Judge Lets 245 Park Avenue End Owner Management Contract With SL Green
A U.S. bankruptcy court judge let the owner of a bankrupt Midtown office building end its management contract with SL Green Realty Corp. on Tuesday after the landlord, PWM Property Management, claimed SL Green (SLG) failed to sign tenants to the 245 Park Avenue tower.
PWM — backed by Chinese financial services giant HNA Group — filed for bankruptcy in November, blaming SL Green for failing to replace a large tenant in the tower: Major League Baseball. The firm alleges that SL Green’s failure was intentional, because a bankruptcy filing would allow SL Green to foreclose on the property and take it over for itself, according to court records.
MLB moved out of roughly 221,000 square feet in the building last year, for 330,000 square feet in the Time & Life Building. While The Rockefeller Foundation temporarily moved into MLB’s space in the 44-story 245 Park for a short sublease, the bankruptcy filing alleges that SL Green failed to find a longer-term replacement and hadn’t secured a new lease at the tower since November 2018.
SL Green owns part of the asset after purchasing a stake in the building in 2018, and was the mezzanine debt lender to HNA. It owns a 49 percent equity interest in one debtor company, 245 Park JV LLC, according to court documents. That limited liability company also holds 50 percent of the $568 million in outstanding mezzanine debt and is the servicer of the mezzanine loans, according to court documents.
PWM sought to sever ties with SL Green, which took care of the day-to-day maintenance and operations at the 1.6 million-square-foot tower, when it first filed for bankruptcy. It got its wish on Tuesday, when a Delaware judge ordered that the agreement be severed within the next week. PWC will continue to pay the property manager according to their contract until five business days have passed after PWC notifies SL Green of the cancellation, per court documents.
The agreement’s end is a win for PWM, which does not have a lot of spare cash to burn. The company has $2.53 billion in assets compared to its $2.19 billion in liabilities, Bloomberg reported. If the building does not find a new tenant for at least 90 percent of MLB’s 220,565 square-foot space, PWN will be forced to give its mortgage lenders $19 million in cash, Mohsin Meghji, PWN’s chief restructuring officer, said in court documents. PWM, which also owns an office building in Chicago’s downtown at 181 West Madison, saw profit losses of nearly $500,000 in the month of November, according to court documents.
SL Green previously told Commercial Observer that it was HNA’s mismanagement that led to the bankruptcy filing, because the firm failed to renovate and add amenities to the property.
“While we’re disappointed that the bankruptcy has been allowed to proceed, we are incredibly proud of our stewardship of the building, which was not questioned by this ruling,” a spokesperson told CO on Wednesday. “We have done everything in our power to support the success of 245 Park and will continue to do so in future.”
HNA was placed in bankruptcy administration in February, though the company managed to snag a $5.88 billion investment as part of a restructuring plan approved in October. It took on its heavy debt because it acquired stakes in multiple businesses, some of which — like hotel chain Hilton Worldwide and HNA’s flagship business Hainan Airlines — were hit hard by the COVID-19 pandemic.
SL Green and HNA did not immediately respond to a request for comment.
Celia Young can be reached at firstname.lastname@example.org.