Paul Reichmann's Comeback

Many men who find themselves bored with retirement pick up a hobby. Paul Reichmann decided to launch a US$4-billion investment company.

Paul Reichmann's Comeback

Many men who find themselves bored with retirement pick up a hobby. Paul Reichmann decided to launch a US$4-billion investment company. Last month, less than two years after he supposedly walked away from the business, the restless 76-year-old patriarch of Canada's most prominent real estate clan announced the formation of that new enterprise, PR Capital. Come spring, the company will stretch from Toronto to London to Luxembourg. On Bay Street, anticipation is palpable and rumours are flying about just what the great old man of Canadian real estate has planned. As the Financial Times put it recently, "The Canadian tycoon is back."

But if there's one thing the world has learned when it comes to Paul Reichmann, it's that things aren't always as they appear. For one thing, he has really suffered only one collapse, but reports of his imminent resurgence are an almost annual event. Over the past three years, the reclusive developer has been tied to a series of high-profile deals. Each time the headlines screamed comeback. Each time he failed in his stated goal, but walked away millions of dollars richer anyway. Reichmann declined to be interviewed for this story, but the question is worth asking: has the man lost his touch? Or has he figured out how to profit from failure like nobody else in the world of high-stakes real estate?

With his stooped, six-foot frame and scraggly beard, it was long said that Reichmann's word was golden and his handshake as good as any signed contract. Through the 1970s and '80s Paul, along with his brothers Albert and Ralph, Jewish immigrants from Austria, built an empire through their company, Olympia & York Developments, that included Toronto's most prominent tower, First Canadian Place, and the World Financial Center in New York. As they ventured into the British market with the Canary Wharf office tower project in London's Docklands, it was Paul's charm and chutzpah that convinced bankers to keep lending O&Y cash, even as its debt level ballooned.

In the early 1990s, as the vultures gathered around Canary Wharf, Paul convinced many that O&Y was on solid ground. Rankings of the world's richest people raced to put ever-larger sums next to the Reichmann name - in 1991, Forbes pegged the family's net worth at US$7 billion. Fortune: US$12.8 billion. The Times in London: US$15.6 billion. But when the bankers finally turned the screw, O&Y collapsed under the weight of its US$20-billion debt, and the Reichmann mystique, and fortune, seemed to go with it.

Without stopping to doubt himself, Reichmann vowed to rebound. "I fully expect to work on two or three more projects as big as Canary Wharf in my life," he told one reporter in 1993. Two years later, he was back in charge at Canary Wharf. He'd rustled up a new batch of investors, including a wealthy Saudi prince, and reacquired the project from his creditors. Before long, the development was a runaway success, and Reichmann went on to erect Latin America's tallest tower in Mexico City, while assembling a stable of retirement home properties across North America, which he took public in the late 1990s. There's a reason people use fairy tale terms like Cinderella Man when they describe him.

But more recently Reichmann has had to get used to being on the losing end of transactions. At least, that's how it appears. For instance, in 2003 the board of directors at Canary Wharf put a call out for bidders to take the company private after being approached with takeover offers. A ferocious 11-month bidding war followed. In one corner was banking giant Morgan Stanley. In the other, Toronto-based Brascan (now called Brookfield Asset Management). Through it all, Reichmann stoked the flames, threatening to enter the race. He eventually did, throwing his weight behind the Brascan bid. As offers and counter-bids drove the final price higher, Reichmann's 6.5 per cent stake soared in value.

Morgan Stanley won out in 2004 with a US$3-billion offer. Reichmann stepped down from the Canary Wharf board and sold his stake to Brascan for more than US$200-million. Far from marking the end of his ties to his beloved project, though, he retained millions of warrants, giving him the option to buy back in later. By some estimates, Reichmann now controls between 10 per cent and 15 per cent of Canary Wharf - more than he did before the bidding war.

Last year, he set his sights on O&Y Properties - the company formed by Reichmann's nephew Philip Reichmann and son-in-law Frank Hauer in the wake of Olympia & York's collapse in the 1990s. In early 2005, Brascan once again emerged as a bidder. Soon news reports suggested Paul Reichmann had teamed up with Toronto financier Gerry Schwartz for a rival bid. In the end, Brascan paid top dollar for the buildings. The much-rumoured counter-offer from Reichmann and Schwartz never did materialize, but the mere suggestion undoubtedly drove up the price.

Finally, last month Reichmann enjoyed yet another round of "comeback" stories after he bid to buy a company called Retirement Residences Real Estate Investment Trust. For nearly a year, speculation has mounted that Reichmann, who owns 12 per cent of the trust's units, planned a takeover. His resignation from the company's board of trustees in July amplified the rumours. In late September, his new company, PR Capital, said it would bid for the company. But only days later the Public Sector Pension Investment Board, which manages retirement funds for federal civil servants, countered with its own bid, which Retirement Residences accepted. Reichmann, it seemed, had lost again.

Except no one really believes Reichmann's bid was serious. Shant Poladian, a real estate analyst with Canaccord Adams in Toronto, said Reichmann's offer came with too many conditions and, arguably, too little capital. PR Capital said it was acting alone. "What is his limiting factor in terms of his ability to buy [Retirement Residences]? It's his availability of financing," says Poladian. "That's always been his main issue. Where does he get the money? Because he doesn't have it himself." But by bidding, Reichmann flushed out a more serious offer from the pension fund. And Reichmann has yet to announce whether he'll fire back with a counter-bid, which could spark a bidding war and drive up the value of his holdings even more.

Some believe Reichmann is eyeing a repeat performance. Last month, the septuagenarian businessman resigned from the board of IPC US Real Estate Investment Trust. That triggered a fresh round of rumours that Reichmann, who already owns a stake, is preparing to mount a takeover of the property manager. It could be yet another attempt to flush out a prospective buyer to take assets off his hands at a premium price. In September, he sold a portfolio of nearly 70 retirement properties to a U.S. health care company for US$650 million. Is this the money that will go to fund the new investment firm and another buying spree? With Reichmann there are always more questions than answers.

That's especially true when it comes to the issue of his retirement. Those who know him - which is a small, tight-lipped and deeply loyal group - aren't surprised that Reichmann couldn't settle into a quiet retirement. "You're making a big assumption that he ever retired in the first place," says one executive who has worked closely with him. But they also know it won't be easy, given his age. "The popular phrase these days is to leave a legacy and that's probably part of it," says one corporate director who has sat on boards with Reichmann. "It would be a great story. But if you ask me point blank, 'Is he going to make a serious comeback?' my answer would be, probably not."


Maclean's November 6, 2006