Thor loses most of its stakes in three buildings to GGP to pay off debt

Partners jointly acquired 530 and 685 Fifth and 218 West 57th in 2014

Joe Sitt, Sandeep Mathrani and 685 Fifth Avenue (Credit: Getty Images and Thor Equities)
Joe Sitt, Sandeep Mathrani and 685 Fifth Avenue (Credit: Getty Images and Thor Equities)

Joe Sitt’s Thor Equities lost most of its interest in three Manhattan retail-and-office properties over unpaid debt to its joint-venture partner, General Growth Properties.

Thor’s 50 percent stakes in 218 West 57th Street, 685 Fifth Avenue and 530 Fifth Avenue shrank to 0.1 percent, 2.97 percent, and 9.77 percent, respectively, in late 2017. GGP now owns 99.9 percent, 97.03 percent and 90.23 percent of the properties, respectively, up from 50 percent each, the company announced in its annual earnings report released Thursday.

Here’s where it gets complicated: Thor doesn’t appear to have received any cash in the ownership transfer. Instead, the deal was part of a complicated maneuver to pay off Thor’s debt to GGP, according to the filing.

In June 2014, Thor and GGP bought the office-and-retail building 685 Fifth Avenue for $521.4 million. Each side got a 50 percent equity stake. But strangely, as part of the deal, GGP also gave Thor a $85.3 million loan with an interest rate of 7.5 percent that would expire in 2024, according to public filings. In other words: Thor appears to have borrowed the money it used to fund its share of the acquisition from its joint-venture partner. It wasn’t immediately clear why this was done. Thor and GGP did not immediately respond to requests for comment.

Over the years, the loan’s principal increased to $151.3 million, apparently because of unpaid interest.

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The property at 685 Fifth Avenue wasn’t the only one where Thor and GGP used this type of joint-venture loan arrangement. When the two firms bought the 530 Fifth Avenue retail condo for $300 million in June 2014, GGP issued a $39.4 million loan to Thor and a $31 million mezzanine loan to the joint venture. The principal of GGP’s loan to Thor, which had an interest rate of 9 percent and was scheduled to mature in 2024, increased to $48.1 million over the years, according to the filings.

And at 218 West 57th Street, which the firms bought for $81.5 million in 2016, Thor owed GGP $12.3 million as of September 2017.

To sum up: Thor and GGP bought three buildings in 50/50 deals, and in each deal GGP provided money to Thor against its share or the purchase. The three loans were secured by Thor’s stakes in the buildings. Thor did not make all interest payments on these loans, and as a result, it lost most of its equity stakes in the properties.

Here’s where it gets really complex. At 218 West 57th Street, the ownership transfer paid off the loan. But at 530 and 685 Fifth Avenue, Thor’s former equity interests were converted into preferred-equity interests with a 7 percent return. These preferred-equity stakes are collateral for the two loans, which technically weren’t paid off. GGP now has to pay Thor a return on its preferred equity interests, but Thor is required to use that return to pay off its loans. It wasn’t immediately clear why the firms pulled this maneuver instead of just paying off the loans with the equity transfer, as they did at 218 West 57th Street.

Thor and GGP reportedly put 685 Fifth Avenue on the market for $500 million in August. Joe Sitt’s company has been facing a weakening retail market, as The Real Deal broke down last year.

GGP, meanwhile, recently rejected a $14.8 billion buyout offer from Brookfield Property Partners. In other news, the company took back a 10 percent stake in the 522 Fifth Avenue retail condo. GGP had sold the stake to an unknown buyer for $25 million two years ago. But according to the latest filing, it was still owed $9 million from the deal and took back the stake.