The US real estate arm of Africa Israel Investments has tentatively agreed with creditors to restructure its disastrous acquisition of the former New York Times headquarters in a deal that will wipe out more than $400m debt.

Africa Israel will give up half its ownership of the building to private-equity firm Five Mile Capital Partners, one of the building's creditors. The new venture of Five Mile and Africa Israel will infuse new money to repay existing debt holders, which are expected to take a major loss.

The deal is the latest sign of the carnage in commercial real estate. It underscores the weakness of the Manhattan office market, which has been pummelled by the contraction in the securities industry.

Wall Street Journal