NEWS ANALYSIS : FALL OF A REAL ESTATE GIANT : O&Y; a Victim of Events and Bad Luck : Bankruptcy: The worldwide recession, a costly mistake in London and crushing debts ganged up on the real estate giant.

The bankruptcy filing by Olympia & York might well keep alive the world’s largest real estate company, but it represents a once-unthinkable descent for one of the most mysterious and successful business enterprises of modern times.

The Reichmann brothers, Paul, Ralph and Albert, offspring of World War II refugees from Europe who settled here in the 1950s, turned a small family tile-importing business into a huge, privately held empire in real estate, oil and timber once valued at $31 billion.

But recessions in the United States, Canada and Great Britain, a $7-billion mistake along London’s Thames River, unwise diversification moves and bad luck have now triggered what stands to become the largest bankruptcy in history.

In the end, analysts say, a failure to find buyers for Olympia & York’s still-thriving assets--due in part to the retreat of Japanese investors from the West because of their own fiscal woes back home--caused the proud Reichmanns to lose control and to duck behind the shields of Canadian and U.S. bankruptcy laws.

Already, the Reichmann empire has begun to shrink: It has managed to sell a controlling interest in one of North America’s biggest oil pipeline companies. And while its executives vow there will be no “fire sales,” any surviving entity will necessarily be much smaller.

In Canada, the fall of the Reichmanns has been a blow even to national pride. Orthodox Jews who live unpretentiously in a Toronto neighborhood and spread their wealth as philanthropists, the brothers are admired locally as a family whose ethics and business skills are unmatched. Their successes abroad during the last two decades helped bolster Canada’s world image.

Traditionally conservative Canadian banks are said to be the toughest obstacle to Olympia & York’s attempt to restructure its debt. In Toronto--a city that closely follows the Reichmann drama--many cast their sentiments with the Reichmanns and against the banks.

A Canadian customs agent greeted a visitor at Toronto’s airport Friday by holding up a newspaper headline that screamed of Olympia & York’s bankruptcy and said, “This is not bankruptcy. It’s just a waiting period so these banks can’t come in and take anything. They’ve got the economy in the palm of their hands. These banks have got to wake up!”

And while it is clear that the Reichmanns made their mistakes--notably the massive but still unfinished Canary Wharf development in London--many fault the Canadian government for taking Olympia & York down with the economy.

“This is the Bank of Canada’s fault,” says Peter Dungan, an economist at the Institute for Policy Research at the University of Toronto, referring to anti-inflationary policy followed by the nation’s central bank that is blamed for Canada’s recession. “I don’t think the Reichmanns took excessive risks or made stupid mistakes.”

Starting with some industrial buildings on the outskirts of then-sleepy Toronto in the late 1950s, Olympia & York pioneered virtually every trend in commercial real estate in the last 30 years. Among them was an early awareness of the role played by local governments in regulating office space, experts say.

The Reichmanns also became known as straight shooters who would put up plenty of their own capital--$300 million in the case of New York’s World Financial Center--before seeking outside financing. It reflected their willingness to take upfront gambles for long-term payoffs.

In 1977, the Reichmanns’ network of real estate contacts led to their opportunistic purchase of eight New York office buildings for $320 million as the city flirted with bankruptcy. The buildings eventually increased in value tenfold.

With the real estate boom of the 1970s and ‘80s, the Reichmanns’ net worth exploded, and they used their wealth to diversify into oil, timber and other industries. But the moves have come back to haunt Olympia & York.

The timber and oil and gas industries have suffered and so have stock prices, eating into the Reichmanns’ assets and lessening their value as collateral against loans from already squeamish lenders. Meanwhile, their confident expansion into new real estate markets ran up against a massive glut of office space in New York, London and elsewhere.

Most of the company’s crushing indebtedness stems from Canary Wharf, an office tower development in London’s decaying industrial Docklands. The company has already spent at least $2 billion of its own money on the project, which is less than half-built and is coping with 40% vacancy rates amid London’s worst property slump in 45 years.

“They were victims of their own blindness to the competitive situation in London,” said Robert Fairholm, managing economist at DRI/McGraw Hill in Toronto. “Until then, their timing was impeccably on. But that time, their timing was off. If they hadn’t had Canary Wharf, they wouldn’t be in (bankruptcy).”

The current problems began in Februray as rumors spread that the Reichmanns were discreetly peddling pieces of their prized North American real estate portfolio, a Toronto bond-rating agency downgraded about $260 million in Olympia & York commercial paper backed by the mortgage on its glamorous Exchange Tower in downtown Toronto.

Olympia & York Holdings

The following are properties owned by Olympia & York Developments Ltd., which filed for protection from its creditors for some of its assets on Thursday. All properties were included in the bankruptcy filing except the Canary Wharf Development in London and the World Financial Center in New York.

U.S. Real Estate

Los Angeles

400 S. Hope St., 26-story office tower

11601 Wilshire Blvd., 24-story office tower

New York City

2 Broadway, 32-story office tower

60 Broad St., 39-story office tower

125 Broad St., 40-story office tower

55 Water St., 53-story office tower

237 Park Ave., 23-story office tower

245 Park Ave., 44-story office tower

320 Park Ave., 34-story office tower

1290 Ave. of the Americas, 43-story office tower

1 Liberty Plaza, 54-story office tower

1250 Broadway, 39-story office tower

Three of four office towers making up the World Financial Center

425 Lexington Ave., 31-story office tower

Hartford, Conn.

1 Corporate Center, 17-story office tower

1 Commercial Plaza, 29-story office tower

Portland, Ore.

KOIN Center, 33-story office, retail and condominium tower

Chicago

Olympia Center, 63-story office, retail and condominium tower

Dallas

1999 Bryan St., 36-story office tower

Boston

Exchange Place, 40-story office tower

Springfield, Mass.

1 Financial Plaza, 17-story office tower

Orlando, Fla.

Olympia Place, 19-story office tower

Foreign Real Estate

Canada

First Canadian Place, Toronto

Edmonton City Centre, Edmonton

Shell Centre, Calgary

240 Sparks St., Ottawa

L’Esplanade Laurier, Ottawa

Britain

Canary Wharf, London

Companies

U.S.: Olympia & York Realty; O&Y; (U.S.) Development Canada; O&Y; Equity (Canada); Olympia & York SF Holdings

Canadian: Stock in Trizec Corp., Carena Properties Inc., Gulf Canada Resources Ltd. and Abitibi-Price Inc.

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