The JV, known as Mazal 485 LLC, charges in a complaint filed in state Supreme Court here that SL Green breached material terms of the Purchase Agreement and breached its covenant of good faith and fair dealing. "On the surface, SL Green purported to comply with its obligations under the agreement to seek and obtain approval for the transaction from its lender, a 'formality' that SL Green represented was a non-issue prior to the agreement since the lender already 'blessed' the sale," according to the complaint. According to the complaint, "In actuality, as soon as SL Green realized that the sale was no longer advantageous, SL Green derailed the deal and stonewalled the approval process until it had an opportunity to terminate the agreement."
As reported by GlobeSt.com this past August, Mazal—the JV formed by locally-based Gilmor USA LLC and Israeli-based video services company Optibase—agreed to acquire 49.5% of the beneficial interest in the 921,000-square-foot office tower, which SL Green bought in 2004 along with adjoining 750 Third Ave. for $480 million. The JV was to pay $20.8 million, along with a loan of approximately $20 million, and assume the debt on a $450-million non-recourse loan from Wachovia Bank.
In a release at the time, Optibase CEO Tom Wyler said that Mazal was the outcome of his company's decision to diversify. "We are excited about this particular transaction being our entry point into the fixed-income real estate sector in North America and we believe our shareholders would benefit from this in the long run," Wyler said in August.
The complaint alleges that SL Green announced the sale to the news media in "a strategic ploy to drive up its stock price." According to the complaint, the REIT then shut Mazal out of the approvals process for the deal, and in a case of "seller's remorse," dragged its feet on bringing the sale to fruition.
By early December 2009, the suit alleges, "It was patently clear that SL Green had no intention of closing the sale…At a Dec. 7, 2009 annual investor conference, SL Green announced that it was 'unlikely' that the sale would be consummated." The complaint alleges that in comments made during the conference, SL Green management revealed an ulterior motive for allowing the sale to die: "If this sale does fall through, we will likely retain [the property] given improving market conditions and de-emphasis on the initial reason for our sale, as we've achieved significant deleveraging elsewhere on our balance sheet." The deal was terminated in early January, according to the complaint.
The suit does not specify monetary damages, but does seek "specific performance" to enforce SL Green's obligations under the purchase agreement, along with an abatement of the purchase price. A spokesman for SL Green tells GlobeSt.com, "The sale required lender approval, which was not received. The agreement then expired, and Optibase was notified. These are the relevant facts. The lawsuit has no merit."
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Paul Bubny
Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.
