The headache of overhauling Olympia & York is about to reach migraine proportions. The troubled real estate empire, once controlled by Toronto's Reichmann family, is now restructuring its U.S. unit's $5 billion debt, mainly on New York office buildings. Talks between the company and creditors, who won't comment, next turn to O&Y's three World Financial Center towers--and this won't be pretty.
Consider the $800 million debt on 2 World Financial Center. The debt is in bonds originally sold to Japanese investors, valued at 123 yen to the dollar. But the greenback has slipped below 100 yen, so add an extra $160 million to the debt load for negotiators to squabble over.
Another challenge is 125 Broad St. (debt: $277 million), whose main lender, Canadian Imperial Bank of Commerce, will soon take over, say those close to the talks. The good news for the bank: It's nearing a deal to sell the place to two tenants, insurance broker Johnson & Higgins and law firm Sullivan & Cromwell. The firms and the bank won't comment.
The bad news: As part of that deal, Canadian Imperial would be saddled with a lease O&Y holds on 200,000 square feet of nearby 7 Hanover Square, once held by Johnson & Higgins. O&Y assumed it in 1986 to lure the insurance broker to 125 Broad. Trouble is, O&Y then sublet to tenants who are paying today's rates (around $35 per square foot) at 7 Hanover, and O&Y must fork over mid-'80s rents ($50) to the building's owner, say real estate brokers who have looked at the deal.