Solow lawsuit could tie up GM Building sale for months
A lawsuit filed this week by developer Sheldon Solow could complicate the ownership of the General Motors Building for months, and could influence who emerges as the winner in the race to buy Harry Macklowe’s trophy building, sources say.
World Trade Center developer Larry Silverstein decided not to submit a second-round bid for the GM Building on Thursday, partly due to concerns that the suit Solow filed in state court earlier this week could make it difficult to determine the building’s legitimate owner.
Macklowe acquired the GM building for $1.4 billion in 2003, beating out Solow and a number of other potential bidders in a disputed auction process. Solow, who previously tried to block the sale in federal court, alleges in the new lawsuit that the 2003 sale was invalid and argues that Macklowe is not the legitimate owner.
Several legal experts have said Solow’s suit lacks merit, but they also said that any complications could imperil a deal of such magnitude. Macklowe set a minimum bid of $3 billion and hopes to bring in $3.4 billion, which he needs to pay down his overdue short-term debt and debt owed on the building.
“In a transaction where the price of admission is $3 billon, no one wants to buy into that type of headache — even for a trophy building,” said attorney Dennis Sughrue, a partner at the real estate firm of Herrick, Feinstein.
Silverstein had been considered a leading candidate to buy the GM Building when bidding began last month.
Silverstein and his joint venture partner, the California State Teachers Retirement System (Calstrs), have purchased three major Manhattan buildings in the past 18 months, most recently 1177 Sixth Avenue from the Paramount Group for more than $1 billion.
Sources confirmed that rival bidder Joseph Cayre backed out of a potential bid for the GM building. However, a source familiar with the process downplayed Cayre’s willingness to buy the tower.
“That party was not considered by the folks involved in the process to be a credible bidder,” the source said.
SL Green also reportedly back out after the first round because it did not want to pay the minimum $3 billion.
Sources said that a new round of bids were made on Thursday, but did not indicate who those bidders were and what they offered for the GM Building.
“You can assume a large deal like this would be difficult to finance,” said Ron Solarz, executive managing director at Eastern Consolidated. “Often times you are surprised by who the buyers are going to be.”
Solarz said that he has no involvement or knowledge of the bidding process or the potential buyers.
Macklowe needs to sell the GM Building for about $3.4 billion to prevent the breakup of his real estate empire. In a highly-leveraged deal last year, he borrowed $7 billion to finance the purchase of seven Manhattan buildings from Equity Office Properties.
Macklowe borrowed about $5.8 billion from Deutsche Bank and needs to come up with $1.2 billion to repay a bridge loan from Fortress Investment Group. The Fortress loan was backed up by a personal guarantee by Macklowe, who used the GM Building as collateral.