Investment in Unconsolidated Joint Venture

9 Months Ended

Sep. 30, 2024

Equity Method Investments and Joint Ventures [Abstract]

Investment in Unconsolidated Joint Venture

Note 6 — Investment in Unconsolidated Joint Venture

On October 30, 2013, the Predecessor purchased a 48.9% equity interest in Worldwide Plaza for a contract purchase price of $220.1 million, based on the property value at that time for Worldwide Plaza of $1.3 billion less $875.0 million of debt on the property.

On June 1, 2017, the Predecessor acquired an additional 49.9% equity interest on exercise of the Predecessor’s option to purchase pursuant to the Company’s rights under the joint venture agreement of Worldwide Plaza for a contract purchase price of $276.7 million, based on the option price of approximately $1.4 billion less $875.0 million of debt on the property. The Predecessor’s joint venture partner exercised its right to retain 1.2% of the aggregate membership interests in Worldwide Plaza. Following the exercise of the option, the Predecessor owned a total equity interest of 98.8% in Worldwide Plaza.

On October 18, 2017, the Predecessor sold a 48.7% interest in Worldwide Plaza to WWP JV LLC, a joint venture managed by SL Green Realty Corp. and RXR Realty LLC based on an estimated underlying property value of $1.725 billion. In conjunction with the equity sale, there was a concurrent $1.2 billion refinancing of the existing Worldwide Plaza debt. The Predecessor received cash at closing of approximately $446.5 million from the sale and excess proceeds from the financing, net of closing costs which included $108.3 million of defeasance and prepayment costs. The new debt on Worldwide Plaza bears interest at a blended rate of approximately 3.98% per annum, requires monthly payments of interest only and matures in November 2027. As the space previously leased by Cravath, Swaine & Moore, LLP (“Cravath”) has not been sufficiently re-leased on terms that would generate sufficient cash flow to satisfy debt service requirements, the joint venture that owns Worldwide Plaza is currently restricted from making distributions under the terms of its indebtedness. The lender initiated a cash sweep in September 2023 and, as a result, all rent payments are being directed to the sweep account and the lender controls disbursements to cover operating expenditures and capital improvements at Worldwide Plaza. The lease with Cravath expired on August 31, 2024 and interest on the mezzanine debt has not been paid since August 6, 2024. On September 13, 2024, ARC NYWWPJV001, LLC received a copy of a default notice to WWP Mezz, LLC, a subsidiary of WWP Holdings LLC, as borrower under a $190.0 million mezzanine first loan, as a result of failure by the borrower to make a required interest payment of $0.8 million under the loan agreement. The borrower has entered into pre-negotiation agreements with the lenders and has begun discussions on potential loan modifications.

The Company initially set aside approximately $90.7 million from the 2017 refinancing proceeds to cover our share of potential future leasing and capital costs at the property as discussed in “Note 8 — Commitments and Contingencies”. The Company believes that there is no obligation to reserve this amount, and even if such an obligation existed, it has lapsed. We filed an action in the Delaware Court of Chancery seeking a declaratory judgment that we are permitted to distribute the reserved funds; that action has been stayed pending resolution of an action brought by ARC NYWWPJV001, LLC in the New York Supreme Court. Following the sale of its interest discussed above, the Company now holds a 50.1% interest in Worldwide Plaza. The Company has determined that this investment is an investment in a VIE. The Company has determined that it is not the primary beneficiary of this VIE since the Company does not have the power to direct the activities that most significantly impact the VIE’s economic performance. The Company accounts for this investment using the equity method of accounting.

The lease with one of the tenants at the Worldwide Plaza property contains a right of first offer if Worldwide Plaza sells 100% of the property. The right requires Worldwide Plaza to offer the tenant the option to purchase 100% of the Worldwide Plaza property, at

the price, and on other material terms, proposed by Worldwide Plaza to third parties. If, after 45 days, that tenant does not accept the offer, Worldwide Plaza may then sell the property to a third party, provided that Worldwide Plaza will be required to re-offer the property to that tenant if it desires to sell the property for a purchase price (and other economic consideration) less than 92.5% of the initial purchase price contained in the offer to that tenant.

We have a right to transfer our membership interests in Worldwide Plaza to purchasers meeting certain qualifications, subject to a right of first offer to our joint venture partner. Commencing January 18, 2022, we and our joint venture partner also have the right to require the joint venture to market the property it owns for sale, subject to a right of first offer to our joint venture partner.

Any transferee of our interest would acquire an interest subject to the same limitations on participation in the management of Worldwide Plaza that apply to us. There can be no assurance these limitations will not affect our ability to sell our interest in Worldwide Plaza or the amount we would receive on a sale. In addition, we may determine that a sale of the property rather than our interest in Worldwide Plaza is the best way to maximize the value of our interest in Worldwide Plaza. A sale of the property could substantially delay the timing of our complete liquidation. Additionally, the existence of the right of first offers may delay our ability to sell the Worldwide Plaza property or our interest in Worldwide Plaza on terms and in the timeframe of our choosing and may diminish the price we receive on a sale.

For the nine months ended September 30, 2024, rent from Nomura Holdings America, Inc. (“Nomura”) represented 56.8% of the total annualized cash rent at Worldwide Plaza, excluding any rent from Cravath, whose lease terminated August 31, 2024. The termination, delinquency or non-renewal of Nomura would have a material effect on the Company’s operations. With the termination of the Cravath lease, Nomura is the only tenant at Worldwide Plaza whose annualized cash rent represents greater than 10% of the total annualized cash rent at the property.

There are two tenants whose annualized cash rent represented greater than 10% of total annualized cash rent for the nine months ended September 30, 2024 and 2023. Nomura rent represented 31.1% and 29.2% of the total annualized cash rent for the nine months ended September 30, 2024 and 2023, respectively. Cravath rent represented 45.2% and 51.3% of total annualized cash rent for the nine months ended September 30, 2024 and 2023, respectively.

The lease with Cravath expired on August 31, 2024 and the space as not been re-leased. The expiration of this lease will have a material adverse effect on the Company’s operations.

See "Note 8 — Commitments and Contingencies" for a discussion of legal proceedings.

The amounts reflected in the following tables are based on the going concern basis financial information of Worldwide Plaza. Under liquidation accounting, equity investments are carried at net realizable value.

The condensed balance sheets as of September 30, 2024 and December 31, 2023 for Worldwide Plaza are as follows:


(In thousands)	September 30, 2024			December 31, 2023
Real estate assets, at cost	$	850,137		$	848,231
Less accumulated depreciation and amortization		(330,730	)		(317,058	)
Total real estate assets, net		519,407			531,173
Cash and cash equivalents		81,540			66,000
Restricted cash		35,230			17,000
Other assets		90,847			108,919
Total assets	$	727,024		$	723,092
Debt	$	1,328,725		$	1,253,810
Other liabilities		216,902			260,473
Total liabilities		1,545,627			1,514,283
Deficit		(818,603	)		(791,191	)
Total liabilities and deficit	$	727,024		$	723,092

The condensed statements of operations for the three and nine months ended September 30, 2024 and 2023 for Worldwide Plaza are as follows:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(In thousands)	2024			2023			2024			2023
Rental income	$	29,671		$	34,297		$	100,474		$	104,642
Operating expenses:
Operating expenses		15,842			16,307			47,909			48,879
Depreciation and amortization		5,214			5,247			15,761			15,771
Total operating expenses		21,056			21,554			63,670			64,650
Operating income		8,615			12,743			36,804			39,992
Interest expense		(21,444	)		(20,888	)		(63,781	)		(61,999	)
Net loss	$	(12,829	)	$	(8,145	)	$	(26,977	)	$	(22,007	)

New York REIT Liquidating LLC 10-Q