Leading an investment group in partnership with David Rockefeller, Goldman Sachs purchases Rockefeller Center in 1995, paving the way for the firm’s growing involvement in real estate investment.
The 1990s were a difficult time for the commercial real estate markets in the United States. The building boom of the prior decade led to a large supply/demand imbalance by the mid-90s. Building owners saw rents plummet and vacancies soar, and banks that had lent millions to developers against little collateral struggled.
In 1995, Rockefeller Center, a complex of ten major buildings and home of Radio City Music Hall, was 80% owned by the Mitsubishi Estate Company, with the remaining 20% in the hands of the Rockefeller family trusts. In May of that year, both parties filed for bankruptcy as the building struggled financially. Ownership would be transferred to Rockefeller Center Properties (RCP), a real estate investment trust that had been formed to make the US$1.3 billion mortgage on the property. RCP’s US$750 million initial public offering had been underwritten by Goldman Sachs and Shearson Lehman Brothers in 1985.
Believing that it could increase the value of Rockefeller Center, Goldman Sachs led a team of investors in a bid to buy Rockefeller Center from RCP. The consortium of buyers included David Rockefeller, whose father, John D. Rockefeller Jr., had built the iconic New York property in the middle of the Great Depression.
The group’s bid, at US$8 a share, bested a prior deal that RCP had reached with another group led by Chicago financier Sam Zell that would have allowed REIT shareholders to retain an interest in the property. The offer totaled US$1.15 billion, with US$306.1 million for the equity in RCP and the assumption of approximately US$845 million in debt and other liabilities. This significant investment in what David Rockefeller called “a treasured asset of our city and our nation” would pave the way for the firm’s growing involvement in real estate investment.
In May 1996, Goldman Sachs sold a condominium interest in 30 Rockefeller Center to NBC for US$440 million. That same year, Goldman Sachs had over US$3.8 billion under management for real estate principal investing around the world. Upon the improvement of conditions in the New York commercial real estate market, Rockefeller Center was sold in 2000 for US$1.85 billion.
This article was originally published as part of a series commemorating the 150th anniversary of Goldman Sachs' founding in 1869.
As an expert with a deep understanding of the intricacies of the financial and real estate markets, particularly during the pivotal period of the 1990s, I can attest to the significance of the events surrounding Goldman Sachs' acquisition of Rockefeller Center in 1995. My expertise extends to the nuances of real estate investment, financial markets, and the strategic decision-making processes that shape such high-stakes transactions.
Now, delving into the details of the article, the investment initiative led by Goldman Sachs, in partnership with David Rockefeller, to purchase Rockefeller Center in 1995 marked a pivotal moment for the firm's expanding involvement in real estate. This move wasn't just a financial decision; it was a strategic maneuver in the complex landscape of commercial real estate during the challenging 1990s.
The backdrop of the 1990s commercial real estate markets in the United States is crucial to understanding the context. The aftermath of the building boom of the prior decade had resulted in a substantial supply/demand imbalance by the mid-90s. Building owners faced the repercussions as rents plummeted and vacancies soared. Banks, having lent significant sums to developers against little collateral, struggled in the face of financial instability.
Rockefeller Center, a complex comprising ten major buildings and the iconic Radio City Music Hall, was at the center of this financial turmoil. In 1995, the complex was 80% owned by the Mitsubishi Estate Company, with the remaining 20% held by the Rockefeller family trusts. Financial difficulties led both parties to file for bankruptcy that year.
The subsequent transfer of ownership to Rockefeller Center Properties (RCP), a real estate investment trust, set the stage for Goldman Sachs' involvement. RCP, established to manage the US$1.3 billion mortgage on the property, had undergone an initial public offering in 1985 underwritten by Goldman Sachs and Shearson Lehman Brothers.
Goldman Sachs, confident in its ability to enhance the value of Rockefeller Center, spearheaded a consortium of investors, including David Rockefeller, in a successful bid to acquire the property from RCP. The bid, valued at US$8 a share, outpaced a previous deal with another group led by Sam Zell. The total offer amounted to US$1.15 billion, encompassing equity in RCP and the assumption of significant debt and other liabilities.
This strategic investment proved fruitful for Goldman Sachs, leading to subsequent transactions such as the sale of a condominium interest in 30 Rockefeller Center to NBC for US$440 million in May 1996. By the end of that year, Goldman Sachs managed over US$3.8 billion for real estate principal investing globally.
The culmination of this venture came in 2000 when, with improved conditions in the New York commercial real estate market, Rockefeller Center was sold for a substantial US$1.85 billion. This transaction not only showcased Goldman Sachs' financial prowess but also emphasized the role of strategic decision-making in navigating complex markets.
In essence, Goldman Sachs' involvement in the acquisition and subsequent management of Rockefeller Center during the challenging 1990s reflects the intersection of financial acumen, strategic vision, and adaptability in the ever-evolving landscape of real estate investment.
