An HNA Group affiliate that owns a 44-story Park Avenue skyscraper and a 50-story Chicago Loop office tower filed for bankruptcy as the Chinese conglomerate HNA goes through a multibillion corporate restructuring.
Despite HNA’s troubles overseas, the entity blames SL Green, its property manager, for the bankruptcy filing.
The HNA Group affiliate, PWM Property Management, alleges SL Green failed to secure a new anchor tenant at 245 Park Avenue to replace Major League Baseball’s lease that expired on Oct. 31. The HNA entity is seeking to oust SL Green from its management role.
In a response, SL Green said the claims are a “desperate attempt by HNA to deflect from its blatant neglect of this prominent office tower.”
In 2017, HNA Group was among the country’s largest foreign owners of U.S. assets and paid $2.2 billion to acquire 245 Park Avenue. It financed its acquisition with a $1.2 billion CMBS loan provided by JPMorgan Chase Bank and others. The same year it purchased the 937,000-square-foot building at 181 West Madison Street in Chicago for $359 million.
But amid shifting political pressure in China and mounting debt, HNA put the office towers back on the market the following year.
On Sunday, a judge in China approved a corporate restructuring, allowing creditors of HNA Group to go forward with selling its assets, according to South China Morning Post. It is one of China’s largest corporate bankruptcy cases and could lead to the sale of $40 billion in assets, SCMP reported.
The LLCs controlling the properties at 181 West Madison Street and 245 Park Avenue filed for Chapter 11 bankruptcy on Sunday in Delaware, claiming to have between $1 billion and $10 billion in assets and liabilities. Its biggest creditors are the Cook County, Illinois Treasurer and New York City’s Department of Finance. It owes $13.4 million to Cook County and $9.7 million to NYC.
The HNA affiliate alleges SL Green intentionally sought to put the building in financial duress.
“SLG Manager’s failure to do its job is what caused the need for these chapter 11 cases,” according to a motion filed by the entity, PWM Property Management.
It alleges that SL Green has not secured a new tenant lease at 245 Park Avenue since November 2018. It also alleges that SL Green is conflicted because it manages at least 14 competing major office buildings in Manhattan.
PWM Property Management also alleges that SL Green benefits from its failure to lock in new leases since it has a substantial equity interest in the building and thus can foreclose on the property if PWM cannot meet its payments. (SL Green closed on a $148 million preferred equity stake in the building in 2018).
“SLG Realty will have the right to foreclose on the equity of the building and take it all for itself,” PWM Property Management alleges.
A spokesperson for SL Green said HNA is to blame since it failed to deliver funds needed for a capital investment plan in 245 Park Avenue because of its distress in China.
“(HNA) has instead defaulted on their own lease obligations at the property of over $7 million in arrears,” according to an SL Green spokesperson.
SL Green added that it made recommendations for HNA to undertake an investment strategy, including a new lobby, plaza and amenities to “to compete at the necessary level to be successful.” It also said that SL Green had invested almost $150 million of capital of its own money in the building.
“Despite managing and leasing such an under-invested property, SL Green has made tremendous progress in its leasing efforts with over 400,000 square feet of completed leasing and ongoing retail leasing conversations,” the spokesperson said.
SL Green’s spokesperson did not provide a response on questions related to the status of its preferred equity stake in the building.
The HNA entity is seeking to bring in MB Real Estate Services to manage the 245 Park Avenue building, which serves as the building manager at 181 Madison Avenue.
In 2020, 245 Park Avenue’s revenue totaled around $178 million, while 181 Madison Avenue’s revenue totaled around $41 million, according to the bankruptcy filing.
Bloomberg first reported the news about bankruptcy.
An attorney representing PWM Property Management in the bankruptcy proceedings did not return a request for comment. HNA Group did not return a request for comment.