Manhattan office tower
bought by property investor Harry Macklowe for $498 million
nearly three years ago was taken over on Wednesday by one of
its lenders, which made the only bid at an auction -- for
Canada's Otera Capital Corp, which holds a $130 million
mezzanine loan on The Financial Times Building at 1330 Avenue
of the Americas, entered the minimum bid for the 40-story
building, which is about 65 percent occupied.
Otera, a subsidiary of Caisse de depot et placement du
Quebec, Canada's largest pension fund, filed to foreclose on
the property after Macklowe defaulted in January.
The result of the auction allows the pension fund to take
ownership of the building, which serves as the U.S.
headquarters for the financial newspaper owned by Britain's
Pearson Plc (PSON.L), and assume the $240 million mortgage.
Macklowe bought the building, which sits between 53rd and
54th Streets, in 2006.
Mezzanine debt is secured by the sponsor, often an
incorporated entity created just for the purchase and
ownership, not by the building.
Such loans are used to fill the gap between the equity put
up by the sponsor and the mortgage secured by the property.
German American Capital Corp, an affiliate of Deutsche Bank
AG(DBKGn.DE), holds the $240 million senior mortgage on the
property. Otera issued the largest of the mezzanine loans.
Property analysts expect many more foreclosures in the U.S.
commercial real estate sector, which boomed from about 2004 to
2007 when sky-high prices were fueled by easily available debt
financing that was underpinned by overly optimistic forecasts
for rents, occupancy and future sale prices.
Although there was only one bid, several representatives
from other real estate companies and pension funds attended the
auction to survey the procedure and assess the situation.
The building now is not worth the amount of the first
mortgage, said a leading Manhattan commercial real estate
broker, who did not want to be identified for commercial
The auction is part of the foreclosure process in New York,
as well as in other states.
Last month, Boston's John Hancock Tower was sold at a
foreclosure auction for $660 million, about half of what
Broadway Partners paid for it in 2006.
In that auction, the building went to Normandy Real Estate
Partners and Five Mile Capital Partners, which has been buying
up the mezzanine debt at distressed prices since June 2008.