Macklowe Properties has filed suit against SL Green in order to block foreclosure on 510 Madison Avenue.
On Monday, the developer received temporary restraints in state Supreme Court to give it time to present a case next month why it should be able to retain control of the gleaming new skyscraper.
Central to the suit is an appraisal of the building that was conducted for SL Green in recent weeks by the real estate services firm Cushman & Wakefield, which Macklowe alleges doesn’t accurately report the building’s value.
That valuation, according to court documents, estimates 510 Madison to be worth about $180 million, less than half of the nearly $470 million in debt and insurance proceeds it has taken to build the high end tower.
SL Green purchased a $267 million senior loan on the 350,000 square foot building in December from the Union Labor Life Insurance Company. The firm subsequently acquired a $61.5 million mezzanine loan from German American Capital Corporation, which is a subsidiary of Deutsche Bank.
SL Green’s intentions appeared clear from the start. Real estate experts predicted the firm, which is Manhattan's largest commercial landlord, was buying the debt so that it could take over the building. The loans held by Macklowe Properties, a real estate development and investment company run by the father and son team of Harry and Billy Macklowe, expired on March 1st.
Although there are extension options in the mortgage, SL Green has moved to deny them citing stipulations in the loans that require the senior and mezzanine debt together be worth no more than 65 percent of the tower’s appraised value.
According to statements by Billy Macklowe in a court affidavit, Cushman & Wakefield valued 510 Madison Avenue at $180 million, a figure that would put the two loans at more than 75 percent of the building’s value. SL Green has refused to extend the mortgage based on the valuation, which would thrust the tower into default and allow the company to foreclose.
Macklowe states that he believes that the valuation is inaccurate. Among the preliminary evidence he cites is that SL Green paid more than $180 million to acquire the building. According to Macklowe’s affidavit, SL Green acquired the $267 million Union Labor Life Insurance Company loan, whose full amount hasn’t been paid out, for around $170 million and the mezzanine loan for approximately $15 million.
Macklowe said: “If the Cushman Appraisal were truly accurate – if the completed property were only worth $180 million, then Defendants, subsidiaries of SL Green, a public real estate investment trust having fiduciary duties to its investors, never would have paid an aggregate of approximately $185 million for the Senior Loan and the Senior Mezz Loan, especially given that the Defenants: (i) would be liable for a 3% transfer tax upon foreclosure (approximately $6 million); and (ii) would have to advance tens of millions of dollars more to finance completion of the Project, including tenant-space improvements and brokerage commissions.”
The court ordered that Macklowe be allowed to see a copy of the appraisal as well as emails and conversations between C&W and SL Green concerning its procurement.
“The Cushman appraisal sets the completed value of the building at $180 million, but this valuation is belied by SL Green’s own actions—they have invested more than that just buying the loans, and still must spend tens of millions more in completion costs, brokerage commission and transfer taxes,” Stephen Meister, the Macklowes’ attorney in the case, said in an email. “The Court set a hearing for April 14 on whether to issue an injunction restraining foreclosure for the balance of the case. At that hearing, we intend to prove that the Cushman appraisal is not worthy of being used to deny the Macklowes their bargained for extension right.”