Banker to Present Olympia & York’s Case to Lenders
With talks continuing about how to shore up hard-pressed Olympia & York Developments Ltd., the Canadian real estate developer on Tuesday chose a top New York banker to plead its case to its lenders.
Thomas Johnson, former president of Manufacturers Hanover Trust Co., was named Olympia & York’s new president. He will be the firm’s point man as Olympia & York tries to piece together a massive restructuring plan, involving as much as $20 billion in debt.
Meanwhile, Canadian government officials tried to ward off public concern about a taxpayer bailout of the real estate firm.
Canadian Finance Minister Don Mazankowski has said that the Bank of Canada and the Finance Department have been involved in talks about the firm’s future, although it is not yet clear what the Canadian government’s role will be.
“What we’re interested in doing, together in a cooperative effort with other international players, is stabilize the situation and try to avert any financial disruption,” he said. “That is our goal--and that’s not a bailout.”
Financial analysts here are sifting through the company’s affairs and trying to understand what went wrong with Canada’s preeminent real estate development concern.
What, they want to know, transformed a privately held company said to be worth more than $25 billion from an international high-flier of sterling repute to an invalid needing a debt restructuring of historic proportions?
Information about the Olympia & York empire, controlled by the famously secretive Reichmann brothers of Toronto--Paul, Albert and Ralph--has never been easy to come by.
But in general, the answers lie in three areas:
* The company’s oversized ambitions in a huge London docklands reclamation project, Canary Wharf.
* Its sudden inability this month to roll over its commercial paper amid a surge of rumors about its financial health.
* Its attempts to diversify, which were supposed to protect Olympia & York against real estate booms and busts but instead only exposed it to business cycles in other sectors.
The details:
Canary Wharf--Most of Olympia & York’s crushing indebtedness stems from this vaunted office tower development in London’s decaying industrial docklands along the Thames River.
The Reichmanns launched the enormous project in 1987, in hopes of cashing in on what they thought would be a real estate boom this year, when the European economies merged. Canary Wharf was to cost some $6.5 billion and cover 71 acres with stylish, high-tech buildings.
Up until the current crisis, the company had spent more than $3.5 billion of its own funds on Canary Wharf. Of a planned 10.5 million square feet of office space, 4.3 million square feet had been built.
But London has proved to be afflicted with the same commercial real estate glut as nearly every other major Western city. And with the British economy in recession, it has been hard for Olympia & York to lure prospective tenants to Canary Wharf.
British politics are further clouding the picture.
Transportation links to Canary Wharf aren’t the best. The development is separated from the center of London by a congested maze of narrow streets.
So the Reichmanns have been pumping millions of dollars into the refurbishment of a light-rail line to the site and have pledged hundreds of millions of dollars more toward an extension of London’s subway system.
Britain’s Conservative government has supported these developments. But now that an election is approaching--and with the opposition Labor Party calling the Canary Wharf development a “white elephant”--financial analysts have begun to wonder whether the all-important transportation projects will go ahead if Labor wins.
Commercial paper--Rumors that Olympia & York was headed for financial collapse have circulated for some time, but the Reichmanns have, until now, denied that anything was seriously amiss.
But in recent months, rumors that the Reichmanns were discreetly peddling pieces of their prized North American real estate portfolio began to spiral out of control in Toronto brokerage circles.
Against that backdrop, Dominion Bond Rating Service, a Toronto rating agency, downgraded its rating of about $260 million of Olympia & York commercial paper. The paper in question is backed by the mortgage on Olympia & York’s glamorous Exchange Tower, a high-rise that houses the Toronto Stock Exchange and the company’s own corporate headquarters.
Investors began refusing to renew the paper when it matured. That, in turn, prompted Dominion to put the instruments on “rating alert,” a status that means the agency is working on yet another revision of its rating.
Olympia & York had to retire the commercial paper in question; to cover the obligation, it is said to be negotiating to sell Exchange Tower back to its banks.
Diversification--Following its legendary late-1970s success in Manhattan real estate, Olympia & York went on a diversification binge.
The real estate company--which had started out as a lowly Toronto tile-and-carpet concern--became an international conglomerate with holdings in energy, financial services, beverages and newsprint.
Unfortunately, the Reichmanns moved into sectors that have gone into the worst tailspins Canada has witnessed in decades.
The foremost example is newsprint. Olympia & York bought an 82% interest in Abitibi-Price, a troubled paper concern going through a wrenching corporate overhaul of its own.
