As if all their workouts went smoothly, Jordan Saper and Stephen Mann posed, beaming, in front of a huge suburban New York office complex where the two founders of the Clifford Cos. claim they saved nearly $45 million for the lender, Mitsui Taiyo Kobe Bank.

But their jubilation could not erase the results of a more tangled workout in midtown Manhattan, one that ensnared Clifford in an acrimonious court battle.

The differing scenarios illustrate a dilemma lenders face every day: whether to pump more money into real estate projects or to get out while the getting is good.

Litigate and Liquidate

Workout specialists urge bankers to take the refinancing and rehabilitation route. They contend that banks often wind up paying enormous legal fees to get rid of a property that can be rescued for far less.

But bankers feel pressure from equity analysts and some regulators to take a harsher route: litigate and liquidate.

"Each property has to be taken on a case-by-case basis," said Christoph Kotowski, analyst for Oppenheimer & Co. "But my general experience has been that banks which attack problem credits early, and get rid of problems early, tend to cut losses.

"Of course, nobody who is selling now is 'getting out early,'" he said.

Most banks - at least those with the capital to take the one-time hits that a liquidation strategy requires-are bending to the analysts and regulators.

The Mitsui Route

The Clifford partners have seen it both ways lately, with very different results.

Mitsui's bankers "acted like businessmen," said Mr. Saper.

After prolonged consultation with its Tokyo-based parent, Mitsui eventually agreed to divert about $16 million of the project's cash flow from debt service on a loan that was up to date, Mr. Saper said.

The cash flow was used to improve the Blue Hill Plaza in Rockland County. The 20-year-old complex, which has been bought and sold several times, accumulating $175 million in debt along the way, last year faced a crisis over a threatened loss of tenants who had occupied 400,000 of about 1 million square feet of leased space.

Having of Value Averted

The loss of these tenants would have reduced annual net income from about $10 million to $5 million, Mr. Saper said. That would have cut the value of the building in half, to about $55 million.

About $6 million of the cash flow brought the building up to date on taxes and bills. The bank also signed off on reductions in rents on existing leases, accounting for another $1.5 million a year of diverted cash flow, and on about $5 million in expenses for tenant expansions.

"We reduced rents to market, in exchange for a long-term commitment," said Mr. Saper, who was then manager of the U.S. properties of S & W Beresford.

The British company had provided a $65 million letter of credit to the building owners in an earlier buyout and had since taken control of the property. Last March, it retreated from its ownership positions in about 3 million square feet of New York-area office property, including Blue Hill and the New York City building, selling out to Mr. Saper and Mr. Mann and retaining a position as an unsecured lender.

Hirings a Chef

The expenditures at Blue Hill, which ranged from payment of taxes to tenant improvements to hiring a classically trained chef to run the buildings's cafeteria, helped prevent a tenant exodus that ultimately could have cost the bank 50% of its $110 million exposure, according to Mr. Saper's calculations.

As it is, Mr. Saper admitted, the bank will lose money on its loan, but only perhaps $10 million instead of the $55 million it could have lost.

Mr. Saper said his group proposed a similar plan for a building just down the street from the Empire State Building in midtown Manhattan.

Mitsui's counterparts at Bank of New York Co., however, "felt more comfortable pursuing a litigation strategy." As Mr. Saper sees it, that decision cost the bank $15 million.

Bank of New York Balks

The Bank of New York, which held a $44 million mortgage, balked at reducing its claim, saying it was covered by an interest guarantee by Beresford.

After rejecting the marketing plan, the bank also ignored a buyer willing to pay $30 million, Mr. Saper said.

Now, Clifford is defending itself against a multimillion-dollar court claim by Bank of New York over the interest guarantee. In court papers, the bank is accusing the managers of pursuing what is known in the trade as a "scorched earth" policy, in which the objective is to escape one's obligations by throwing a project into bankruptcy.

Meanwhile, the building has been sold at foreclosure for about $23 million. Mr. Saper said that, by "hiding behind the interest guarantee," the bank failed to take actions that would have bolstered its return by about $15 million.

Early Liquidation Preferred

"We think that our economic situation is benefited by liquidating a nonperforming asset as soon as possible," Robert J. Mueller, executive vice president of the bank.

Mr. Mueller, who declined to comment on the litigation, also said the bank financed part of the sale, in effect replacing a nonperforming asset with a smaller performing one.

The sale was hailed in Crain's New York Business as a sign that New York real estate might finally be establishing a price floor. And later, Bank of New York earned praise from analysts for reducing its credit problems, albeit at a price.

'More Intelligent Approach'

"Banks that have an asset for the most part try to liquidate as fast as possible. There is a more intelligent approach," said Felix Charney, of F.T. Charney & Co. He recently completed a redevelopment in which Bank of Boston coughed up another $3.5 million to turn around a foreclosed condominium project in Greenwich, Conn.

But experiences like that are the exception. Said Ronald B. Bruder, president of the Brookhill Group: "I find banks causing problems by their unwillingness to even renew loans."

Mr. Saper, meanwhile, acknowledged that pressures banks face from regulators and the market could have been a factor in Bank of New York's thinking. "It's just very upsetting that this thing went down the way it did," he said.

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