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The American Express property may be transferred to its mortgage holder, the Rhode Island Pension Fund.
Journal photo / Andrew Dickerman The American Express Building in Providence sits in a prime location -- next to the train station and across from the Providence Place mall -- but it sits empty.
BY ANDREA L. STAPE Journal Staff Writer | February 23, 2005
The Rhode Island Pension Fund could soon own a downtown Providence office building.
If a tentative plan in Boston bankruptcy court is approved, the pension fund could take ownership of the four-story office building next to the Providence train station -- known as the American Express building.
Boston-based Gateway Eight LP, the company that owns the building, filed for Chapter 11 bankruptcy protection in Boston last fall. The Rhode Island Pension Fund holds the $23-million mortgage on the empty building, and is among Gateway's largest creditors.
The state employees retirement fund loaned Gateway $23 million in 1999. The mortgage on the building came due on Dec. 1, but Gateway didn't have the money to pay it off and the pension fund was unwilling to extend the mortgage, according to court documents. Gateway filed for Chapter 11 on Nov. 30 to gain some "breathing space" to restructure its debts and find new tenants for the building, according to court documents. The company owes the pension fund $22 million.
Now, lawyers for the pension fund and Gateway have struck a tentative deal that would give the pension fund "sole operating control of the property," according to court filings.
"Obviously the preferred result is just to get paid. The owner can't pay us, so the next best result is to own the building," said William Baldiga, a lawyer representing the pension fund from the Boston law firm Brown, Rudnick Berlack Israels LLP. "The essential deal is that ownership will be turned over to the fund."
The plan, however, is tentative, cautioned Baldiga. If the details are ironed out, the transfer would have to first be approved by the State Investment Commission, a board that oversees Rhode Island pension-fund investments. It would then need to be approved by bankruptcy court judge William Hillman.
Gateway will still have a small ownership stake in the building, but that is mostly for "tax structuring purposes," said Daniel Glosband, a lawyer representing Gateway from Boston law firm Goodwin Procter LLP.
"The bankruptcy court processes will take four to six weeks . . . we can't do that until we settle on the tax issues," said Glosband.
The investment commission, headed by Rhode Island General Treasurer Paul J. Tavares, is holding its monthly meeting today. Discussion of the bankruptcy and the building is on the board's agenda, according to Marisal Garcia, a spokeswoman for the treasurer. But it's unclear if the board will vote on any proposals. "I don't think there will be a proposal for them to vote on," Baldiga said.
"I think we're obligated in the bankruptcy to look at any proposal made to see if it makes sense," Tavares said during an interview last week. "Our goal is to bring the best return to the system."
A hearing about the building and the status of the bankruptcy was scheduled for today in bankruptcy court in Boston, but was postponed due to the pending agreement.
Gateway is the original developer of the building, which is next to the Providence train station and close to the Providence Place mall. In 1989, the Rhode Island Industrial Facilities Corporation issued $23 million in bonds. The money was given to Gateway, which used it to build the American Express building. (American Express was once a major tenant in the building.) The state pension fund bought the bonds.
Gateway was required to pay back the money by 2000. In 1999, Gateway restructured the mortgage with the pension fund and established a new due date of Dec. 1, 2004.
The company, whose principal is Boston-developer Dean Stratouly, started talking to the pension fund about extending the mortgage deadline last year. But the discussions were complicated by an announcement by the building's primary tenant -- Boston Financial Data Services -- that it was pulling out of the state and terminating its lease.
Gateway presented an arrangement which included borrowing part of the money it owed the pension fund from Bank of America and nailing down a lease with a new commercial tenant by the middle of this year, according to minutes from a December investment-commission meeting. Investors Bank & Trust Co., a Boston financial-services company, had expressed interest in moving into the building, but requested $5 million in renovations be done, according to the minutes.
The Boston developer, though, couldn't guarantee that the lease would be signed and it would pay off only $15 million of the $23-million mortgage immediately.
With Gateway unable to meet its mortgage obligation in full, and the building empty, the pension fund rejected the deal.
The building is still empty, and has a market value of about $25 million, according to Gateway. Commercial tenants are still interested, said Glosband, the lawyer for Gateway. But, Baldiga said, "the pension fund really hasn't made any decisions because they don't own the building."
From The Providence Journal
