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1540 B'way to sell for $119M by banks.

Led by Citicorp, a consortium of 17 banks was expected to sign a contract yesterday (March 3) to sell 1540 Broadway to Bertelsmann A.G. for $119 million.

The lenders are currently holding a $240 million mortgage on the 42-story vacant Times Square tower.

An escrow agreement was signed between Broadway State Partners (Bruce Eichner) and Bertelsmann last Friday afternoon.

To make way for the deal, developer Bruce Eichner placed the building into a pre-packaged bankruptcy last month on Valentine's Day. This move was made to allow the judge to sign the contract and "save face" for the lenders, 16 of which are Japanese banks, who stand to lose approximately $100 million. While one bank refused to agree to the sale, only two-thirds of the class of creditors are needed to confirm the deal in a bankruptcy. One real estate executive close to the transaction said the Japanese "are the ones really getting burnt," as Citicorp only had about 25 percent of the mortgage. The Japanese could also hold up the deal.

The bankruptcy is looked at as a reorganization plan. Orex Leasing, a Japanese syndication group, did not approve or the reorganization plan.

Bertelsmann owns Bantam Doubleday Dell publishing and BMG, a distributor of pre-recorded music for many record companies, including RCA Records and Arista Records which are also owned. Bertelsmann companies are expected to use approximately 550,000 square feet of the total 1.6 million gross square feet of 1540 Broadway. Another 300,000 square feet of office space will be rented, as will the 100,000 square feet of retail space. Arista Records holds a lease at 6 West 57th Street that extends through the end of this decade, while RCA Records and BMG offices take up 10 floors at 1133 Avenue of the Americas. That lease is up at the end of this year. At 666 Fifth Avenue, Bantam occupies 12 floors.

The bankruptcy court was expected to approve a Loews theater lease and a current garage lease, with Darryl Mallah. Bertelsmann is getting the retail and office space vancant. Ernest Hahn is being bought out of his retail lease. A fast-food outlet lease with the Riese brothers' Ace Restaurant is not being ratified.

A source in the city administration said this was a retention effort, as Bertelsmann had threatened to move elsewhere. As part of the deal, the company agreed to keep some jobs in New York, and will make a |big' effort to bring in more international companies to the building.

Bertelsmann also received a package from the city for IDA financing and some tax abatements. Sources close to the deal said the company would have probably gone forward without this help from the city. Bertelsmann is purchasing the building with all cash.

Since it is a bankruptcy, it also must be advertised in the paper and cannot close for a minimum of 120 days.

Peter R. Friedman and Jeffrey A. Lichtenberg represented Bertelsmann. James D. Kuhn was hired as the workout consultant for the 17 member bank group.

In 1991, Cushman & Wakefield reported only one property sold in Manhattan for more than $100 million. The building, 99 Park Avenue, was owned by a division of Equitable Life and had a positive case flow. It was sold for $104 million - roughly $200 a square foot - to Eastgate Realty, a subsidiary of a British shipping concern. The Crown Building, sold at bankruptcy auction early in the year for $93.6 million or $300 a square foot. The highest price per square foot was paid by Mario Valentino, the dress designer, who purchased a small townhouse at the fashionable address of 19 East 57th Street for $13.2 million or $1,000 per square foot.

Other buildings in trouble along Broadway include two owned by David Solomon. At 1585 Broadway, the single tenant, the law firm of Proskauer Rose Goetz & Mendelsohn, has ceased paying rent for its 25 percent of the 1.3 million square foot tower, while at 750 Broadway the tenant, also a law firm, was dissolved and walked away from the lease. The latter building's mortgage is also held by Citicorp and other participants, while the 1585 Broadway mortgage is held by a consortium of foreign lenders.

The Bertelsmann deal will give the company an important presence in the city. It currently has about 2,000 employees in the city in several locations. It is also expected to be an important deal for the City of New York as it may not only push along the Times Square redevelopment, but spur other reluctant mortgagees to write off massive nonperforming loans and sell the properties for what they are worth in today's market.
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Title Annotation:Broadway
Author:Weiss, Lois
Publication:Real Estate Weekly
Date:Mar 4, 1992
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