Yes, let’s address that. But first, let’s go back in time.
It’s 2006. The economy is rolling along quite nicely, though there are some inconvenient nudges from those who say the housing market is going to inevitably crash. They refer to it as the housing bubble, and no where is this supposed bubble more evident than in places like Florida, California and cities like Las Vegas and Phonix.
Haters. Haters are going to hate, so we’ll just ignore them, right?
But truth be told, the real estate market, especially in California, seemed goofy even to the least educated observers. Something wasn’t quite right.
Oklahoma City’s beloved, beleaguered First National Tower had seen virtually no repairs, no upkeep under its east coast owners. Unpaid utility bills were being posted at the door. Local investors wanted to buy the property, but the east coast folks, after buying the tower for $5 million, were demanding $21 million.
It was the sort of insane price that locals felt would prohibit any effective makeover of the property that could make it competitive in the new century.
And in one quick swoop, the young guns (Jason Little and Brett Price) at Sperry Van Ness pulled it off with more experienced gunslingers, Tim Strange and Gary Gregory, at their side. They were proud of their $21 million sale to Californian Aaron Yashouafar. It might not have been in the best interest in the property or downtown, but it sure as heck was in the best interest of themselves and the seller, who reportedly had mortgaged the property to the hint to fund a disastrous investment in the Catskills.
I was immediately skeptical. That very first day I privately suggested to some downtown acquaintances that the deal might be immediately doomed -that such a high price could only lead to bankruptcy court.
We saw that happen today.
To be fair, Yashouafar did a whole heck of a lot more than previous owners. He spent a lot of money upgrading the building’s life safety systems and removing asbestos from the east tower (the one facing Broadway, built in the early 1970s). Dave Lopez, then president of Downtown Oklahoma City Inc., allowed me to join Yashouafar as he made a presentation to one the most exclusive gatherings of the city’s power and wealth.
They were polite. But they weren’t buying it either.
I threw out a challenge to Yashouafar: I’ll believe you a lot more if you can at least fix the iconic clock at the tower’s entrance. Yashouafar responded and fixed it.
He then engaged in the sort of decision making that re-enforced perceptions, right or wrong, that these west coast owners were just as out of touch with Oklahoma City as the prior east coast owners. He tried to play hardball with the old-timers who ran the barbershop on the 14th floor. They packed up and went elsewhere.
At this point a good public relations firm might have advised Yashouafar to reconsider chasing out “amenity” tenants – characters beloved by downtowners.
He had a good public relations firm – Saxum and Renzi Stone – but by 2008 they were suing over unpaid billings.
Ouch. It’s never good when you get sued by your own public relations firm.
Liens and court filings started becoming commonplace, and Yashouafar was simply bewildered when I came around asking questions. In Los Angeles, such matters would be trivial, he explained, and wouldn’t be worth the time of a major newspaper reporter.
Yeah, maybe so. But by saying so, Yashouafar was showing a fundamental misunderstanding of Oklahoma City. This is a big city wired like a small town. And folks were talking. This was news. People care.
More popular tenants joined the exodus, including Italian Express, Becky’s Hallmark and The Buzz. The loss of such popular anchors made the space on the upper floors less valuable to potential corporate tenants.
In real estate the card shop, the coffee shop and Italian restaurant are considered amenities. For Yashouafar, they were just among the long list of folks he felt were due an increase in rent to Class A rates. He had promised to bring the building up to Class A levels, and by golly, the tenants had an obligation to share in the cost of getting to that goal.
Yashouafar had been warned these tenants had been burned by prior owners. They were not going to simply believe promises of a better future ahead – even if the landlord insisted he was different – that he would do what he said.
The tenants wanted to see visible progress. They wanted to see the cracked windows replaced. They wanted to see the restrooms rebuilt – and moved to each floor.
Yashouafar responded by tearing up the ground floor retail arcade, and to many tenants’ horror, he had Lt. Gov. Jari Askins jackhammer apart the decades-old marble lobby floor in the tower.
To some extent, Yashouafar has done what he said – even if not everyone was really listening and analyzing what that meant.
What happens next is anyone’s guess. With Devon Energy leasing a chunk of space until its own new tower opens in two years, one has to imagine Yashouafar prizes the steady stream of rent payments from downtown’s biggest employer.
After that, what’s next? If the owners survive this bankruptcy filing (expect Capmark to fight back with rigor), where will they find the cash flow to support keeping the building simply operational? Locals still want the chance to return First National to glory. But they won’t engage in California-style real estate deals to make it happen.