The Real Deal New York

Solow puts new GM Building suit on hold

March 12, 2008 06:58PM
By David Jones

Developer Sheldon Solow has put a New York state lawsuit challenging Harry Macklowe’s ownership of the General Motors Building on hold so he can pursue a prior federal lawsuit alleging fraud against the building’s former owner, Solow’s spokespeople said.

Solow’s litigation is expected to complicate Macklowe’s sale of the Fifth Avenue tower.

Solow filed suit on March 4 in state Supreme Court alleging that the deed Harry Macklowe obtained from Conseco Inc. was “bogus” and should be ruled invalid. Solow, a rival bidder during the 2003 sale, has decided to hold the state lawsuit “in abeyance” while he pursues the original fraud suit in federal court.

Sources familiar with the talks say that World Trade Center developer Larry Silverstein decided against making a second round bid in part due to concerns about Solow’s new lawsuit. Silverstein, who operates a joint real estate venture with the California State Teachers Retirement Fund, had been considered the front runner for the GM Building.

Macklowe spokesman Steve Solomon, who declined to comment on the current bidding process, indicated that he believed Solow had dropped the state lawsuit altogether.

“We have the papers that say he voluntarily dropped out,” said Steve Solomon. “He dropped the lawsuit in favor of the federal suit.”

Solow spokesman Michael Gross insisted that the suit would proceed.

“They’re in discovery now and they’ve started taking depositions,” he said.

Macklowe hopes to sell the GM building for $3.4 billion to pay down his overdue short-term debt and debt owed on the building. Minimum bids are set at $3 billion.

Macklowe bought the GM Building for a record $1.4 billion in 2003, following a lengthy auction process involving more than two dozen bidders, including Solow, Sam Zell of Equity Office Partners, Tishman Speyer chairman Jerry Speyer, investor Marvin Davis and others.

In January, Judge Barbara Jones gave the go-ahead to a federal suit against Conseco that alleges Macklowe bought the GM building through a rigged auction. The suit claims that Solow’s bid was higher and that Macklowe was allowed to submit his bid after all of the rival bids were submitted under seal.

Most legal experts were surprised by the decision, as many said the suit lacked legal merit. However, lawyers said that the judge’s ruling, along with the state lawsuit, could tie up the legal claim to ownership of the GM building for months, if not a year.

Macklowe
spokesman Howard Rubenstein said he did not expect the litigation to complicate the sale. 

The New York Post reported today that a new round of bidders emerged in the second round, including closely-held Paramount Group Inc., Mort Zuckerman’s Boston Properties, and Tishman Speyer Properties. Joseph Cayre, the billionaire real estate investor, and SL Green both pulled out after the first round of bidding when the minimum bid was set at $3 billion.

Boston Properties and Tishman Speyer could not be immediately reached for comment and Paramount Group declined comment. Conseco officials were not immediately available for comment.
 

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