April 11, 2016

How Two New York Real-Estate Families Parted With Grace

Posted in Keith Knutsson, Real Estate at 9:19 am by Keith Knutsson

The real-estate industry was buzzing over a testy exchange between developers Stephen Ross and Rob Speyer at a Real Estate Board of New York lunch meeting that got so heated some attendees worried they might come to blows.

What few noticed was that two other developers—who arguably had even more cause for ill will—were sitting together at the same lunch last month, talking amicably.

The families of Douglas Durst, 71 years old, and Harold Fetner, 55, had just spent three years going through a divorce of their residential-development business. The split of Durst Fetner Residential, which concluded a few weeks ago, meant divvying up more than $740 million worth of properties including the luxury rental buildings at 125 W. 31st St. and 855 Sixth Ave.

Other comparable business breakups have ended in court. “Everyone had to be reasonable,” said Jody Durst, 59, president of the Durst Organization and Douglas’s cousin. “If not, that’s when things get ugly and attorneys get large fees.”

People involved say there were a few challenging moments but level heads prevailed. “When we were breaking up, there was utmost trust by both parties that we would do this the correct way,” said Mr. Fetner, chief executive of Fetner Properties.

Both sides in the breakup credit its success in part to the ties their families have developed over the generations.

To be sure, that’s not always the case in the world of New York real-estate dynasties. There have been some nasty feuds between and within some families over the years.

But in the case of the Fetners and the Dursts, the family orientation worked in their favor, they say. “We were part of a much larger real-estate community and we both value our own reputation as well as their reputation long term,” said Mr. Fetner. “Who knows. Maybe we’ll do something again together. Why would I forgo that opportunity by being a jerk?”

In the last generation, Seymour Durst, Douglas’s father and Jody’s uncle, was friendly with Sidney Fetner, Harold’s father, who was an active New York builder and investor. When Jody and Harold were younger and before Durst Fetner was formed, they used to ride the Metro-North train together, discussing real estate on their way to work.

The two families joined together about a decade ago because they each had something the other wanted. The Dursts, who historically focused on office buildings, coveted the Fetners’ skill in residential development, recognizing that demand was becoming stronger for apartments than office space.

Meanwhile, the Dursts were wealthier than the Fetners and had more capital to invest in projects.

Over the years, Durst Fetner Residential’s projects have also included the rental development at 1214 Fifth Ave. and a gut conversion of 1212 Fifth from a rental building into a condominium.

The two families began discussing breaking up in 2013, partly because they weren’t enjoying working with each other. “Neither group became comfortable with not being able to call all the shots all the time,” Jody Durst said.

Also, the Dursts got the residential expertise they wanted from the partnership. The Fetners’ reputation had grown to the point they no longer needed the Dursts’ cash for future deals. Other equity partners were knocking at their door.

The partnership agreements between the two families provided a road map known as a “buy-sell” process for how the two sides could unravel their interests. The way it works is that one side can go to the other offering a buyout price; then the other side can either agree to sell or buy out the side that made the offer at the same price.

“I’ve always thought that structure was very creative,” said Jody Durst. “It’s like allowing your brother to cut the pie. Then you decide which piece you want.”

But the buy-sell only provided the families a framework. “In the end the real deal was done by sitting and discussing fairness for both families,” Mr. Fetner said.

The separation also took time partly because some of the projects were still under way when the two families decided to part ways. Eventually, the Durst family agreed to buy the Fetners’ stake in 855 Sixth, and the Fetners agreed to buy out the Dursts in 125 W. 31st St., which is named the Epic, bringing in a new financial partner, Rockpoint Group LLC.

“We took a long-term view,” said Damon Pazzaglini, 45, chief operating officer of Fetner Properties. “Being adversarial would not have done either of us any good.

Meanwhile, Messrs. Ross and Speyer, both of whom have strong New York ties, made up quickly after their tense exchange over a tax-exemption program at the Real Estate Board event. As they were leaving, they gave each other a hug outside on the corner, according to a person familiar with the matter.

Messrs. Speyer and Ross also issued a joint news release after the incident, pointing out that “passionate and frank exchanges” often are a feature of board meetings. “At the end, we always depart as friends and respected colleagues,” they said.

Write to Peter Grant at peter.grant@wsj.com


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