The monolithic and much maligned Verizon Building at 375 Pearl St. no longer stands out merely as bad architecture. It is now, allegedly, a towering example of fraudulent real estate dealings, as well.

The city is suing Verizon, and the real estate company that bought its building, Taconic Investment Partners, for $53 million.

That’s the amount the city claims it lost as a result of a deal with the telecommunications giant back in 1972, when (as the New York Telephone Co.) Verizon bought city-owned land and air rights for its 32-story switching center.

The agreement called for the phone company to give the city $17 million and to build Murry Bergtraum High School. But, the city says, New York Telephone built far more usable space—1.2 million square feet—than it said it would, thereby undervaluing the deal and shortchanging taxpayers.

 

But if the allegations are true, it may be the city’s school children who ultimately wound up on the losing end. 

The deal was brokered by the city’s Education Construction Fund, an arm of the Department of Education, which sells city-owned land and air rights to private developers in exchange for schools in or near the new buildings.

“[The fraud] deprived the Construction Fund of revenues to which it was rightfully entitled,” said Jeffrey Glen, a Construction Fund attorney. “If the Fund had been able to collect this money, it could have either enabled the Fund to build or site more schools, or if there were costs to the taxpayers for already bonded projects, it could have reduced those costs.”

To cover up the illegal construction, Glen said, Verizon fraudulently marked space inside the tower as “mechanical” rather than “usable” space. The building’s original certificate of occupancy lists the 3rd, 4th, 31st and 32nd floors as mechanical space.

The defendants have yet to answer the suit, filed in April. Glen said both sides have agreed several times since then to postpone starting a trial. 
Both Verizon and Taconic Investment Partners declined to comment on the lawsuit.

The alleged misrepresentation came to light in 2007, when Verizon finally paid off the building and promptly sold 29 of its 32 stories to Taconic for a bargain price of $172 million.

At $185 a square foot, that was more than $500 a square foot below the market rate.

The sale caught the attention of the news media, and when Taconic’s own press release listed the square footage as 275,000 more than the tower should have contained, the Construction Fund finally caught wind of the discrepancy.

The suit claims that Taconic “knew or should have known” that Verizon didn’t own some of the floor space it was selling, and that the investment firm got a discounted price on the property as a direct result of Verizon’s fraud.

Taconic’s legal problems could undermine its grand plans for a total makeover of the tower.

In 2008, Cook + Fox Architects proposed stripping the building’s blank, limestone façade in favor of a glinting glass curtainwall, revealing a steel skeleton and “re-animating this once-lifeless building,” the architectural firm said on their Web site. With views from inside the building vastly improved in every direction, the tower would be repackaged as prime office space.

But along with the $53 million and 35 years worth of interest the city wants to recover, it also is asking for an injunction stopping Taconic’s proposed renovation of the building.