EXCLUSIVE: Why did the Shubert Organization, which owns 17 of Broadway‘s 40 designated theaters, sign off on a deal to buy New World Stages, the five-theater underground off-Broadway complex owned by Dutch entertainment mogul Joop van den Ende? Sources tell me the answer has nothing to do with the arts and everything to do with real estate — along with the unique, not to say wacky, world according to Shubert, a $410 million nonprofit that coincidentally owns the most powerful commercial theater company in the U.S.
The company, whose theaters housed Les Miserables, A Chorus Line, Cats, Fiddler On The Roof, Amadeus and countless other legendary shows, has been Broadway’s reigning landlord for nearly a century. In recent years, the Shubert Organization has sold air rights above its landmarked Times Square theaters to the tune of $50 million. This spring, the Witkoff Group, a building consortium, paid $18.3 million for 45,000 square feet of air above the Shubert-owned Booth and Gerald Schoenfeld Theatres on West 45th Street. That deal will allow Witkoff’s project, the Times Square Marriott Edition hotel at 701 Seventh Avenue, to grow to 500 feet high.
Around the same time, Shubert sold the air above its Broadhurst and Majestic Theatres, on West 44th Street, to Algin Management, which plans to build an apartment tower on the site of the shuttered Roseland Ballroom. Pricetag? $17.5 million. (Earlier deals, dating back to 2008, bring the total Shubert take on air rights transfers to about $50 million, according to public records.)
Like quantum physics and the recipe for Twinkies, “air rights” is something many have heard of but few understand. Put simply, the right to sell the oxygen above Broadway’s landmarked houses was the city’s way of compensating the theater owners for constraining their right to develop their property. The landlords can’t alter the physical buildings, but they can sell the space above them to developers who want to build elsewhere in the district.
Although that right was established more than two decades ago, the heat-up of the market has moved the owners to sell. The air rights for the Seventh Avenue site, according to the Wall Street Journal, citing public records, went for a breathtaking $409 per square foot — double the asking price just two years ago.
What does this have to do with New World Stages? That’s where Shubert’s status as a nonprofit comes into play. If you think “air rights” is a bizarre notion, that’s nothing compared with the fact that in a setup unmatched anywhere else in IRS-land, the Shubert Oganization — a commercial operation — is a wholly-owned subsidiary of the Shubert Foundation, a 501 (c) (3) tax-exempt corporation that supports theater and dance companies around the country.
According to tax records I obtained for the year ending May 31, 2013 — the most recent available — the Shubert Foundation had assets in excess of $409 million (that would be the theaters, along with other real estate holdings and investments) and had doled out $21.5 million in grants.
The Internal Revenue Service looks askance at nonprofits swimming in dough, and Shubert chairman and CEO Philip J. Smith and his troops (who are officers of both the Shubert Foundation and the Shubert Organization — are you still with me?), finding themselves with a $35 million windfall, had to stash the money somewhere.
Conveniently, sources tell me, van den Ende was looking to unload the off-Broadway site and concentrate on producing (an idea which so far has resulted in the $16-million flop Rocky). The Dutch billionaire’s stake in New World goes back to a co-production deal his company Endemol had with Dodger Theatricals, when they were first converted from discount movie houses back in 2004 at a cost of more than $23 million (the theaters were originally called Dodger Stages).
Shubert has a mixed track record producing off-Broadway (its own Little Shubert Theatre on West 42nd Street has had trouble booking shows since its debut in 2002). But New World Stages has overcome birth pains to become a place where shows can be successful — especially when they have a Broadway pedigree, such as the long-running Avenue Q. An investment matching what Dodger/Endemol spent originally on New World Stages repurposes a hefty part of the money from the air rights sale, while giving Shubert a new revenue stream.
And the rest of the money? Two sources tell me that Shubert has gone to contract for a warehouse building at 604 West 48th Street, for $11 million. That deal will become a matter of public record any day now and the seller declined to comment. I’m thinking that the Shubert Foundation will soon enough benefit from the Shubert Organization’s sale or transfer of that building. Because as my friend Gerald Schoenfeld, the late Shubert chairman, used to say frequently, “there’s no profit like nonprofit.”