Banks may finally be on the verge of extricating themselves from one of the biggest bad loans of the international real estate bust.
Arabian Prince Waleed bin Talal and Canadian developer Paul Reichmann have teamed up on a bid for the Canary Wharf project outside London, raising hope that a long and difficult saga for 11 banks that seized the property in 1992 is about to draw to a close.
If the banks accept Mr. Reichmann's bid, it would bring the saga full circle, since he was the original developer as head of Olympia & York Developments Ltd. The formerly mighty real estate firm is still working its way out from under a mountain of bad debt.
A spokesman for Mr. Reichmann, who left O&Y in 1992, declined to say how much the new group had bid. The prince and a group led by Mr. Reichmann bid separately, he said, but now are teaming up in their effort to win back the property.
They are competing with two other bidders.
Prince Alwaleed is well known to U.S. bankers for opportunistic investments, including a huge stake in Citicorp when the bank's stock was trading at about $10 and the recent purchase of New York's Plaza Hotel from the bank group that controlled it.
Mr. Reichmann's group includes CNA Financial Corp. and the Mutual Series Fund, managed by value investor Michael Price, whose noteworthy investments include a 6.1% stake in Chase Manhattan Corp.
Alluding to Mr. Reichmann's background with Canary Wharf, Prince Alwaleed said in a press release that his team now has "a solid approach towards the project."
He added: "Our joint effort should benefit all parties, including the selling banks."
Mr. Reichmann, starting with some successful contrarian investments in the depressed New York office market of the 1960s, had built a huge international real estate empire and was widely thought to be too smart and well capitalized to get sucked into the property crisis that arose at the end of the '80s.
In 1992, however, Olympia, ran into a nearly fatal liquidity crisis, and was forced to restructure more than $12 billion of bank debt. One of its biggest problems was the Canary Wharf project, which fell victim to the soft London real estate market of the early 1990s and to delays in completing a rail line from downtown London.
The banks, including Chemical Banking Corp., New York, are reportedly still owed $1.1 billion of the $1.5 billion Canary Wharf owed when it was placed under court administration in 1992. That includes the balance of a $980 million construction loan for phase one of the project that dates back to 1990.
Chemical inherited its exposure when it acquired Manufactures Hanover Corp., which contributed $160 million to the construction loan.
One source, noting that complex issues must be resolved before the banks can put aside the Canary Wharf problem, said Chemical is eager to make a "clean break." Some of the other players may be willing to retain an exposure to the project, which has rebounded smartly, the source said.
Mr. Reichmann left Olympia & York at the end of 1992 but has remained active in real estate investment, most notably making some property acquisitions in Mexico in a joint venture with financier George Soros.
Following a bankruptcy proceeding in Canada, the main division of O&Y has given up its real estate holdings to lenders, and is left with a 80% stake in the U.S. operations of O&Y.
The U.S. unit continues to work with lenders to restructure about $5 billion of debt on properties concentrated in New York.
