World’s No. 1 Realty Firm Files for Bankruptcy
Olympia & York Developments Ltd., the world’s largest real estate company, which has been staggered by a global economic slowdown and property slump, filed for court protection under Canadian bankruptcy laws Thursday night after failing to refinance $12 billion in bank loans.
The Toronto court filing is one of the largest bankruptcy actions ever and could ripple through world financial and real estate markets and strain the resources of major banks that made huge loans to the firm. Repercussions could be most profound in Canada where the government has made numerous efforts to try to help Olympia & York through its cash squeeze and minimize the impact on Canada’s already weakened economy.
It was unclear Thursday night whether the company had taken refuge under U.S. bankruptcy laws. The Associated Press reported that papers were being brought to the home of a clerk for the U.S. Bankruptcy Court for the Southern District of Manhattan, who declined comment. Olympia & York declined comment, but the company has scheduled a press conference for this morning in London.
Thursday’s Canadian filing climaxed weeks of negotiations with 91 banks around the world who financed the firm’s projects from London to Los Angeles. The firm, owned by the secretive Reichmann family of Canada, thus becomes the largest casualty of the worldwide real-estate downturn. It has total debts of $18.5 billion.
“It is our understanding that they have filed for insolvency,” Steve Martin, manager of external relations at the Hong Kong & Shanghai Bank, said in a telephone interview from Hong Kong. The bank, which is among Olympia & York’s many creditors, said its loans are not in danger of default.
Olympia & York owns Manhattan’s World Financial Center, Toronto’s First Canadian Place and other skyscrapers from London to Dallas. In Los Angeles it has a 50% interest in the World Savings Building at 11601 Wilshire Blvd. and about a 45% interest in the 400 S. Hope Street building.
The company’s Waterloo was its massive $6.6-billion Canary Wharf project in the London docklands.
A key blow to Olympia & York was a British court ruling Thursday that it must pay $240 million immediately to Morgan Stanley & Co., the investment bankers, concerning a lease dispute at the Canary Wharf project.
The firm launched the project in 1987 in hopes of cashing in on an expected real estate boom, but the real estate glut that afflicted nearly every other major Western city also hit London, and the British economic recession made it difficult for Olympia & York to lure prospective tenants.
Also on Thursday, Olympia & York apparently failed to make a $14-million payment on commercial paper secured by its own headquarters--First Canadian Place, a 71-story Toronto skyscraper.
“I would look at this as part of the restructuring process, that it brings stability to the company and allows it in an orderly way to do a long-term restructuring instead of fighting fires every day,” one source familiar with the bankruptcy filings told the Associated Press.
The Olympia & York bankruptcy filing ranks with such large bankruptcies as Texaco and the giant retailer Campeau Corp., which had nearly $10 billion in debts when it filed for court protection in January, 1990. By contrast R.H. Macy and Co. had debts of $5.3 billion when it filed for bankruptcy protection in February of this year.
The move to seek court protection from creditors is a striking blow to the prestige of Olympia & York, whose office properties are among the choicest in the world. The company, built on debt and what appeared until recently to be canny risk-taking, catapulted into prominence in 1977 when the Reichmanns plunked down $320 million for eight Manhattan office buildings during the depths of New York City’s financial crisis.
When the city recovered, the Reichmanns were able to refinance the buildings for a staggering $1.5 billion, contributing to their reputation as financial geniuses. Their firm is the largest commercial landlord in New York.
All together, the Reichmanns--family leader Paul, 61, and his brothers Albert, 63, and Ralph, 58--own about 47 million square feet of office building space, about 10 million feet of which is now vacant.
