HNA Owes SL Green $185M Over Surprise Bankruptcy

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The HNA Group-backed entity that owns 245 Park Avenue owes SL Green Realty a payout to the tune of $185 million, an arbitrator has ruled.

The arbitrator, former judge L. Priscilla Hall, found last April that SL Green was entitled to the money because its contract to invest in and manage the 47-story tower protected SL Green from potential losses due to a bankruptcy. Hall also ruled that SL Green should be reimbursed for $856,000 in attorney and arbitration fees, according to New York state court documents made public Friday and first reported by the Wall Street Journal.

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The bankruptcy filing initiated the less-than-amicable end to the relationship between SL Green and HNA affiliate PWM Property Management. PWM, which owns the New York City tower between East 47th and East 46th streets and a building at 181 West Madison Street in downtown Chicago, filed for bankruptcy in November and pinned part of the blame on SL Green for failing to replace Major League Baseball (MLB) with another tenant at 245 Park.

SL Green, which invested $148 million in the building in 2018, denied the allegations, previously telling Commercial Observer that it was PWM’s own failure to renovate and add amenities to the property that led to the bankruptcy. Separately, PWM’s parent company HNA was placed into bankruptcy administration in China last year due to its large debt load.

“The allegation that [SL Green] deliberately did not find a replacement tenant for MLB, which was a very important tenant at the building … [is] a nonsensical argument that has absolutely no basis in fact, and the arbitrator agreed,” said Mark Ressler, a partner at Kasowitz Benson Torres who represented SL Green in the arbitration proceedings.  

PWM also alleged in bankruptcy filings that SL Green wanted to fail in replacing the baseball organization so it could take over the property. SL Green owns a 49 percent equity interest in one of 245 Park’s debtor companies, 245 Park JV LLC, which holds half of the $568 million in outstanding mezzanine debt and is the servicer of the loans, CO previously reported. 

Early in the Chapter 11 process, PWN announced plans to cut ties with SL Green. A bankruptcy court judge ruled in December PWM could reject its leasing and property management agreement with SL Green, and PNW replaced the firm with Newmark. The judge also ruled that PWM had legitimate reason to fear a forced sale and could remain under court protection.

The agreement was a win for the cash-strapped PWM, which no longer had to pay out its contract with SL Green. The firm carried $2.53 billion in assets compared to $2.19 billion in liabilities at the time and could have been forced to pay $19 million to its mortgage lender if it didn’t find a tenant to replace MLB. The Rockefeller Foundation took part of the MLB’s offices in 2020, but the organization’s lease expires this year with no known replacement on the way, The Real Deal reported.

The latest arbitration decision represents a pretty penny for the struggling HNA, but Ressler expects the ruling to be approved and SL Green to be paid, because it sued an HNA-entity that has not declared bankruptcy.

HNA has previously argued that the bankruptcy filing should prevent SL Green from recouping its investment. But Hall found that, while bankruptcy filings do routinely pause legal action against businesses, it was not a requirement. She also said HNA had failed to show that the bankruptcy court did issue a payment pause, known as a stay order, for the nonbankrupt entity. 

Celia Young can be reached at cyoung@commercialobserver.com.