.) This firm became a subsidiary of the newly formed Starrett Corp. in 1929.

Starrett put up a number of Manhattan office buildings in the 1920s and, for a fee of $500,000, demolished the original Waldorf-Astoria Hotel and erected the Empire State Building in its place in less than a year, putting it up at the rate of a story a day and completing the job in 1931 at $2 million under the original estimate. The human cost was high, however. Starrett later wrote that he “suffered a rather severe nervous breakdown” and blamed William’s death in 1932 on overwork.

Starrett had lots of time to rest as the Great Depression virtually put an end to private construction. Not only was the firm short of work, it had invested in buildings—in Chicago, Cincinnati, Syracuse, and Oklahoma City, as well as New York—that lost tenants as the Depression spread. Starrett filed for bankruptcy in 1935. Reorganized the following year, Starrett moved to Hoboken, New Jersey, and did not have a profitable year again until 1946. It did not resume paying out a dividend until 1950. Eken was president of the company from 1938 to 1955.

Starrett disposed of most of its real estate properties in the 1940s. During that decade the company was building large residential complexes in New York City for the Metropolitan Life Insurance Co. Completed in 1942, Parkchester, in the Bronx, with 12,273 apartments in 51 high-rise buildings, was virtually an autonomous city. Stuyvesant Town, a community on Manhattan’s Lower East Side with 8,755 apartments in 35 13-story buildings, was built in 1943. Starrett then constructed its northern extension, Peter Cooper Village.

In 1957 Starrett Corp. spun off its construction subsidiary, Starrett Brothers & Eken, Inc. Robert Olnick came to SB&E in 1963 and directed it toward raising money for projects as well as building them. Although Starrett continued to do general construction—notably of colleges, universities, and hospitals—it became increasingly active in initiating urban-renewal projects. Little financing was required for building low- and middle-income apartments because they were substantially funded by government.

During the 1960s Starrett Brothers & Eken’s construction roster included Lenox Terrace, an apartment complex in Harlem; Stonehenge, a circular 25-story apartment house in North Bergen, New Jersey; a research laboratory at Brookhaven National Laboratory on Long Island; and the Mexican Pavilion and Belgian Village for New York City’s 1964-65 World’s Fair. Three plants were turning out modular (factory-built) housing in 1970 for projects such as 300 townhouse apartments in Rome, New York.

In 1970 Henry Benach, a garment-industry executive, bought almost a quarter of the company’s stock for $450,000 in notes and installed himself as president, renaming the company Starrett Housing Corp. Benach acquired Graphic Construction Corp. and United Research Homes that year, which enhanced the company’s efforts in modular housing and urban rehabilitation and enabled Starrett’s revenues to climb from $32.9 million in 1970 to $79.9 million in 1971, and its net income from $568,000 to $1.3 million. The following year net income passed $2 million for the first time since 1930. Benach also was a successful fundraiser, collecting some $40 million in the next year from investors such as National Kinney Corp., Warner Communications, American Financial Corp., and the wealthy family of Manhattan congressman William Green.

The company’s biggest project in the 1970s was Starrett City, a 46 building, 5,880 apartment, $360 million development in Brooklyn. The company acted as general partner of the partnership that put up the equity capital for the project, which was substantially completed in 1976, and it continued as manager of the project. But Starrett’s profits were coming from its role as construction manager of a 4,000-unit middle-income complex in Teheran, Iran. The company also was developing luxury apartments on the outskirts of the city.

In 1977 Starrett acquired H.R.H Construction Co., a private company incorporated in 1925 by Saul Horowitz and two partners. This firm built some of the finest high-rise luxury apartment houses in Manhattan during the 1920s. In the 1960s and 1970s its Manhattan erections included the Whitney Museum of Art, Gulf & Western Building, Citicorp Center, and Waterside apartment complex. H.R.H., which became a Starrett subsidiary, was also active in Boston, Washington, Los Angeles, and Puerto Rico.

Levitt, 1927-78

Abraham Levitt, a lawyer, began building homes on Long Island in 1927, and his firm (incorporated as Levitt & Sons, Inc. in 1938) developed a number of subdivisions in the 1930s. During World War II the firm built rental units for the Navy in Norfolk, Virginia. There the Levitts—including Abraham’s two sons—in the interests of building cheaply and quickly, learned to break down the building of a house onsite into 26 steps. In 1947 Levitt & Sons began a housing development called Levittown on former potato fields near Hicksville, Long Island, hiring subcontractors to do the job, assembling an entire block at a time. By mid-1950 Levitt & Sons was the leading housebuilder in the United States. That year the company built 5,300 homes. By the end of 1951 there were 17,450 homes and 75,000 people in Levittown.

These uniform ranch-style homes consisted of 4½ rooms and 750 square feet on a 60-by-100-foot lot and sold for $7,990. An “expansion attic” could be converted into two more bedrooms and a second bathroom. The houses came without a basement but were furnished with a refrigerator, stove, washing machine, television set, and fireplace. Federal mortgage guarantees enabled the Levitts to obtain financing on a large scale before selling a single house, and William Levitt, the company president, provided the drive necessary to see the project through. In addition to the homes, there were community swimming pools, playgrounds, schools, and other public buildings.

Before the first Levittown was completed the firm was at work on a second one—this time carefully planned from scratch—near Philadelphia. Completed in 1958, this community also had 17,000 homes. In fiscal 1954 (the year ended February 28, 1954), Levitt & Sons attained peak sales of $48.8 million and a record profit of $3.7 million. The company went public in 1960, but William Levitt retained more than half of the outstanding common stock.

Work began in 1958 on a third Levittown in Willingboro Township, New Jersey. To dispel criticism of uniformity in his developments, Levitt substituted a layout of curving streets for the former grid pattern, placing houses of varying shapes and sizes next to one another. Nevertheless, only 6,000 homes had been sold by late 1964. Many reasons were cited: a housing slowdown due to the end of the baby boom, positioning of the development too close (15 miles) to the Pennsylvania Levittown, slow economic growth in the Philadelphia area, growing dissatisfaction with the Levittown concept (residents voted in 1963 to restore the Willingboro name to the community). Blacks had been barred from the earlier developments, but New Jersey adopted a fair-housing law, and this also may have hurt sales. (By the time Levitt adopted a universal open-housing policy in 1968, 14 of its 18 developments were integrated.)

Company Perspectives:

Starrett is responsive and adaptive to both industry and economic changes. We have remained an industry leader for over half a century because of our unparalleled performance in the development, construction and management of hundreds of residential and commercial structures and mixed-use communities. Our creative management team, with its ability to provide all real estate services related to project development, construction and management, is poised for further vigorous growth and expansion throughout the 1990s and into the 21st century.

After losing $763,000 on sales of only $15.9 million in fiscal 1961 Levitt abandoned mass construction in favor of reduced risk through diversification. In 1968 there were 18 smaller Levitt developments under construction, in Illinois, New York, New Jersey, Maryland, Virginia, Puerto Rico, and France. The company also had begun selling life insurance and home furnishings to its customers. In fiscal 1967 Levitt had record sales and income of $93.6 million and nearly $4 million, respectively. That year the company was sold to the conglomerate International Telephone & Telegraph Corp. for ITT stock valued at $92 million. Levitt moved up to chairman, leaving the subsidiary in the hands of his hand-picked successor, Richard Wasserman.

Under ITT’s direction, Levitt & Sons offered not only site-built single-family homes but also factory-built modular multiple-family dwellings, attached townhouses, and mobile homes. It also began making land sales on a massive scale in Florida and handling resales as a broker. Sales reached $300 million in fiscal 1971. By 1975, however, Levitt was in deep trouble despite having received $113 million from ITT in capital contributions to cover its debt and operating losses ($51.3 million in 1974 alone on sales of $140 million). Palmieri & Co. took control of the company in 1975 under a court order to dispose of it in order to settle a federal antitrust suit against ITT.

No one, even Levitt himself—who cut his remaining ties to the company in 1976—was willing to buy the company at that time, even though it may have been offered for as little as $10 million. Palmieri rid the company of its remaining debt—about $100 million—by disposing of two-thirds of its assets, including its palatial headquarters at Lake Success, New York, designed by Edward Durrell Stone. ITT bought $57.5 million of the company’s assets, mostly land, and Levitt abandoned its interests in apartment building, mobile homes, factory-built housing, component manufacturing, and commercial manufacturing. The single-family homebuilding operations in France, Spain, and several U.S. cities also were sold, leaving the company active only in the Chicago and Washington metropolitan areas, plus Florida and Puerto Rico. In 1976 the company—now Levitt Corp.—had net income of $2.2 million on sales of $56.5 million. Its earnings rose to $4.4 million the following year on sales of $88 million.

Starrett, 1978-97

In 1978 Starrett acquired Levitt Corp. for $30 million in cash, notes, and subordinated debentures. Its attention soon turned, however, to the Iranian revolution. The company received only 45 percent of the $213 million it was due in purchased condominiums. Starrett lost $8.8 million in 1980 and had to restructure its debt the following year, issuing $28.3 million in preferred shares to Chemical Bank in exchange for bank loans and subordinated debentures of about $33 million. Homebuilding, too, suffered in the 1981-82 recession, and although the Levitt subsidiary provided two-thirds of the parent company’s revenue in 1982, Starrett lost $1.4 million. Its total revenues came to only $44 million that year, compared to $219 million in 1979. In 1983 Starrett sold 20 percent of Levitt to raise more funds.

The outlook brightened in 1983 with national economic recovery. Levitt’s new line of houses, ranging in price between $49,000 and $87,000 and aimed at first-time buyers, proved a success. The subsidiary became profitable again that year, and its sales passed the $100 million mark in 1987. By 1988 Levitt was the largest homebuilder in Puerto Rico, from where substantially all of its profits were coming. In 1989 Starrett reacquired the 20 percent stake in Levitt it had sold six years earlier.

Starrett’s chief development activity in the 1980s was Manhattan Park on Roosevelt Island, the narrow piece of land in the East River between Manhattan and Queens. As half-owner of Roosevelt Island Associates (which it partly sold for $20 million in 1989), it built 1,100 housing units. With subsidies for housing sharply reduced at all levels of government, the company was depending in the mid-1980s on contracting services rather than real estate development for nearly half its profits. Starrett built the Javits Convention Center, AT&T’s world headquarters, and Trump Tower in this period.

In 1987 Starrett received $59 million in settlement for its claims on Iran and used most of it to buy back the preferred shares it had issued six years earlier. The real estate developers Seymour and Paul Milstein increased their share of the company from 7 to 25 percent in December 1988, paying American Financial Corp. $6 million for the stock. Starrett earned $12 million on the Brooklyn office building it built as a joint venture and sold to the New York Transit Authority in 1989 for about $128 million. Starrett Housing Corp. was renamed Starrett Corp. in 1995.

With the American population increasing in age, Levitt opened a group-living facility for the elderly in Hollywood, Florida, in 1986. It sold its interest in the facility in 1989 for an estimated $43.7 million but continued to manage it. In 1992 the company completed and sold a 224-unit residential rental community in Boca Raton, Florida. It phased out its homebuilding activities in the New York City metropolitan area and Virginia the following year.

The Milsteins and several entities acting on behalf of the members of the Milstein family held 33 percent of Starrett’s outstanding common stock in April 1997. Benach, the company chairman, held 11 percent. Starrett earned net income of $4.4 million on revenues of $167.3 million in 1996. Levitt (including its mortgage subsidiary) accounted for 65 percent of its revenues, HRH Construction for 20 percent, and development management and ownership for the remainder. Of the company’s operating profit, Levitt accounted for 82 percent. Starrett’s long-term obligations came to $57.9 million in March 1997.

Starrett in 1997

At the beginning of 1997 Starrett, through its HRH Construction Corp. subsidiary, primarily was acting as construction manager or general contractor in the construction of hospital and medical-research facilities and institutional, office, and residential projects, mostly in the New York City metropolitan area. Starrett also was acting as a developer in some cases, with services that might include initial planning, acquisition of the property, arranging for financing, ownership of the project—typically through general or limited partnerships—and providing management, consulting, and related services. Grenadier Realty Corp., its real estate management subsidiary, was managing 60 developments containing more than 28,000 housing units. Grenadier also had a subsidiary providing security service primarily for residential properties in the New York metropolitan area.

Levitt generally was building subdivisions on undeveloped suburban land having access to water and sewer services. Its Florida ventures were on the southwestern and southeastern coasts of the peninsula. In Puerto Rico, Levitt concentrated its homebuilding activities in the greater San Juan area, including a large-scale planned-unit development named Encantada. These units consisted of both single-family homes and condominium garden apartments. In 1996 Levitt delivered 576 homes. The company also was participating in a joint venture to build and sell a 200-unit rental-apartment complex. A subsidiary was acting as a full-service mortgage lender and banker in Puerto Rico. Another subsidiary was installing and monitoring electronic security systems in Florida.