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O&Y's bankruptcy: a world-wide affair.

Ripples from the Olympia & York Canadian bankruptcy filing are touching shores all over the world. This will be the first international real estate bankruptcy workout.

While to date only its Canadian properties are formerly affected by the legal move, other Olympia & York properties have serious cash-flow problems and the company is counting on the benevolence of its lenders to keep it afloat. The U.S. companies that filed for bankruptcy protection were merely holding companies.

Experts cite the huge Canary Wharf office complex as the black hole that has eaten most of Olympia & York's cash flow. They have recently been looking for a partner to buy a portion. Like other developers who believed what they touched would turn to gold in the 80's and forgot the oldest real estate adage, |location, location, location,' the Reichmanns built Canary Wharf on the outskirts of London and far from the Financial District, with only ancient transportation facilities for the thousands of workers. Bankers were unreceptive to an offer of a 30 percent share of the project and 20 percent non voting equity in the parent company to help see it to completion - several billion dollars away.

Olympia & York's bankruptcy filing affected world security markets as its lender's stocks began dipping in price. New York City government is negotiating with Olympia & York to ensure that $75 million in real estate tax payments due July 1 are paid.

Mark S. Edelstein, a partner in the Real Estate Workout & Bankruptcy Group of Milbank Tweed Hadley & McCloy, represented what might be the largest holders of O&Y debt.

One of the problems Olympia & York is facing is that they are dealing with many countries, Edelstein explained.

"There is a huge cultural gap in the way the countries treat the borrowers," said Edelstein.

While Americans are already used to bankruptcy actions the Japanese, the Europeans and the Canadians are not yet accustomed to these legal moves. In particular, he said the Japanese, which have a large stake in some projects, are finding it hard to come to grips with the filings.

Edelstein predicted the Olympia & York bankruptcy will have some long range effects on U.S. real estate. "It will be a fear factor more than anything," he said. "Some tenants will not want to touch O&Y buildings." This is because tenants will be afraid that work letters or other lease terms may not be honored. "Indirectly it may help the rest of the market," he said.

"They have been running around the world putting out little brush fires," Edelstein said. "By filing they are trying to take a deep breath and restructure properly."
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Title Annotation:Olympia and York Development Ltd.
Author:Weiss, Lois
Publication:Real Estate Weekly
Date:May 20, 1992
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