Developer Larry Silverstein is facing a massive foreclosure suit at his troubled office tower at 575 Lexington Avenue after failing to work out a restructuring deal on $325 million in loans.
Silverstein, president of Silverstein Properties and the famed developer of the World Trade Center, has been in talks with a special server for nearly 11 months after originally buying the skyscraper for $400 million in 2006.
LNR Property, based in Miami Beach, filed suit on behalf of the lenders Jan. 25 in New York State Supreme Court.
Analysts say that Silverstein paid too much for the property and would have needed to raise rents to as much as $80 a square foot to make a profit, but the building is now asking only $50 a square foot since the downturn.
“They paid a lot for this asset at the top of the market,” said Dan Fasulo, managing director of research at Real Capital Analytics.
He added that the loan was not due until 2013, indicating Silverstein was not able to maintain his obligations under the loan agreement.
Silverstein Properties said it will continue to negotiate with lenders, while operating the building and servicing tenants.
“As is the case with many properties acquired at the height of the market and financed just prior to the global economic downturn, it became necessary to restructure the debt at 575 to reflect current market realities,” Silverstein Properties said in an emailed statement. “We have been working closely with the special servicer, our investors and other stakeholders and are confident we can reach an agreement on updated terms that benefit all stakeholders.
Silverstein, who bought the tower with the backing of the California State Teachers Retirement System, originally borrowed two $162 million loans from Bank of America in February 2007, according to the complaint.
By April 2010, he informed lenders that he had $1.9 million in unpaid bills and began talks to restructure the debt.
Silverstein failed to make a monthly payment in Nov. 1, 2010, creating a default on the loan. By January, Silverstein failed to maintain the required insurance on the loan, the complaint stated.
Court filings show hundreds of thousands of dollars in mechanics liens from unpaid contractors, as well as two possible tax liens from New York City.
The building currently has about 71,000 square feet of vacant space, with asking rents starting at $50 a square foot.
Dechert attorney Gary Mennitt, representing the lender, declined comment and referred all calls to LNR.