The effort failed, and when the state seized his property in an eminent-domain ruling, he sued. “The litigation can go for a lifetime, as far as he’s concerned,” says Ault. “He will tell lawyers, ‘I got more money, I got more time, and I got more lawyers.’ ”
The judge in the case ruled against him, a decision that still rankles. “I don’t think that whole process was fair at all,” Barnett told me. “The market turns great and [the state] turns around and hands it over to another developer and the New York Times to make money on?”
By this time, the city was shaking off the post-9/11 recession, and Barnett was looking for deals all over the city. In 2003, he partnered with the Carlyle Group and built the $305 million Orion, a 60-story luxury tower on a far-west stretch of 42nd Street that became the city’s sixth-tallest residential building.
In March 2005, as he was finishing construction on the Orion, Barnett chased the biggest deal of his career. A pair of Hong Kong investors had quietly put Riverside South—a 77-acre tract stretching from 59th Street to 72nd Street—on the block. The massive development site had first been optioned by Trump in 1974, and had languished. But following the real-estate crash of the early nineties, Trump sold a majority stake to a group led by investors Henry Cheng and Vincent Lo, in 1994, for $100 million. (Trump retained a 30 percent minority interest.) With the market blasting, the prospect of buying such a giant swath of undeveloped land drew interest from the city’s A-list real-estate players. Related, Durst, and Vornado Realty Trust all lined up to bid on Riverside South. Barnett was by far the least known of the bunch. But while the others hesitated, he pounced.
The sale was being run by real-estate executive Barry Gross, who represented the Hong Kong partners in the deal. “Gary was ready to buy the plane ticket and go” to Hong Kong, Gross told me. “The other bidders acted in a cagey manner throughout the negotiations.”
“What, you think [the Chinese are] giving up a billion dollars in order to cheat Donald out of $17 million? The whole thing’s a joke.”
It was a chaotic time in Barnett’s life. His second wife, Ayala, had given birth to their second child. Barnett called Gross a day before the flight to say he might have to cancel his trip. But the next day, a few hours before they needed to leave for the airport, he called to say it was on.
On the Cathay Pacific flight to Hong Kong, Barnett met Gross and his lawyer and started negotiating different ways to do the deal, running numbers in his head. Landing in Hong Kong, Barnett showered and met Cheng at his office, where they negotiated all day, after which Gross and Barnett repaired to a kosher dinner at Hong Kong’s Jewish Community Centre.
Back in New York, Barnett submitted his formal bid. He called Gross and said he had financial backing from the venerable Carlyle Group. He faxed a letter on Carlyle letterhead stating that they were prepared to bid $1.76 billion, at that time a record price for a New York transaction. To make the deal work, Barnett planned to sell three of the condo towers on the site to Sam Zell’s Equity Residential for $800 million. Cheng and Lo accepted the offer.
On the morning the deal was announced, in June 2005, Donald Trump was in his office overlooking Fifth Avenue when one of Cheng’s representatives walked in and informed him that they had sold to Barnett. Trump went ballistic. “What development? Our development?” he snapped. He believed the Chinese had gotten far too little for such a prized Manhattan development site. “I’ve always felt it was undervalued,” Trump told me recently.
Trump began furiously lobbying Gross to undo the deal, telling him that Richard LeFrak and Colony Capital were each willing to pay twice what Barnett paid. “He said you can get out of it,” Gross recalled. “He said I’ll get you a billion dollars more.” Gross told me that Colony did offer to pay nearly $3 billion, but that its bid was only a one-sentence faxed letter and wasn’t viewed as a serious offer.
The Chinese ignored Trump’s demands. A month later, Trump sued them in Federal District Court in Manhattan, alleging that the Hong Kong investors had breached their duty to sell for the highest price. The suit also contained explosive allegations that the Chinese had sold the property to Barnett on the cheap and received kickbacks of $19.8 million as part of a tax-avoidance scheme.
Barnett laughed when I asked about Trump’s lawsuit. “It’s like so stupid, to be blunt,” he said. “It makes zero sense, and the judge basically agreed.”
Trump was furious with the court’s decision to dismiss nineteen of the twenty charges. “Colony would have paid more money!” Trump fumed. “I had an incompetent judge. This whole thing should be investigated. I don’t give a shit. This guy is a total gross incompetent, he’s an arrogant fool.”
While Trump lost the case, the allegations apparently caught the attention of Robert Morgenthau’s office. In September 2009, Morgenthau charged Gross with tax fraud, alleging he funneled a $1 million bonus from the deal into a shell company to avoid paying taxes. Last December, Gross pleaded guilty to a misdemeanor, agreeing to pay fines of $135,000. “It came down to me at the end, I was the guy standing,” Gross told me, speaking about the matter for the first time. “I was the open target, so you shoot at him.”
Barnett was never implicated in any wrongdoing and throws up his hands at what he sees as sour grapes on Trump’s part. “It’s ludicrous,” he says “[The Chinese] owned it! They’re getting all the money. What, you think [the Chinese are] giving up a billion dollars in order to cheat Donald out of $17 million? The whole thing’s a joke.”
In June 2005, shortly after he signed the record deal for Riverside South, Barnett summoned John Cetra, a Harvard-trained architect who was finishing work on the Orion, to his office. Barnett told Cetra he was thinking of making a bid for Atlantic Yards. Cetra was shocked by the idea. At the time, the Metropolitan Transportation Authority was in the process of negotiating with Bruce Ratner over the rights to transform the area over the Brooklyn rail yards into a Frank Gehry–designed futurescape. Ratner’s team of engineers had done years of planning and invested millions in the project. Bloomberg, and much of the city’s political Establishment, was behind Ratner’s bid, as well as his plans to bring the Nets to Brooklyn. Barnett was undaunted by the long-shot odds. “Gary said, ‘I want to go after this,’ ” Cetra recalled. “We worked around the clock on it.”
Barnett’s improbable bid stunned the real-estate world. He offered to pay the MTA $100 million more than Ratner, and in a nod to community opposition, his proposal called for just 4,800 occupants compared with Ratner’s plan to house 18,000. Barnett left the controversial Nets arena out of his bid and agreed not to condemn any blocks, two principal demands by community activists. Owing to their prior battle over the New York Times headquarters, the real-estate press jumped on the feud, portraying Barnett and Ratner as bitter rivals once again at war over prized development rights. Advisers in the Ratner camp certainly viewed it that way. “It was an effort to throw a wrench into the process, given what happened earlier,” one person close to the process told me. Barnett downplayed the whole matter when I brought it up. He told me he’s never met Ratner and insisted his bid was strictly about business.
In the months after Lehman Brothers filed for bankruptcy in September 2008, Barnett, like many of his peers, faced his own crisis. He was sitting on millions of square feet on which he was paying interest. In December 2008, three months after the financial crisis exploded, he laid off about 15 percent of his company. “It was a dark time,” he told me.
As the crisis eased, Barnett emerged stronger than his rivals. He invested more equity in his deals and avoided the crushing debt that hurt many less-fortunate investors. With his established network of European investors and a solid relationship with Carlyle and Abu Dhabi oil money, Barnett’s access to capital has remained secure even as other players have seen their sources of funding cut.