SL Green Acquires Interest in Manhattan’s Embattled 650 Fifth Ave.
Scott Baltic
A joint venture between SL Green Realty and Jeff Sutton has acquired a 49-year leasehold interest covering the retail portion of 650 Fifth Ave., an office tower with decades-long ties to the Iranian government and now in legal limbo as a result.
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Commercial Property Executive
By Scott Baltic, Contributing Editor

A joint venture of SL Green Realty Corp., New York, and Jeff Sutton announced Monday that it has acquired a 49-year leasehold interest covering the retail portion of 650 Fifth Avenue, an office tower with decades-long ties to the Iranian government and now in legal limbo because of them.

The transaction gives the partnership control of the building’s four levels of retail space (basement and ground, second and third floors). The tenants are Juicy Couture, Godiva Chocolate and Devon & Blakely.

The transaction was completed through former U.S. Magistrate Judge Kathleen Roberts, the court-appointed federal monitor and interim trustee of the landlord, 650 Fifth Ave. Co. Roberts is a member of JAMS, a large private alternative dispute resolution provider.

David Green from Cushman & Wakefield acted on behalf of the owner.

The acquisition, according to the JV, “demonstrates SL Green’s ability to identify unique opportunities [and] execute on highly complex transactions.”

The 36-story building’s history has been checkered, to say the least. Completed in 1978, it was built for the Pahlavi Foundation, founded by Mohammad Reza Pahlavi, the last Shah of Iran, who was deposed during the Iranian Revolution in early 1979 and died in exile soon after. Construction was financed by Bank Melli, Iran’s national bank.

Under the post-revolution government of the Ayatollah Khomeini, the Pahlavi Foundation was succeeded by the Alavi Foundation, which holds 60 percent ownership in the building.

In December 2008, the Asset Forfeiture and Terrorism and National Security units of the U.S. Attorney’s Office for the Southern District of New York sued to seize Bank Melli’s 40 percent stake in the building. The USAO alleged that the bank had set up a shell company, Assa Corp., as a front to own the bank’s share of the office tower, essentially converting a mortgage into a partnership interest. (An amended civil complaint subsequently sought to seize Alavi’s interest also.)

The Treasury Department accused Assa of funneling rental income from 650 Fifth Ave., through Jersey in the (British) Channel Islands, to Bank Melli. The Bush administration had in 2007 characterized Bank Melli as an entity that was helping to fund the Iranian military and intelligence agencies — and perhaps that nation’s efforts to build nuclear weapons.

In April 2010, a former president of the Alavi Foundation pled guilty to federal charges of obstruction of justice.

And in mid-September of this year, federal Judge Katherine Forrest ruled that both Assa and Alavi had violated the Iranian Transactions Regulations under the International Emergency Economic Powers Act and federal money-laundering statutes.

U.S. Attorney Preet Bharara noted at the time that the building’s seizure (which has since been appealed by Alavi) would be the largest terrorism-related forfeiture and if successful would provide compensation for victims of terror attacks sponsored by Iran.

(Whether Iran had a role in the 9/11 attacks remains controversial, but a 2012 U.S. State Department on global terrorism called Iran “an active state sponsor of terrorism” and said that Iran continues to provide “support for terrorist and militant groups throughout the Middle East and Central Asia.”)

The New York Daily News reported in September that the value of 650 Fifth Ave. was estimated at $500 million to $700 million, or substantially higher than when the seizure was first put in motion.

As a result of the federal prosecution, no further information could be disclosed on this latest development.