February 2004 marked the opening to the public of Time Warner Center, a 2.8 million square foot mixed-use real estate development located in the heart of Manhattan at the southwest corner of Central Park.
Time Warner Center is the largest mixed-use development to be built in New York City since Rockefeller Center. It includes Time Warner's new headquarters; new CNN studios; 200,000 square feet of Class A office space; a 251-room Mandarin Oriental five-star luxury hotel; 198 super-luxury apartments (including a penthouse apartment sold for a reported $45 million); an upscale retail, restaurant and entertainment venue known as The Shops at Columbus Circle; a 1,600-seat performance space for Jazz at Lincoln Center; and a 504 car parking garage.
Because Time Warner Center includes so many component parts and uses, it involved extraordinarily complex ownership and financing arrangements.
The major stakeholders in the development of Time Warner Center – Time Warner Inc., Mandarin Oriental Hotel and The Related Companies – collectively formed a venture known as Columbus Centre LLC, which held title to the real property during construction. The venture's Operating Agreement governed the stakeholders' rights and responsibilities with respect to the center's development and financing. Columbus Centre LLC purchased the site from the Metropolitan Transportation Authority, and partially financed its purchase with an initial loan from GMAC Commercial Mortgage Corporation. The joint venture then obtained a $1.3 billion construction loan from GMAC to finance the development.
After substantial completion of the project, the ownership structure of Time Warner Center was converted to a commercial condominium regime, in which each component of the project was converted into a separate and distinct fee condominium unit conveyed from Columbus Centre LLC to the applicable stakeholder. One of the many advantages of this condominium structure is that each stakeholder can own its unit in fee simple, thereby making the transferability and financeability of each individual unit more feasible. In addition, the conversion of the Operating Agreement into a condominium structure – wherein the stakeholders took title to the individual condominium units in redemption of membership interests in the LLC – permitted avoidance of transfer tax on the distribution of the individual condominium units.
The principal operating document for the project, on a going-forward basis, is a condominium declaration setting forth the rights and obligations of the condominium unit owners. Among other things, the declaration creates a condominium board through which Time Warner Center is governed, provides physical descriptions of the units and the common elements, provides rights to subdivide and alter a unit, requires unit owner insurance, defines the use (and restrictions on use) of the units and common elements, facilitates the maintenance of the common elements and creates a budget and a mechanism for the payment of all of the foregoing by each unit owner. In this case, the document governs the relationships among no less than six users: the offices, the hotel, the residential apartments, the retail space, the performing arts space and the garage.
One of the many unique aspects of Time Warner Center is that it includes, in effect, a residential condominium within a commercial condominium. The luxury apartment component of the project was initially formed as two distinct commercial condominium units (one each in the north and south towers of the building), and these units were then sub-condominiumized into residential units to be sold to private third parties. Each of the north and south tower residential condominiums will be governed by their own condominium declarations, both acting within the larger commercial condominium that is Time Warner Center.
Caroline A. Harcourt is a partner in the New York office and may be contacted via e-mail at charcourt@pillsburywinthrop.com or by phone at (212) 858-1529.
Patrick J. Henigan is a senior associate in the New York office and may be contacted via e-mail at phenigan@pillsburywinthrop.com or by phone at (212) 858-1584.
Pillsbury Winthrop LLP is a global law firm with power and presence on both U.S. coasts and abroad, with core practice areas in: real estate, litigation, technology and intellectual property, energy, capital markets and finance. The firm has 16 offices and approximately 750 attorneys worldwide. For further information on the firm's real estate practice, please contact Jim Rishwain at jrishwain@pillsburywinthrop.com or (310) 203-1111.