For New York University students, a retail property near the school in lower Manhattan is a place to buy a sandwich or milk. For developer Larry Silverstein, the location is part of a bond with billionaire Warren Buffett.
Their 1993 investment in the facility has been on Buffett’s mind recently. Last week, he cited his wager in an annual letter to Berkshire Hathaway Inc. (BRK/A) shareholders as an example of how long-term thinking can produce steady profits. And he contacted Silverstein just last year to say thanks for the opportunity.
“Considering that we both are in our 80s, he thought it appropriate to express his gratitude while he could do it, and I could hear it!” Silverstein, 82, wrote in an e-mail this week.
The men got to know one another when Buffett was chief executive officer of Salomon Inc. in the 1990s and Silverstein was the company’s landlord in New York. Buffett asked the developer to put him in a real estate deal good enough for Silverstein himself. That led to the retail property on East 9th Street between University Place and Broadway.
Silverstein, Buffett and his friend Fred Rose were part of a group that purchased the 67,150-square-foot (6,238-square-meter) facility for about $20 million from the Resolution Trust Corp., the U.S. government agency that sold the assets of failed savings-and-loan institutions, according to Buffett’s letter and a summary sheet of the property from the time.
Members of New York’s Malkin family, the operators of the Empire State Building, helped lead the transaction, according to a Real Estate Weekly article at the time. Buffett, 83, invested $1 million, he said yesterday in an e-mail.
‘Day or Night’
Since then, the billionaire said he has received more than $1.5 million in special capital distributions from the investment, as well as regular payments that have consistently increased. They were $360,000 in 2012 and $432,000 last year, he wrote in an e-mail yesterday.
The sums are small for both men. Silverstein is one of the developers of New York’s World Trade Center site, and Buffett is the world’s third-richest person because of his ownership stake in Omaha, Nebraska-based Berkshire, the $290 billion company he built over the past five decades.
Still, the property, which now counts a Cosi Inc. (COSI) sandwich shop and a Gristedes market as tenants, highlighted some of Buffett’s long-held principles. One of them: focusing on what an investment will produce rather than its daily valuation. In the retail space, his partners managed the property in a way that boosted rental income, he wrote.
All of this was achieved based on trust. Buffett wrote that he has still never seen the property, though he said his line is always open for the developer.
“I’ve given Larry Silverstein all of my various phone numbers and told him he can call me day or night,” Buffett wrote in the e-mail.