Arbitrator Rules HNA Group Must Pay SL Green $185M Over Bankrupt Park Avenue Tower
The domino effects of the Chinese spending spree in the middle of last decade on high-priced New York City real estate continue to be felt in bankruptcy court.
An affiliate of Chinese conglomerate HNA Group owes nearly $200M to New York property giant SL Green after the building they had partnered on at 245 Park Ave. went into bankruptcy, an arbitrator has ruled.
HNA affiliate PWM Property Management LLC, which owns the skyscraper, filed for bankruptcy last year, after which SL Green took action to collect money it says it was owed as part of an investment and management deal it signed. Arbitrator L. Priscilla Hall found SL Green is owed $184.6M, as well as $856K in fees, The Wall Street Journal reports.
The HNA subsidiary blamed the demise of the property on the pandemic and remote work policies, but it also claimed SL Green had done a “substandard” job on the building by failing to secure a replacement tenant for Major League Baseball, which relocated to Sixth Avenue.
PWM claimed in court documents last year that SL Green had deliberately steered companies toward other buildings the REIT owns, noting it also stands to take over the property from PWM if it can't meet further debt obligations.
HNA paid $2.2B to acquire the 1.8M SF building from Brookfield and the New York State Teachers' Retirements System in 2017, then financed the purchase with a $1.75B financing package from a group of lenders including JPMorgan Chase, Deutsche Bank, Barclays and Natixis. It defaulted on a $500M CMBS loan secured by the building in November.
SL Green invested $148M in 245 Park in 2018 and served as its property manager. As part of the deal, the REIT put in place arrangements that it could recover its investment if anything happened with the building, but HNA argued the bankruptcy should have prevented the REIT from getting a payout.
The arbitrator found SL had reached its burden to prove that a “cause event” had taken place, triggering the payout clause.
The 245 Park Ave. purchase was the last major deal from a flood of Chinese capital into U.S. commercial real estate last decade, culminating in a record $19.2B spent by Chinese investors in 2016 before the country put heavy restrictions on outbound investment.
Other Chinese firms that acquired property during that wave of investment have seen their fortunes turn south.
Insurance giant Anbang purchased the Waldorf Astoria for $1.95B in 2015, has blown its budget by more than $1B on its conversion into condominiums, and the executive leading the project departed last month. Oceanwide paid $390M for a development site at the South Street Seaport in 2016, but defaulted on a $175M loan and lost control of the site two weeks ago.
