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of the loan was amply secured. Although I endeavored to point out to them that half of the railroads of the country were then insolvent and that nobody could tell whether by 1942 the New York Central would be solvent or not and in the event it were not solvent when the loan came due the Government might stand to lose a considerable portion of the $10,000,000. It seemed to me like very poor business to pay them the $10,000,000, which was due for the post-office site and leave a loan outstanding which was past due and which had to be extended. I felt that under the circumstances no other sound position could be taken. However, my suggestion received no affirmative result and the loan was extended by the Reconstruction Finance Corporation to the very railroad to which the Government must now pay $10,000,000 in cash for the piece of property here involved.
Mr. TABER. Is that loan outstanding now? Mr. BROIDO. The loan was extended until 1942, I believe. I do not know what rate of interest it bears. In the opinion of Mr. Jones, it is adequately secured. Nevertheless, it is an extension, and subsequent to that extension, the railroad company was able to float a loan publicly.
Mr. TABER. Then the loan was not paid? Mr. BROIDO. No, sir; it was extended, and it will not be due until 1942. In the meantime, the Government will have paid the railroad company $9,000,000, plus $1,000,000 interest. I think that has an important bearing on the matter. I believe that this purchase money should be applied to the payment of that debt due the United States.
So much for the history of the transaction. I will now address myself to the merits of the transaction.
Now, with respect to the transaction itself, some of the things that have happened would really be funny if the effects were not so serious. I was told by one western Senator, to whom I addressed myself concerning the matter, that he was not interested in what money the Government spent east of the Rocky Mountains. Of course, I know that this committee takes a much more wholesome and national attitude in regard to it.
Discussing the merits of the transaction it must be understood that the real moving spirit in the transaction is not the New York Central Railroad but Todd, Robertson & Todd, a New York real estate and engineering corporation, and its associates. I believe that the railroad company is here a victim of a situation which it could not control. I believe that if the Government wanted to set this transaction aside now with the consent of the railroad company it could not be done because the New York Central Railroad Co. is bound to other parties who are to participate in the benefits of the transaction and who are to receive a large portion of the purchase price amounting, we are informed, to 750 or 800 thousand dollars out of the $10,000,000 which the Government is to pay and for which sum the Government gets nothing of any value whatsoever. This startling and curious situation arises from the following state of facts: The post office at Forty-fifth Street and Lexington Avenue was built when the Grand Central Terminal was built in 1911 on a piece of property which lies at the southwest corner of Forty-fifth Street and Lexington Avenue and which ran for 2 blocks from Forty-fifth Street south to Forty
third Street. You will see this air view of the Grand Central Station [indicating). This is Forty-fifth Street [indicating) and from this point you are looking north. On the south end of this plot running from Forty-fifth Street to Forty-third Street there was erected in 1925 this 36-story office building, which is known as Graybar Building. The Graybar Building and the Post Office Building occupy the entire area of this plot running from Forty-third Street to Forty-fifth Street, all of which is a part of the Grand Central Terminal development and underneath which run the tracks of the New York Central Railroad. You will note (indicating) this is the Graybar Building on the south half of the plot and the Post Office Building on the north half of the plot. The terminal as you see here extends from Forty-second Street to Fifty-second Street with Park Avenue as the central axis, the terminal extending from Lexington Avenue on the east to Vanderbilt Avenue on the west. At Fifty-second Street the tracks concentrate into the width of Park Avenue and run out Park Avenue to the north.
Under the contract providing for the creation of the terminal the New York, New Haven & Hartford Railroad had no interest in the air rights of this particular plot on the corner of Lexington Avenue and Forty-fifth Street now occupied by the old post-office building and the Graybar Building. These air rights on this particular plot were to be developed solely by the New York Central Railroad Co. The New York Central and the New Haven run into the Grand Central Terminal on the roadbed of the old New York & Harlem Railroad. The contract for the erection and operation of the Grand Central Terminal provides that the New Haven would be charged with its proportionate expense of operating the terminal, that proportion being dependent upon the number and cars of locomotives that the New Haven brought into the terminal. That is to say, that the total cost of the acquisition of the land and the erection of this great terminal which, I believe, exceeded the capital sum of $30,000,000 represents a capital account upon which the New Haven pays its share of the interest and amortization dependent upon the relative proportions between the usage of the terminal by the New Haven and the New York Central. The greater the capital account the more it costs the New Haven. The smaller the capital account the less it costs the New Haven.
the New Haven. So we have this curious resul , that although both railroads have the use of every inch of trackage space after the consummation of this transaction that they had before the consummation of the transaction, whatever the New York Central gets out of this transaction goes to reduce the capital investment in the terminal, which, in turn, goes to benefit the New York, New Haven & Hartford Railroad Co. through a reduction of their obligation, although the New Haven Railroad Co. is no party to this tiansaction and gives up nothing whatever with respect to it.
Furthermore, the New York Central agreed with the New York, New Haven & Hartford Railroad that the piers, underpinning and steel work holding up the building could not be replaced without the consent of the New York, New Haven & Hartford Railroad, which has an interest in the trackage under the site. Now, the United States Government has bound itself by the deed so that it cannot replace the piers holding up the building, so as to rebuild the property, without the consent of the New York Central engineers, although,
according to the record, the New York Central is already bound to obtain the consent of somebody else, that is to say, the consent of the New York, New Haven & Hartford Railroad.
The contract between the railroad companies and the maps accompanying it set forth clearly that the development of the Forty-fifth Street corner was restricted to an air-right development and that there never was any thought or intention that the New York Central could convey away the fee of this property and take the legal title to it out of the terminal development.
You are all, of course, familiar with the wonderful air-right development which has taken place over the New York Central Terminal between Madison and Lexington Avenues and running north from Forty-second Street to approximately Fifty-second Street along both sides of Park Avenue where we have probably one of the greatest architectural and engineering developments in the world.
All of this real-estate development, outside of the station itself, was an air-right development. Every parcel of property in all these blocks, included in the terminal, was developed through the use of the air rights, and in no case did the railroad attempt to convey the fee of the property. This property here involved was available only for future air-right development. The exhibit shows that. It is thus marked on the original plan. As I have said, from the beginning of the terminal development the Forty-fifth Street and Lexington Avenue corner was only considered feasible for air-right development, and not for fee development. In all this great development the New York Central has leased, I think, 20 or 22 parcels of land entirely for air-right development. The railroad never dreamed of parting with the title to the property, and nobody ever conceived the notion of trying to buy the fee simple title except the Government. The reason is not hard to find. The only reason the attempt has been made to convey the property to the Government is in order to remove it from the tax rolls of the city of New York even though the railroads retain every inch of property they occupied before for railroad purposes, the only thing which the seller is giving up being the commercial value of the obsolete structure over the site.
The under-surface of the terminal under the air-right development consists of two levels, the upper level is the express train level and extends all the way across the terminal from the eastern boundary of Lexington Avenue to the western boundary at Vanderbilt Avenue. Underneath the express level is what is known as the suburban level and which is used by the New York Central and New Haven suburban trains coming into New York. This map shows a cross section of the terminal looking north from Forty-fourth Street and shows that the suburban level was never carried out to the same width as the express level. The red line shown on this exhibit (see exhibits 13, 14, 15, 15a) indicates the ceiling of the train room which is approximately 42 feet above sea level. This gives you some idea of the physical situation, which is more clearly shown in the plans and photographs which are part of the exhibits to the brief which is here submitted.
I have called your attention to this plot at the corner of Forty-fifth Street and Lexington Avenue, of which the northern half is occupied by the old post-office building and the site of which is the subject of this purchase. In order to understand some of our objections to the purchase which is necessary to bear clearly in mind what happened to
this plot in connection with the erection and construction of the Graybar Building which, as I have stated, now occupies the southern half of this plot. What happened was this: In the year 1922 the New York Central Railroad leased the southerly half of the plot which I have described to a corporation known as Eastern Offices, Inc., which was organized by Todd, Robertson & Todd and their associates, and on this site these gentlemen erected the Graybar Building: Under the lease they pay rental to the New York Central Railroad just as do the other occupiers of air-right space in that development. When they leased the building to erect the Graybar Building, which was to cover the southerly half of the plot running from Forty-fifth Street south to Forty-third Street, they also took an option to take a lease on the northerly half of the block, which northerly half was then and is now occupied by the Post Office Building and in which building the principal tenant was the Post Office Department, which had a lease extending, I believe, until 1933. Notwithstanding the Government's occupancy of these premises and without notice to the Government the railroad gave to Eastern Offices, Inc., this option to take a lease on the site occupied by the Post Office Building. Of this transaction I am convinced the Government had no notice.
When Todd, Robertson & Todd and their associates went to build the Graybar Building they filed a set of plans with the building department of the city of New York but the building department refused to approve the plans for the reason that the plans did not comply with the zoning ordinance of the city of New York in that court space between the proposed building on the south half of the plot and this post-office building on the north half of the plot was not of sufficient width and did not constitute a legal court. This is all shown in the exhibits 24a, 245, 240, 240, 24e, 24f, and 24g. After numerous proposals on the part of the builders the building department still refused to approve the plans. The builders then stated that they controlled the north half of the block through their option to take a lease from the New York Central. The building department then insisted that it would approve the plans only if an agreement in the form of an easement were filed creating an easement on the post-office plot for the benefit of the Graybar Building.
Thereupon these gentlemen I have referred to filed with the building department of the city of New York affidavits in which they set forth that under an agreement with the New York Central Railroad they also controlled the northerly half of the block and that they would agree with the city of New York if and when they should extend the height of the Post Office Building (which is only seven stories) they would set back in a northerly direction sufficiently far to legalize the court between the Post Office Building and the Graybar Building, which court was illegal on the plans as filed. Such easement affecting the postoffice-site the building department of the city of New York accepted and affidavits
to that effect were filed and sworn to by Mr. Todd, the president of Eastern Offices Inc., on the 13th day of April 1926. In that way the Graybar Building plans were legalized and the building was constructed in accordance with the plans only by reason of the fact that the post-office site had been burdened with the clear obligation undertaken to the city of New York that in any future development on the post-office site a sufficient court would be created to legalize the illegal court space on the Gray
bar portion of the site. Thus the Graybar Building was finished, the post-office portion of the site remained undeveloped and these gentlemen were left with the option for a lease on the northerly half of the property burdened with this easement. That option expired in 1931, and was extended. In testimony which was given to the committee which considered the bill to authorize the purchase, it was stated that the option was extended for a 30-day period. I do not know whether the extension was cancelable or not. However, the fact seems to be that in some way the railroad company was unable to wiggle out of that option. We are advised and believe that is true, and think that testimony under oath would adduce that fact.
Now, when they came to December 1932 these people, having obligated themselves to take a lease, and to improve the property with a modern building, found this situation: Rental occupancy had dropped very decidedly. The vacancy in office space in the Grand Central zone had increased from 8 percent to 18 percent. It subsequently increased to an even greater percentage. You must remember that at the time this transaction was closed (in December of 1932) it was only 4 months before the bank panic, at a time when you could not possibly finance the erection of a new office building in New York. The fact is that not one new major office building has been financed and erected in that area from that day to this. Yet those gentlemen succeeded in some way in persuading the Fourth Assistant Postmaster General as well as the Treasury Department that if the Government did not buy this property they would erect thereon during the panic year of 1933 a large office building. Then the United States Government, despite the fact that it had the power of condemnation to get all the space it wanted, either in fee or air right, entered into this transaction. As I have stated, some $750,000 or $800,000 that the Government is to pay for this property, is to go to the gentlemen who hold that option. I believe that can be proven.
I believe that a transaction of this character is unlawful. There are provisions in the revised statutes that prohibit the sale of an interest in a Government contract. I believe it would be illegal for me to go out and take an option on a piece of property that Secretary Ickes contemplated using for a housing development, and then persuade Secretary Ickes, or his representatives, that it was the only available piece of property for the purpose. Of course, that would be knowingly wrong. I could get somebody to testify that he was prepared to finance an improvement to the property, and through such a representation I could build up a value in my option so that when the Government bought it it woud pay for the land plus paying me for this fictitious value of my option. I do not believe it is lawful to mulct the Government by any such procedure but that is just what was done here. By misrepresentation this cancelable option was given a value. At that time, as anyone knows, it would have been impossible to finance the building of an office structure in New York. In 1933 you could not possibly finance a 30-story office building in New York City.
In 1933 many of those properties were in foreclosure and since many of them were being handled in 77B proceedings, and, as you know, they have been unable to pay the bondholders their interest. Let those who assert the contrary be called upon to testify under oath