SL Green will attempt to take control of the midtown skyscraper 510
Madison Avenue in March according to sources.

Late last year, the company bought the senior mortgage on the
property, a roughly $189 million construction loan that had been given
to the building’s developers by the Union Labor Life Insurance
Company.

SL Green executives described the deal then as simply a debt position,
one among many in its structured finance portfolio.  But real estate
experts said the company’s intent was clear: to position itself to own
the gleaming, nearly finished tower.

Since the firm purchased the senior note, it has moved to consolidate
other interests in the property that could strengthen its position,
including a mezzanine loan it acquired from Deutsche Bank according to
sources.

The timing of a takeover and the approach that the company is planning
to use to gain control have become clearer in recent weeks according
to sources.

The property’s senior mortgage is set to mature at the beginning of
March and SL Green is said to be considering as an opportunity to
foreclose, although forthcoming litigation launched by Macklowe
Properties, the building’s developer, could interfere with that
process.

Although Macklowe Properties possesses an extension option to delay
the expiration of its loan, sources say that SL Green could dismiss
such a request on allegations the property’s construction hasn’t been
completed according to deadlines required by the debt.

A person familiar with the situation said that Macklowe Properties
could be preparing a lawsuit against SL Green to block such a
foreclosure.  Last year there was a fire at 510 Madison Avenue that
caused damage and delayed the building’s construction, an incident
that could provide legal grounds for the delay and compel an
extension.

“There is a concrete right of extension specified in the loan
documents, which the Macklowes have duly exercised and if SL Green
does not respect or recognize that extension the Macklowes will take
whatever action is necessary to protect their rights,” said Stephen
Meister, an attorney who said he has been retained by Macklowe
Properties if there is litigation at the property.

According to Meister, SL Green has not yet indicated whether it plans
to revoke Macklowe Properties’ extension right.

Macklowe Properties, a real estate company operated by the father and
son team of Harry and Billy Macklowe, conceived of the 350,000 square
foot tower at a time when Manhattan rents and occupancy levels were
soaring.

The 30-story building will feature high end amenities such as a health
club and outdoor deck and elegant design elements that were meant to
cater to an especially well-heeled subset of the midtown office
market; boutique investment firms who were willing to pay exorbitantly
for opulent space.

Amid the downturn in leasing and the recession however, it is unlikely
that the rents the building’s developers were once aiming for can now
be achieved, although experts say that the tower would still be able
to secure rates at the top of today’s market.  Only one tenant has
signed a lease in the building so far, the hedge fund Jay Goldman &
Co., which is locked in a lawsuit to try to break from or possibly
restructure the deal.

Experts familiar with the tower say that Macklowe has faced a daunting
challenge.  It has likely been difficult to drop the building’s rents
to a level sufficient enough to attract deals while still maintaining
the project’s profitability.  There are also significant remaining
capital costs required to outfit the building’s interior spaces with
office installations, construction that tenants usually pay for during
tight times but that has since fallen on landlords given the slack
market.

Some experts say that SL Green, which is the city’s largest commercial
landlord, is in a stronger position to cover the building’s leasing
expenses and mark the building’s rents to market rates.  These experts
say that SL Green’s takeover could also dispel reluctance among
tenants who would like to do a deal in the building but have been
concerned about the its financial stability.