A prominent and vacant office building downtown is going up for sale this summer.
Nearly six months after the building’s owner, Gateway Eight LP, filed for Chapter 11 bankruptcy protection in U.S. Bankruptcy Court in Boston, Gateway and the Rhode Island pension fund yesterday agreed on a plan to sell the structure – which is also known as the American Express building.
The pension fund holds the mortgage on the office building and is Gateway’s largest creditor. Gateway owes the Rhode Island retirement system about $21 million. Instead of foreclosing, the pension fund will market the building for sale and expects to start considering offers this summer, according to an agreement filed in bankruptcy court yesterday. A sale would close no earlier than Nov. 1, according to the bankruptcy court agreement.
“There will be a public bidding process and a public sale in July or August,” said Meghan Walt, an attorney with Brown Rudnick Berlack Israels, representing the Rhode Island pension system. “When Gateway was trying to dispose of the property they were looking only at lease options, not sale options. Marketing for the property will begin today.”
The pension fund, which was given management control of the building earlier this month, will enter a minimum bid of its own of $17.9 million. Interested buyers will have to offer $18 million or more to buy the building, according to the court filing.
At the beginning of this month, Gateway and the pension fund agreed that the building was worth $18.6 million. Previously, Gateway had valued the building at $25 million and the pension fund had valued it at $14.5 million. If the sale price doesn’t exceed the $21 million the fund is still owed, the pension fund will lose money. If the pension fund ends up as the only bidder, it will take official ownership of the four-story structure.
“That risk would be prevalent regardless of what [avenue] we took,” said Rhode Island General Treasurer Paul Tavares. “Our goal has been, and will continue to be, to make the system whole – to get the retirement system its money back.”
Earlier this year, Gateway Eight was trying to find a tenant to occupy the vacant building so that the Boston-based developer could hold onto the property, according to Daniel Glosband, a lawyer with Goodwin Procter, which is representing Gateway. But when a prospective tenant failed to sign an agreement, the developer began considering other options.
“Sometime between May 2 and now, we agreed to this. We actually completed negotiating it around 9 p.m. last Friday night,” said Glosband.
The agreement, though, wasn’t presented in bankruptcy court until yesterday. The deal has not yet been approved by other creditors and the bankruptcy court, but it should be accepted in the next few months, said Walt.
Also, as part of the pact, the pension fund has agreed to pay up to $90,000 in administrative costs to complete the sale, Walt added.
Last month, Gateway started paying off its debt, and gave the pension fund about $1.1 million, under a bankruptcy court agreement that also gave the pension fund management control of the building. The money came from the building’s last tenant, Boston Financial Data Services. When that company moved out of the building, it paid Gateway $800,000 for breaking the lease and about $500,000 in rent for December and January.
Gateway, whose general partner is Boston-based developer Dean F. Stratouly, is the original developer of the Capital Center office building, which is close to the Providence Place mall and Waterplace Park. In 1989, the Rhode Island Industrial Facilities Corporation issued $23 million in bonds and gave the money to Gateway to construct the American Express building (American Express was once a major tenant). The state pension fund bought the bonds.
Gateway was required to pay back the money to the pension fund by 2000. In 1999, Gateway restructured the mortgage with the pension fund and set up a new due date of Dec. 1, 2004.
At the end of last year, Gateway presented an arrangement to the State Investment Commission, which oversees the pension fund’s investments, that included using a loan from Bank of America to pay off some of the outstanding mortgage and nailing down a tenant for the building, according to minutes from the commission’s December meeting. The Boston developer, however, couldn’t guarantee that the lease would be signed. Consequently, it would have been about to pay off only $15 million of the $22 million immediately.
The pension fund rejected the deal and Gateway filed for Chapter 11 protection. Now, after months in bankruptcy court, the pension fund is still just looking to get its money back, said Tavares.
“If we do, in fact, come out whole, we'll be extremely happy,” said Tavares.
“And we walk away with a valuable lesson that pension funds should be very, very cautious about investing in these types of things in the future.”
Peter Gallant Nov 24 2010 Somebody told me that the American Express building downtown was finally sold this week. Is that true? If so, any info? Thanks.
Doug May 21 2008 I worked here in 1993 and 1994 when it was The Shareholder Services Group. It’s a nice, modern office building, and having worked in a number of places in Providence, I appreciated that it was nice and modern. I have no idea why this building would sit vacant.
M.W. Beaudoin FYI, this bldg. is in the midst of renovations as temporary space for Fidelity pending their new expasion in Smithfield (as of 8/06). I worked on it some years ago as it was being constructed (1988?)
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