The developer of a $170 million project to build luxury apartments on the Upper East Side can’t get a new loan because an earlier “white knight” lender now wants a piece of future profits even though its loan at the site has been paid off in full.
Bluerock Real Estate’s stalled high-end development known as the Charles at 1355 First Avenue between 72nd and 73rd streets, is being held up because an unidentified lender wants to remain in the deal even though its $5.57 million second mortgage was paid off in full.
Developer Bluerock, led by former restaurant impresario CEO Ramin Kamfar, is claiming in a lawsuit filed Oct. 11 in New York State Supreme Court that the lender, known only as Glacier 1355 First Avenue LP, won’t formally cancel the mortgage obligation despite the fact that the note has been paid off.
The refusal to discharge the mortgage could make it impossible to close a $25.6 million bridge loan from lender Canyon Capital Realty Advisors, set for Oct. 31, court papers show.
“Glacier’s refusal to discharge the mortgage… threatens the viability of the project,” Bluerock’s papers say.
That loan is needed to pay off a first mortgage loan that is in default. If it can’t pay off that mortgage, it could lose the project to the first mortgage lender. Bluerock and attorneys for Bluerock and Glacier did not respond to requests for comment.
Lender Glacier, with an address in the British Virgin Islands, fired back Oct. 18 in federal court in Manhattan (where the case was moved to) claiming Bluerock has no right to ask a judge to force a cancellation of the mortgage.
The loan agreement, according to Glacier’s court papers, allowed Glacier under certain conditions to modify a new construction loan to allow it to invest in the development, even if Glacier’s loan was paid off in full in time.
“In addition to interest on the principal amount, the loan agreement granted Glacier the right to modify the loan in order to participate in the upside of the project,” Glacier’s response to Bluerock, says. Glacier will cancel the mortgage, but only “In exchange for satisfactory alternative security.”
Bluerock borrowed $5.57 million from Glacier in December 2010 to pay off unpaid interest from a first mortgage loan from Northeast Community Bank that had fallen into default. The Glacier loan was first due June 30, 2011, and then extended to Sept. 30. That day, Bluerock borrowed $7.03 million from an undisclosed source affiliated with Bluerock, and paid off the loan, city records and court filings show.
While Glacier cancelled the note, it did not cancel the mortgage obligation, which it maintains was still valid. That obligation makes it difficult to close a construction loan and progress on the project.
The developer needs $90 million more to complete construction, and has poured an estimated $53 million in equity into the project in soft costs, the court records show.