Two of New York real estate’s shrewdest chess players are attempting to outmaneuver one another for control over a billion-dollar Midtown office property.
SL Green Realty and Ben Ashkenazy have been on a collision course for the past several years that’s set to come to a head in 16 months, when the latter is expected to implement an astronomic rent hike on SL Green’s ground lease at 625 Madison Avenue.
The Marc Holliday-led REIT has some negotiating power: The company recently acquired a piece of debt that Ashkenazy borrowed against the ground under the Madison Avenue building, sources told The Real Deal, which gives SL Green leverage over its landlord. Court records show Ashkenazy had fallen behind on payments, and a judge in January ordered him to pony up more than $20 million.
But Ashkenazy — who went through with a rent hike on Barney’s Madison Avenue store that sent the company into bankruptcy, and threatened to “go nuclear” on the family that owns the Century 21 department store — is still in the driver’s seat when it comes to next year’s rent reset.
In papers filed in Manhattan state court, Ashkenazy Acquisition’s attorneys accuse “real-estate behemoth” SL Green of going out of its way to lean aggressively on the borrower over that $20 million — an attempt, the company says, to gain leverage in the ground lease negotiations.
“It should be reasonably apparent,” Ashkenazy’s lawyers wrote earlier this month in their appeal of the January decision, “that something else is driving [this] behavior.”
Representatives for SL Green and Ashkenazy declined to comment.
The two investors first squared off in 2014, when Ashkenazy bought the ground underneath SL Green’s building — a prime office property one block from Central Park — for $400 million.
The purchase price raised some eyebrows. SL Green was paying just $4.6 million a year in rent, hardly a figure that justified such a high valuation. But Ashkenazy was looking ahead to July 1, 2022, when the ground lease was scheduled to reset.
Marketing materials for the property projected the ground rent could go as high as $50 million. But Ashkenazy’s Michael Alpert, estimating in 2016 that the property was worth $1.4 billion, said that the rent could reach $80 million.
But SL Green eventually found a way to gain leverage over its landlord.
When Ashkenzy bought the ground in 2014, he financed the purchase with a $195 million mezzanine loan from the U.K.-based Children’s Investment Fund.
One of the loan’s provisions required Ashkenazy to pay down $40 million of the debt by November 2018. But when the deadline came, he had only paid down $30 million, leading to a kind of default that required him to pay down not just the remaining $10 million, but another $10 million on top of that.
At some point — it’s not exactly clear when — SL Green acquired a piece of Ashkenazy’s debt from the Children’s Investment Fund, a source with knowledge of the situation confirmed to TRD. Terms of the purchase aren’t public, but one debt expert speculated SL Green paid a premium considering its position with Ashkenazy.
In March of last year, Children’s Investment Fund filed a lawsuit to force Ashkenazy to pay the $20 million it says it’s owed. SL Green’s loan servicing arm, Green Loan Services, is listed as a party to the lawsuit as the special servicer, and the REIT’s attorneys at Fried, Frank, Harris, Shriver & Jacobson are handling the case.
In January, the judge in the case ordered Ashkenazy to pay the $20 million plus another $4 million in interest. Ashkenazy has appealed the decision, disputing the full amount of interest owed.
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