SLG sues Ashkenazy in 625 Madison ground rent reset dispute

SL Green Realty filed two lawsuits last week against Ben Ashkenazy’s Ashkenazy Acquisition, as the parties continue their dispute over how to value the ground lease reset at 625 Madison Avenue in Midtown that will come into force this year.
Ashkenazy bought the fee position in 2013 for $400 million, expecting the annual rent would rise in 2022 from about $4.5 million to $50 million or more, according to articles at the time. In the intervening years, retail valuations skyrocketed then fell sharply, and COVID has generally reduced office values. The Real Deal covered the dispute earlier this year.
Court filings are the positions of one party and are not necessarily accurate or complete.

Case 1 LINK

Case 2 LINK

According to one of the SL Green complaints: “This proceeding arises out of the parties’ dispute related to who shall serve as the third appraiser for a rent reset appraisal process for the Property… Respondent’s actions are a transparent effort to gain an unfair advantage in the rent reset appraisal process and delay the commencement of the ground rent reset appraisal proceeding in the baseless hope that any recovery in the land market, which would lead to a higher rent, will improve Respondent’s position in the appraisal proceeding… The Ground Lease fixed base rent for the first rental period commencing on July 1, 1980 and ending on June 30, 2001. Ex. A, art. 1(1) at 10. 13. The Ground Lease provides for three renewal periods: (a) a period of 21 years from July 1, 2001 through June 30, 2022, (b) a period of 21 years, from July 1, 2022 through June 30, 2043, and (c) a period of 11 years, from July 1, 2043 to June 30, 2054. Ex. A, art. 1 at 10-11. The Ground Lease provides rent determination formulas for each of the renewal periods… To determine the rent under the Ground Lease for the renewal period beginning on July 1, 2022, Article 1 of the Ground Lease provides that annual rent must be either agreed upon in writing by the parties or is 4 ½ % of the value of the land as of July 1, 2021 as determined by an appraisal process. Ex. A, art. 1 at 10. ” According to the Ground Lease, once the parties have given notice of their appointed appraisers, the party-appointed appraisers are charged with appraising the value of the land as of July 1, 2021 as if unimproved and free and clear of any lease or leases and exclusive of the cost of demolishing any building thereon… Under the Ground Lease the party-appointed appraisers had until November 30, 2021 to agree upon the value of the land in writing. If they did not produce a written agreement on the value of the land by November 30, 2021, then the two appraisers were to seek to select a third appraiser by December 15, 2021. The sole remedy provided by the Ground Lease in the event that a third appraiser is not appointed by December 15, 2021 is the ability of either party appraiser to seek to have third party appraiser appointed by the Chamber of Commerce and if the Chamber of Commerce does not timely act or the position of president of the Chamber of Commerce is vacant the Appellate Division, First Department. ”

SL Green is asking a judge to “permanently [stay] the Arbitration against SLG; ” Ashkenazy in 2013 expected the 2022 reset rent, which is pegged at 4.5 percent of appraised value, to be about $50 million per year, up from the $4.5 million per year in 2013 when it bought the fee for $400 million. Court records show that Gindi family owns a 9.99 percent interest, an Ashkenazy management entity with 1 percent, and an Ashkenazy-controlled entity called 2013 Iconic Trust with 74.01 percent, and the entity 625 MAD MDA LLC with 15 percent.