545 Madison saved from default.

A timely restructuring of a $21 million leasehold mortgage on 545 Madison Avenue has been completed by James Felt/Grubb & Ellis. 545 Madison, a 17-story, 130,000 square foot prime Manhattan office building located on the southeast corner of 55th Street, is 90 percent occupied and has a major merchant chain, The Gap, occupying the ground floor retail space.

Vincent Carrega, executive vice president and Norman Livingston, senior vice president, James Felt/Grubb & Ellis, were brought in by the owners of the leasehold position on 545 Maw son Avenue to help restructure the leasehold mortgage and prevent a potential default.

Carrega and Livingston had 30 days to seek out a new investment group to take out the existing lender, negotiate the purchase of the mortgage and develop terms agreeable to both the owner,of the leasehold position and the new lending group.

According to Carrega, one of the keys to completing the transaction was to get the original mortgagee to agree to sell their position at a discount. It was critical for the leaseholder to be able to reduce his debt service payments. An acceptable discount would reduce payments to a level that could be supported by the building's net operating income.

This, in turn, would provide the new lenders with the security and return on investment necessary to justify the acquisition of the leasehold mortgage.

Livingston said "The deal eventually was concluded with the new lender and the leaseholder agreeing upon a form of senior financing which provided for heavy amortization and an equity participation in the leasehold's cash flow."

"Now, leasing brokers and tenants can be comfortable with the building's operations and condition. As a result of the deal, ownership is well capitalized and has the wherewithal to respond quickly to leasing proposals," Carrega said

For the new lenders. 545 Madison offered good location and strong income potentials, according to Arnold S. Penner, a partner in the investment group.

Carrega and Livingston revealed that they are currently involved in several similar restructurings.

"This deal was a win/win situation and a great plus for New York real estate," said Livingston. "It illustrates that lenders can be creative and are receptive to non-traditional forms of debt restructuring and that investors are willing to enter the marketplace today under reasonable conditions."

"We are seeing more opportunities to restructure excessive debt in today's market," Livingston added. "The net result, when lenders are flexible, is stabilized property ownership and a new equilibrium in a real estate market that during the past few years has been quite chaotic. "