But Jamestown's beef isn't with Moody's. According to Zoukis, the first they heard of the dilemma was when Jamestown went for bank approval on certain building upgrades. "Fat, dumb and happy, we package the request and ship it off to the Bank of New York," he recalls. "We wait a couple of days and don't hear anything. We call them up and they tell us our loan was assigned to special servicing and that we'd have to call [special servicer] Orix. That's how we found out about this."

That was actually the climax of what managing director and general counsel Matt Bronfman describes as a frustrating string of phone calls stretching back to June 20. "Our first communication from BNY reminded us that we had to show evidence of coverage," he explains. "August 10 was going to be the first renewal date of our policy since Sept. 11, 2001."

"Properties the size of 1211 require special attention," states Zoukis, "because they are more difficult to insure. We wanted to start a conversation with the people of BNY to discuss what our plan was."

That plan involved counting land value toward coverage. "Our operative theory was that we were going to get some across-the-board coverage on our total portfolio," says Zoukis. "Key to our theory was that the land was worth in the ballpark of $200 million. With base coverage of $75 million, the question was how much excess we needed to buy. With $200 million in credit, and based on our $350 million in debt, all we needed was an additional $75 million to $100 million to get us where we needed to be--if they accepted our land theory. But you can't go out and do these things without talking about it."

On July 15, BNY sent a letter saying that "the borrower is in default in its obligation to provide evidence of renewal 30 days in advance."

The next day, Zoukis claims, they wrote a response summing up the Jamestown position. "Matt writes back after talking with AIG, Chubb, Travelers and others. His letter states that, given the volatile nature of the market, insurers will not release and hold quotes for more than a couple of days and so we would not be able to provide the terms of our renewal until much closer to August 10. He told them we would update them and then he confirmed that--quote--You agree you will not take any action under the loan and the correct answer is that we are not in default. We have in place proper coverage. Moreover, it is not our plan to implement a modification and we are just going to renew.--end quote. That letter goes out and doesn't get answered."

In fact, say the Jamestown executives, BNY imposed what they call a "radio silence"-- with the exception of pro forma reminders. That included a letter in mid-July notifying Jamestown that it needed to spend "$3.5 million, but this was only a good-faith estimate of the premium," says Bronfman, "without specifying the amount of coverage required. They had the right to buy to coverage and bill us, and they said they would wave that right until our next payment."

Despite the alleged silence, Jamestown did purchase coverage of $75 million in terrorism insurance, says Zoukis, and it did so on the renewal date. Also on the renewal date, Jamestown's insurance advisor reportedly contacted BNY and asked one last time what they wanted. Zoukis says they replied: "We don't know. We'll get back to you." The next they heard, the special servicer was in the picture.

Once they uncovered that a special servicer was involved, they called Orix, which Zoukis alleges denied the coverage for the land and demanded the borrower pony up either replacement cost of the building or the value of the loan amount--whichever was less. (After an initial interview, a follow-up phone call to Orix to clarify this issue was not returned by deadline.)

The interest shortfall that resulted from the situation is relatively low--$37,500 per month plus a one-time fee of $250,000. But the Jamestown executives are looking at bigger issues. "We are in the business of raising money from retail-level investors," says Zoukis, "and we have a number of constituencies to keep happy--our investors, who don't want to get stuck with more expenses than they had hoped for and don't want their loan to be in default; our lender, who has certain requirements, and they are not paid to take a whole bunch of risk; and our tenants, who will bear some form of this in their lease pass-throughs."

"If I have to defend additional expenditures to investors and tenants, I want something in writing that says 'you have to do this or you will be in capital-D default," states Bronfman. "I still haven't gotten that letter."

"I won't second-guess the Bank of New York," states Orix Capital Markets CEO Jim Thompson. "But we understood that the borrower refused to comply, and they told the borrower that they were in default. In fact we have a binder, but not a policy. This thing isn't done yet."

"While we were told we were in default on July 15 for failure to provide notice 30 days in advance, we cleared that up on July 16," responds Bronfman. "August 10 is the critical date here, and that's when we got no notification. All we got was radio silence."

Calls to Bank of New York were not returned by deadline.