Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Official citation and/or docket number and footnotes (if any) for this case available with purchase.

Learn more about what you receive with purchase of this case.

IN RE PENN CENT. TRANSP. CO.

UNITED STATES DISTRICT COURT, EASTERN DISTRICT OF PENNSYLVANIA


October 20, 1972

In the Matter of PENN CENTRAL TRANSPORTATION COMPANY, Debtor. In re SALE OF PARK AVENUE PROPERTIES

The opinion of the court was delivered by: FULLAM

INTRODUCTION

The Trustees seek authorization to sell certain major real estate holdings of the Debtor located in the Park Avenue area of the City of New York, for prices totalling $ 59,549,000. Conditional or absolute objections to some or all of the proposed sales have been interposed by several interested parties, on a variety of legal and factual grounds.

 The following issues, directly or indirectly related to the proposed sales, are presented for decision:

 Issues applicable generally:

 1. Would the proposed sales, as a matter of business judgment, be in the best interests of the Debtor's estate and its reorganization?

 (a) Should the sales be approved on the assumption that the Trustees cannot or will not disaffirm existing leases?

 2. Does § 77(o) of the Bankruptcy Act empower the Court to approve the proposed sales, or must approval await the adoption of a reorganization plan?

 3. May the proposed sales be carried out without the consent of the New Haven Trustee?

 4. Are the trustees entitled to use the income from the properties for operating expenses, or must the income be sequestered, either

 (a) by reason of the rights of the New Haven trustee? or

 (b) by reason of the rights of certain indenture trustees?

 Issues applicable to properties leased from the New York and Harlem Railroad Company ("Harlem")

 5. Is the Harlem lease valid and subsisting?

 6. May the Trustees affirm the Harlem lease, or may the Harlem now terminate it instead?

 (a) If the Trustees affirm the lease, does this require present payment of the (accelerated) principal of the bonds secured by the Harlem mortgages?

  (b) If the Trustees affirm the lease, must they now pay dividends on the Debtor's Harlem stock pledged as collateral for the R&I mortgage?

 7. May the Trustees carry out the proposed sales without the consent of the Harlem?

 8. May the Trustees carry out the proposed sales without the consent of the indenture trustees of the Harlem mortgages?

 For the reasons hereinafter expressed, I have concluded that the proposed sales may lawfully be consummated at this time, that whether they should or should not be authorized is primarily a matter of business judgment, and that certain of the sales should be approved, while others should not.

 Because of the magnitude of the transactions and the complexity of the issues involved, it is necessary to set forth the facts in some detail.

 FINDINGS OF FACT

 1. The Debtor's estate includes various real estate holdings in the Borough of Manhattan, in the City of New York, commonly known as the Park Avenue Properties (the "Properties").

 2. In general, the Debtor has constructed rail facilities below the street level of these properties. The use of the subsurface rights for the Debtor's rail operations has not detrimentally affected the value or usefulness of the surface and air rights for commercial development.

 3. The Properties have been developed during this century for office or hotel use.

 4. The Debtor's interests in the Properties are of two kinds: fee interests originally acquired by the Debtor's corporate predecessors; and leasehold rights under a 401-year lease executed in 1873 by the New York and Harlem Railroad Company (the "Harlem") in favor of the New York Central and Hudson River Railroad Company. Certain of the Properties were developed on parcels in which the Debtor has combined fee and leasehold rights.

 5. The Trustees own the fee interest in the following Properties either directly or through a wholly-owned subsidiary:

 

51 East 42nd Street

 

Biltmore Hotel

 

Yale Club

 

52 Vanderbilt Avenue

 

Commodore Hotel

 

Lexington-43rd Street Driveway

 

Graybar Building

 

280 Park Avenue-West Building (Bankers Trust Building)

 

466 Lexington Avenue

 

245 Park Avenue (American Brands Building)

 

299 Park Avenue (Westvaco Building)

 

Barclay Hotel

 

Waldorf Astoria Hotel

 

280 Park Avenue-East Building (Bankers Trust Building) approximately 75% of the fee interest

 

230 Park Avenue-tenant in common

 6. The Harlem owns the fee interest in the following, subject to the Trustees' leasehold interest pursuant to the Harlem lease:

 

Air rights over Grand Central Station

 

Pan Am Building

 

Roosevelt Hotel

 

383-84 Madison Avenue

 

250 Park Avenue

 

270 Park Avenue (Union Carbide Building)

 

280 Park Avenue-East Building (Bankers Trust Building) approximately 25% of the fee interest

 

230 Park Avenue-one of the tenants in common

 

320 Park Avenue (ITT Building)

 

350 Park Avenue (Manufacturers Hanover Trust Company Building)

 

277 Park Avenue (Chemical Bank Building)

 7. In the majority of cases the Debtor's estate is the lessor under long-term ground leases, the improvements having been constructed by the ground lessee or other entity.

  8. The annual cash flow to the Debtor from the Properties is subject to fluctuations occasioned by the participation provisions or similar arrangements found in many of the ground leases. The actual rental payment received by the Debtor from the Properties exclusive of tax payments made directly to the City of New York under the respective leases or pursuant to orders of this Court is approximately $ 20 million to $ 22 million per annum. Capital improvements to the hotels cost the Debtor between $ 2 million and $ 3.5 million per annum, and the Debtor's annual tax liabilities on the Properties, over and above taxes paid directly by the lessees total approximately $ 6.5 million per annum.

 9. Assuming continued deferral of taxes, the annual cash flow from the Properties is in the area of $ 16 to $ 17 million. If taxes were to be paid on a current basis, the cash flow would be about $ 10 to $ 11 million per year.

 10. The Trustees' fee interests and leasehold rights in the Properties are subject to three mortgages known as the Hudson River Mortgages:

 a. The New York Central & Hudson River Railroad Company 3 1/2 % mortgage dated June 1, 1897;

 b. The New York Central and Hudson River Railroad Company Consolidated Mortgage dated June 20, 1913;

 c. The New York Central and Hudson River Railroad Company Refunding and Improvement Mortgage dated October 1, 1913 ("R & I Mortgage").

 11. Security for the Hudson River Mortgages consists in part of approximately 2,000 route miles and 4,000 track miles of the Central's operating property east of Buffalo. The R & I Mortgage is also secured by a lien of various rankings on an additional 1,700 route miles and 3,500 track miles as well as a lien on the Debtor's leasehold rights under six lease agreements covering 2,300 route miles and 4,200 track miles.

 12. Definitive segregation studies are not available to determine the losses incurred by various segments of the Debtor's system. It is estimated that the losses on the line constituting the security for the Hudson River Mortgages is equal to or greater than the annual cash flow from Park Avenue Properties.

 13. The Harlem's reversionary fee interest in the Properties is subject to two mortgages:

 a. The New York and Harlem Railroad Company 3 1/2 % Gold Bond Mortgage dated June 1, 1897;

 b. The New York and Harlem Railroad Company 4% Mortgage dated July 1, 1943 (the Second Harlem Mortgage).

 14. In May of 1971, the Trustees decided to solicit bids for the Properties in order to determine whether any or all of the Properties could be sold for prices consistent with fair market value. On June 21, 1971, the Trustees authorized the issuance of an invitation to the public to submit bids, not later than October 15, 1971, for the purchase of any one or more of the Properties.

 15. The Trustees were not bound to accept any bids. Evaluations of the bids and decisions to accept or reject the bids were made by the Trustees upon recommendations of in-house personnel, and two retained consultants, Mr. John Guest of the Trustees' financial consultants, Kuhn, Loeb & Company, and the Trustees' real estate consultants, Jackson-Cross Company.

 16. The recommendations to the Trustees by Jackson-Cross Company were formulated without reference to the fact that the Debtor was in reorganization under § 77.

 17. Jackson-Cross Company's appraisals of each property were not adjusted to reflect the fact that all of the Properties were subject to bid at one time. The market value of each property was determined separately according to accepted appraisal practices, to wit: that the market value of income-producing real estate is based on the "income stream" generated by the parcel and the application of an appropriate discount factor or multiple.

  18. The selection of a discount factor for each building was in accord with sound appraisal techniques and fully reflected the status of the real estate market for the kinds of properties involved.

 19. In addition to the appraisals described in findings 17 and 18, Jackson-Cross Company applied similar techniques in arriving at alternate market values predicated on the assumption that the Trustees could now disaffirm the ground leases and renegotiate the terms thereof at present market rates. These alternate values are higher than the basic appraisals because of the long term nature of present lease agreements and the fact that they were executed, in most cases, many years ago when different market rates prevailed.

 20. The Trustees have executed agreements of sale of their interest in six of the Properties subject to the approval of this Court, and have petitioned for approval of those agreements. Under the agreements, all subsurface rights and related surface rights necessary for rail operations have been reserved by the Trustees.

 21. Pursuant to the agreements, the Trustees propose to sell the following property interests:

 a. A fee interest in property, approximately 9,105 square feet in area, situate at 52 Vanderbilt Avenue, southwest corner of 45th Street and Vanderbilt Avenue, and the 20-story office building thereon known as the Vanderbilt Concourse Building (52 Vanderbilt Avenue). The property is presently leased to 51st St. Realty Corporation, an indirect wholly-owned subsidiary of Debtor, as assignee, under a lease which is terminable by either party at the end of any month on ten days' notice; the property is subleased to numerous subtenants.

 b. A leasehold interest in property, approximately 15,062 square feet in area, situate at 350 Park Avenue, between 51st and 52nd Streets, which includes thereon a portion of a 30-story office building known as Manufacturers Hanover Trust Company Building (350 Park Avenue). The property is presently leased to Manufacturers Hanover Trust Company, as successor tenant, for a term expiring December 31, 1990 (subject to two 21-year renewals).

 c. A combination fee and leasehold interest in property, approximately 24,970 square feet in area, situate at 280 Park Avenue, between 48th and 49th Streets, which includes thereon a 30-story office building known as Bankers Trust Building-East Building (280 Park Avenue-East). 280 Park Avenue-East is presently leased to Rose Associates for a term expiring November 30, 2006 (subject to a 21-year renewal) and subleased by Rose Associates to Bankers Trust Company.

 d. A fee interest in property, approximately 12,000 square feet in area, situate at 280 Park Avenue, 124' 4" West of Park Avenue, between 48th and 49th Streets, which includes thereon a 16-story office building known as the Bankers Trust Company-Middle Building (280 Park Avenue-West). 280 Park Avenue-West is presently leased to Sigmund Sommer for a term expiring January 1, 2018 (subject to a 25-year renewal), and subleased by Sommer to Bankers Trust Company.

 e. A combination fee and leasehold interest in property, approximately 69,154 square feet in area, situate at 230 Park Avenue, between 45th and 46th Streets and Vanderbilt Avenue and the northerly extension of Depew Place, and the 34-story office building thereon known as the New York General Building (230 Park Avenue). 230 Park Avenue is presently leased to New York Bank for Savings, as successor tenant, for a term expiring October 14, 1983 (subject to a 25-year renewal).

 f. A fee interest in property, approximately 81, 337 square feet in area, situate at 245 Park Avenue, between 46th and 47th Streets and Lexington and Park Avenues, which includes thereon a 47-story building known as the American Brands Building (245 Park Avenue). 245 Park Avenue is presently leased to Uris 245 Park Corporation for a term expiring May 14, 2002 (subject to two 30-year renewals).

 22. In addition to the mortgage liens set out in Findings 10 and 13, the six properties are also subject to various judgment and tax liens.

 23. The bids accepted by the Trustees for the six properties were the highest bids submitted in each case. 24. The following tables provide a comparison of the appraised value of the properties and the accepted bids. Table I-Present Lease Agreements in Effect Property Accepted Bidder Income 52 Vanderbilt Van Corner Corp. 366,000* 280 Park West Bankers Trust 80,000 245 Park Corporate Property Investors 1,234,000 350 Park Manufacturers Hanover 165,000 280 Park East Rose Associates 262,000 230 Park Corporate Property Investors 2,303,000 * Total 4,410,000 * The figures given are net after property taxes, and in the case of 52 Vanderbilt and 230 Park Avenue after a depreciation allowance. Absent the depreciation allowance the income would be stated at $ 4,888,000. TABLE CONTD Table I-Present Lease Agreements in Effect Property Appraised Value Net Consideration % of Consideration to appr'd value 52 Vanderbilt 4,250,000 4,128,000 97.1% 280 Park West 1,200,000 1,211,000 100.9% 245 Park 16,200,000 14,994,000 92.6% 350 Park 2,300,000 3,351,000 145% 280 Park East 4,100,000 5,251,000 128.1% 230 Park 30,600,000 30,614,000 102% Total 58,650,000 59,549,000 101% * The figures given are net after property taxes, and in the case of 52 Vanderbilt and 230 Park Avenue after a depreciation allowance. Absent the depreciation allowance the income would be stated at $ 4,888,000. Table II-Appraisal Values Adjusted for Disaffirmance Alternate Appraisal Value Not Applica- Net Consideration % of Consideration ble, Debtor owns to Alternate fee & improvements Appraisal Values under immediately Property terminable lease to subsidiary 52 Vanderbilt 280 Park West 1,420,000 1,211,000 85.3% 245 Park 26,400,000 14,994,000 56.8% 350 Park 5,270,000 3,351,000 63.3% 280 Park East 8,700,000 5,251,000 60.4% 230 Park 35,000,000 30,614,000 87.5% Total 76,790,000 55,421,000 72%

19721020

© 1992-2004 VersusLaw Inc.



Buy This Entire Record For $7.95

Official citation and/or docket number and footnotes (if any) for this case available with purchase.

Learn more about what you receive with purchase of this case.