510 Madison junior mezz lender sues Macklowe to force new talks

By David Jones | July 26, 2010 06:45PM

510 Madison and Harry Macklowe

O’Connor North America, the junior mezzanine lender at 510 Madison
Avenue, has filed suit to force developer Harry Macklowe to open up the
building to an investment group that will help investor Jeremiah
O’Connor buy out the loans on the property, thus saving his equity from
being wiped out.

In late June, Macklowe reached a deal that would give him until March 2011 to repay SL Green Realty
for the $253 million in defaulted loans on the property. SL Green
previously acquired those loans in an effort to foreclose on the
property through a so-called mezzanine loan auction.

O’Connor holds a $69 million junior mezzanine loan on the
property, which would be wiped out once SL Green forecloses on the
debt. O’Connor claims that Macklowe prevented him from bringing
potential investors into the building to evaluate whether they would
form a syndicate and buy out the loans from SL Green, thus protecting
the junior mezzanine position and effectively taking over the property
for themselves.

“Should defendant continue to deny access to the property, plaintiff is
at risk of losing its contractually guaranteed rights to explore the
potential syndication of its loan so that it can raise sufficient
capital to purchase the more senior loans and avoid the loss of its
entire subordinate mezzanine loan investment,” Allen & Overy
attorney Jacob Pultman, who represents O’Connor, wrote in the complaint.

SL Green, the largest commercial landlord in New York, previously
acquired the senior mortgage for $170 million and the senior mezzanine
loan for $15 million, one of several deals it recently made to acquire distressed office buildings in Manhattan.

Macklowe built the speculative office building in 2007, but became embroiled in a series of lawsuits after a February 2009 fire gutted part
of the building, causing $70 million in damage. Anchor tenant Jay
Goldman and luxury retailer Torneau, fought Macklowe in court to get
out of their leases and the developer missed a May 31, 2009
construction deadline.

Pultman notes in the lawsuit that the 372,000-square-foot office
building is empty, and therefore it should not pose a problem for
Macklowe to let O’Connor’s investment group in to inspect the premises.

Macklowe officials declined to comment, through a spokesperson, as did
SL Green officials. Lawyers for O’Connor North America declined to
comment.