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Saturday, September 11, 2010

Greenmail: Mosque Just a Business Ploy?

On the cusp of the 9/11 commemoration (nine years after the attack) and the Ground Zero mosque protests to follow (reportedly, 3 pm at the corner of Park Place and West Broadway), and following all sorts of reports and likely exaggerations about who wants to buy the mosque site, here is an interesting theory:  Perhaps the mosque developers (likely front man Sharif El-Gamal, Imam Abdul Rauf and alleged New Jersey slumlord Daisy Khan) and their backers (yet to be revealed) bought the site merely as a business ploy to make a killing in a depressed real estate market.   Here's how.

Understand that real estate, even commercial real estate in New York, has suffered significant price declines since 2005-06.  The Park Place plot (47 Park Place) was bought at a possible trough in the market.  This makes smart business sense: buy low...and sell high.

Here's how one could sell high  and make a quick buck in this market -- or in tomorrow's uncertain market and even more uncertain financing market (i.e., will bank financing for any project be accessible, on terms even remotely approaching what is available today?).  Flip the property.  

How do you ensure the quickest sale at the highest price?  Come up with an idea for development that is sure to rankle people and induce someone to come up with an offer to make you "go away."  Now do you see where the mosque idea comes into play?  It could be all a scheme to get someone to say, "Here's double your money, now go away." 
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(As I learned when I started my legal career, among corporate raiders doing hostile takeovers of companies, the tactic of certain large shareholders to wrangle a lucrative buyout of their position by management or majority shareholder groups in order to make the troublemakers go away was referred to as "greenmail."  I think the mosque developers are using the same strategy -- and if so, it's brilliant.)

This is just a theory, but it makes logical business sense.

One other thought.  The mosque plot is worth significantly more than it was valued last year, when Soho Properties (allegedly, El-Gamal's company) purchased 47 Park Place for a reported $4.8 million.  The increase in value is due to the decision last month by New York City's Landmarks Preservation Commission to decline to grant the site landmark status.  The landmark designation process had been in the works for some 20 years (according to a civil suit filed in August by the American Center for Law and Justice regarding the mosque).  This means that Soho Properties bought in 2009 a property which was subject to the very real risk of being declared a landmark and thus off limits to development.  That risk alone would justify a serious "haircut" in the value of the property -- and the removal of the risk would justify a significant increase in its value. 

I sense more and more that the developers want to, and will accept, a high premium to scuttle the project and flip the property.  Stay tuned.

Eric Dixon is a New York corporate lawyer and president of Eric Dixon LLC.  In addition to legal investigative matters including government and regulatory investigations, Mr. Dixon has a background in corporate finance transactions and securities law and engages in management and strategic consulting.  He is available for comment at 917-696-2442 and via email at edixon@NYBusinessCounsel.com.

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