How Failed a Foundation

FROM THE CLASSY WORLD FINANCIAL CENTER IN Manhattan to the 71-acre Canary Wharf office complex in London, Olympia & York has changed the face of some of the world's great cities. But last week the biggest builder on earth sought shelter in bankruptcy court in Toronto and New York City after its owners, Canada's secretive Reichmann brothers, struggled vainly for months to restructure $12 billion of debt. While the action marked one of the largest real estate bankruptcies ever, it covered only a portion of Olympia & York's vast holdings -- including its 72-story Toronto headquarters and the rest of its Canadian operations. Notably absent were the firm's U.S. real estate and its troubled $5.4 billion Canary Wharf project, whose 40% vacancy rate has been one of the company's biggest headaches.

The huge bankruptcy filing drove down bank stocks Friday and sent shock waves through world financial markets. Citibank, Olympia & York's largest U.S. creditor, said it has written off $100 million of the $480 million it had loaned to the Canadian company. Such losses could grow in the U.S. and abroad if Olympia & York cannot climb out of the deepening financial hole it has dug for itself.