New York Developer Files for Bankruptcy
The owner of a 1.3 million-square-foot New York office tower filed for protection under the Bankruptcy Code last week, listing nearly half a billion dollars of debt and only half that much in assets.
The result of negotiations with a bank group led by Swiss Bank Corp., it appears to be the largest "prepackaged" single-asset real estate bankruptcy ever filed.
In a prepackaged bankruptcy, a company obtains approval for a reorganization plan when it files for Chapter 11.
The Stage Is Set
The filing sets the stage for a similar restructuring by the same developer of a nearby project that was financed by a group led by Citicorp, sources said.
The petition by 1585 Broadway Associates, a partnership controlled by Solomon Equities, lists $482 million of debts, which includes about $400 million of mortgages held by eight foreign banks.
Bank of Montreal and Toronto Dominion Bank are coagents with Swiss Bank in the mortgages.
Unsecured debt includes a $40 million claim by European American Bank and a $17.5 million claim by Commercial Bank of Kuwait.
The petition lists $231 million of assets, including the $200 million "book value" of the building and land.
Banks Sought Receiver
Solomon filed after the banks foreclosed and sought the appointment of a receiver to manage the building, one banking source said.
In the petition in U.S. Bankruptcy Court for the Southern District of New York, developer David S. Solomon blamed the "prolonged collapse" in the local real estate market for the problems at the building. Current management is best qualified to turn around the project, the petition asserts.
The property is losing $1.9 million a month, the petition estimates. Chief financial officer Warren Schad said, however, that the filing would enable Solomon to negotiate with potential tenants for the building, which is about one-third leased.
The cost of improvements needed to attract tenants to the space has increased by about $5 million per 100,000 square feet over the cost when the building was planned. The restructuring will provide financing to cover those costs, Mr. Schad said.
Mr. Schad said he expects to ask the bankruptcy court next week to approve a new loan of about $9 million to carry the project while the details of the restructuring are being hammered out in a "relatively brief" bankruptcy process.
Both the Broadway building and the one financed by Citicorp on Seventh Avenue were built during a construction boom that started in 1988 to take advantage of expiring incentives for development in the Times Square district.
Market Continues to Shrink
Since then, the market for office space has continued to shrink with the financial industry, and both buildings remain mostly vacant.
The 591,000-square-foot building on Seventh Avenue, financed with a $200 million loan led by Citicorp, had signed up a major law firm as a tenant in 1990, but the deal failed to draw additional firms to the building.
Then the law firm went out of business, vacating the building just when it was due to start paying rent.