Related closes on purchase of Rector Square

From left: Rector Square, YL Real Estate Developers’ Yair Levy and Justin Metz, a managing principal with Related Companies

[Updated: 11:53 a.m., Jan. 24, 2011] Related Cos. today closed the long-anticipated acquisition of Rector Square, the Battery Park City condominium that was foreclosed on by Anglo Irish Bank, for $82.8 million, The Real Deal has learned.

Anglo Irish bought the unsold shares of the condo at a November auction of the 304-unit building at 225 Rector Place for the same amount of money, and sold the property to Related, which had been managing the property for nearly one-and-a-half years after the lender filed to foreclose on former developer Yair Levy.

“Rector Square is an asset that we were very familiar with, having initially developed the property and later served as managing agent for the receiver,” said Justin Metz, managing principal at Related. “We look forward to bringing new resources to the development and maximizing value for both our partners and existing owners.”

Sources familiar with the case say that an ongoing controversy exists over whether Related will have to replenish Rector Square’s depleted reserve fund of at least $6 million.

“While we cannot comment on the ongoing litigation, Attorney General Schneiderman will not tolerate fraud against tenants and homebuyers and is seeking a full recovery from the previous developer for his misconduct,” said Lauren Passalacqua, Schneiderman’s spokesperson.

She confirmed that Related will have to file a new amendment with the AG if it plans to resume sales. Sources say the amendment will have to disclose any material changes at the property, for example, details of the sale and what changes Related plans for the property.

The sale ends one of the biggest condo foreclosures in the history of New York. Former state Attorney General Andrew Cuomo halted sales at Rector Square in 2009 after construction was halted at the 304-unit property and the lender called in a default on the mortgage.

As The Real Deal originally reported, Anglo Irish Bank foreclosed on the building after the conversion project unraveled in late 2008. Anglo Irish sued Levy for defaulting on nearly $200 million in mortgage loans, taxes and pilot payments to Battery Park City authority and allegedly spending millions of dollars from the building’s reserve fund.

Unit owners have since filed a $100 million fraud suit against Levy and others involved in the conversion, alleging widespread fraud.

“The unit owners will happily work together with Related to bring the building up to par as a first-class, luxury condo,” said attorney Marc Held, who represented about 46 unit owners in the building. “Related is a fine organization that delivers a first-class product. Unit owners are hopeful this is what they are going to do at 225 Rector within compliance of the offering plan and declaration.”

Lawyers for Anglo Irish and attorneys for Levy were not immediately available for comment.