New York REIT Wins Worldwide Plaza Lawsuit

Scott Rechler and Marc Holliday’s situation at the struggling Worldwide Plaza just got trickier.

A New York judge has ruled that New York REIT — which owns a majority stake in the 2 million square-foot complex at 825 Eighth Avenue alongside RXR and SL Green — can take control of a $90 million pot of money at the center of a years-long battle between the two firms.

The money had been set aside to help lease a big vacancy (about 30 percent of the building) left behind by the law firm Cravath Swaine & Moore. But the owners have not found a tenant to fill the space.

The disagreement centered around the contract language regarding the $90 million reserve account. Attorneys for New York REIT argued that the contract only required the money be held for one budget year that ended in 2018.

RXR and SL Green’s attorneys, on the other hand, said that it should have stayed there until the partners made a capital call to fund improvements to lease the Cravath space.

Judge Joel Cohen said the matter came down to how a reasonable person would interpret the contract, and said he didn’t buy RXR and SL Green’s argument.

“You’re saying that these sophisticated parties put $90 million down a black hole that they could never get it out of,” he said from the bench during a hearing last week. “That may be right, but that is unusual — in my experience, anyway — that’s not a result most people would end up thinking is sensible.”

A spokesperson for SL Green said that the existing availability is a “highly desirable, large block of premium Class A space” and that the landlord has “substantial reserves to meet its lease obligations and assure continued Class A operation including the on-going, transformative redesign of the buildings’ plaza.”

Whose money is it?

The heart of the matter goes back to 2017, when RXR and SL Green showed up to help the uncertain office tower.

At the time it was known that Cravath’s lease was expiring in 2024, and it would take a major capital commitment to either keep the law firm in place or lure a replacement tenant. New York REIT was in no position to do that; the company was already in the process of liquidating itself.

RXR (which had previously tried to buy the property in 2013) partnered with SL Green to buy a 49 percent interest in the property from the REIT. As part of the deal, they required New York REIT to hold $90 million from the sale in a reserve account.

RXR and SL Green’s attorneys said they never would’ve partnered up with a company in the midst of liquidating if it hadn’t firmly put up the $90 million to fund leasing expenses.

Their attorney, Mark Ressler of Kasowitz, Benson & Torres, repeatedly referred to it as his clients’ money, not New York REIT’s.

“We gave the money. What I mean is RXR and SL Green, they didn’t gift $90 million to this company in liquidation,” he said. “As part of the purchase price, $456 million, $90 million of the purchase price had to be set aside in the reserve. This wasn’t a gift.”

The judge didn’t see it that way.

“You keep saying ‘gifting.’ I mean, this was the purchase price,” Cohen reasoned. “I can understand why people might want to make sure there was enough money to pay the freight going forward, but all of this was the seller’s money. You wanted to have part of it earmarked to make some of these payments, but I don’t think it’s correct to say this is your client’s money.”

New York REIT’s lawyer, Alan Kluger of Kluger, Kaplan, balked at Ressler’s characterization.

“They kept saying their money, their money, their money. I want to tell you, they aggressively wanted to buy our interest,” he said.” It’s our money, not their money.”

New York REIT sued RXR and SL Green in December 2022, asking the court to rule that the company was free to do what it wanted with the $90 million when the budget expired in 2018.

Ressler said the date of the lawsuit was significant. One way for New York REIT to get its $90 million back would’ve been to sell its 50.1 percent stake in the property and have the buyer replenish the reserve account.

Ressler said the company had a deal to sell its stake to the Moinian Group (Joe Moinian was appointed a New York REIT board observer in 2020), but the deal fell apart.

“The deal fell through. What do you know? They filed this lawsuit,” he said. “That was their last attempt to unlock the $90 million that they knew they couldn’t willy-nilly distribute to investors, contrary to what they are saying in this lawsuit.”

Carrot or stick?

Judge Cohen sided with New York REIT and said the contract only required the $90 million to be held until the budget expired in 2018, allowing the REIT to redistribute the funds to its investors.

He made his ruling from the bench, saying he wanted to act quickly so both sides could consider their options. RXR and SL Green have filed notice they plan to appeal the decision.

In the meantime, the $940 million CMBS loan on the property went into special servicing in October after RXR and SL Green fell behind on their payments.

The SL Green spokesperson said the partners have since gotten current on their payments and recently modified the senior mortgage. (One person familiar with the property, however, characterized the modification as an interim agreement.)

The SL Green spokesperson pointed to a recent 38,000 square foot renewal with M. Shanken Communications at Worldwide Plaza as an example of the property’s “blue-chip tenant roster.”

The future of the building, which is about 68 percent leased, remains uncertain. And the dispute raised questions about its owners’ intentions.

New York REIT’s lawyer didn’t mince words when he said Rechler and Holliday’s companies wanted to use the reserve account as a way to bully the liquidating New York REIT.

“I understand why they want it,” Kluger said. “It gives them some leverage to the liquidating trust which wants to now distribute it and close out the trust and finish the business of the liquidating trust. They figure they could, you know, squeeze them a little bit.”

“From the very beginning we had no money, they had a stick, and that’s what they negotiated for. That stick would have allowed them to have a call, have the money, we don’t put it in, they dilute us, they take us out of voting, they end up with 100 percent of the property,” he continued.

“There was a time at the beginning of this deal when they negotiated it, that’s what they would have wanted more than anything.”