The proposed buyer agreed to pay $100 million for a major Manhattan bus station. The purchase price included assuming a $72 million loan from the seller’s foreign investors. The buyer backed out in the face of demands by the landlord, that the buyer assume all outstanding ground lease liabilities, and place $17 million in escrow for other property problems.
M&A Stories
June 26, 2022
Introduction:
In June 2022, a potential buyer had agreed to purchase a significant Manhattan bus station for $100 million, which included taking on a $72 million loan from the seller’s foreign investors. However, the buyer decided to back out of the deal because of demands made by the landlord. The landlord required the buyer to assume all remaining ground lease responsibilities and deposit an additional $17 million in escrow to address other property issues.
The Deal:
The seller was a real estate investment firm that was renovating the bus station, incorporating valuable retail space. One of its key assets was a 99-year ground lease with the Port Authority of New York and New Jersey. After facing substantial cost overruns and a $113 million dispute with its contractor, the seller filed for bankruptcy. Subsequently, they negotiated a sale with a buyer for around $100 million, which also included the repayment of the $72 million owed to the project’s foreign investors.
However, the Port Authority refused to approve the lease assignment to the buyer unless the buyer agreed to take on all outstanding lease liabilities and placed an additional $17 million in escrow to address other property-related issues. As a result, the buyer declined the Port Authority’s demands, and the project was eventually sold to another buyer for only $26.5 million, leaving no funds to repay the foreign investors.
The Lawsuit:
Following this, the foreign investors filed a lawsuit against the Port Authority.
This case is referred to as In Re George Washington Bridge Bus Station Development Venture LLC, Case No. 19-13196 (DSJ), Adv. Proc. No. 21-1200 (DSJ), United States Bankruptcy Court, S.D. New York, (May 25, 2022).
Comment:
Purchasing a distressed business out of bankruptcy with a valuable unexpired tenant lease comes with significant challenges. The buyer is required to address all outstanding defaults, including unpaid rent, under the lease and provide adequate assurance to the landlord that they can fulfill their future lease obligations. This requirement is outlined in Bankruptcy Code §465(f). As the economy faces the possibility of a recession, there may be increased opportunities for buyers looking to acquire distressed businesses, but they must be well-prepared to handle the complexities involved in such deals.
By John McCauley: I write about recent legal problems of buyers and sellers of small businesses.
Email: jmccauley@mk-law.com
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Telephone: 714 273-6291
Check out my book: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles
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