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Real Estate Equities suit reveals beef with Meatpacking site lender
REEC claims Alfieri Construction deliberately slowed work by delaying payments to contractors
Real Estate Equities, led by investor Michael Miller, is scheduled to face off in Manhattan Supreme Court after filing suit against a lender and joint venture partner that he claims is trying to sabotage a high-end retail project in the Meatpacking District in Manhattan.
Judge Shirley Werner Kornreigh has scheduled a June 11 court appearance after granting an injunction against Alfieri, a Metro Park, N.J.-based firm that is both lender and construction manager for a project at 461 West 14th Street. That site is a former gas station that REEC acquired to convert into a retail space.
He added that a number of ‘household name’ companies have talked with them about becoming tenants, but said he could not disclose any particular names. He said the project is within a hair’s breath of completion.
According to the May 22 breach of contract suit filed, Alfieri and REEC were equal partners in a joint venture called 461 LLC, which was formed in 2010 to develop the former Mobile gas station. The limited liability company took out a ground lease, which runs until 2059 and has a purchase option at a strike price of $34 million, which can be exercised at any time.
According to the suit, however, the ground lease functions as a 7-year prepayable land loan. Thus, if the joint venture firm wants to sell the property, it first has to exercise the strike price of $34 million and pay off the loan.
To fund the costs of the project, both REEC and Alfieri contributed a combined $7 million to the joint venture. In addition, Alfieri Credit, a unit of Alfieri, provided a $12.5 million construction loan. The debt,which matures on May 28, has a one-year extension.
Exercising the loan option won’t be cheap, however. The credit facility carries a 17.5 percent interest rate and includes a two percent extension fee.
REEC claims that Alfieri Construction, which manages the project, has deliberately slowed work by delaying payments to contractors on the job.
According to the complaint, Natixis Real Estate Capital in October 2013, made an offer to refinance the $12.5 millin construction loan at 4.65 percent interest, but the offer was rejected by Alfieri. By April 2014, REEC’s Miller contacted Alfieri Credit and said he would exercise his right to extend the loan for a year, but that Alfieri refused to respond.
The suit claims that Dominick Alfieri responded on April 29, with a demand that REEC pay half of the following into a reserve fund: $577,000 for leasing commissions, $1.75 million for operating expenses and $1.4 million for interest on the construction loan, or a total of $1.87 million. REEC claims that these amounts were improperly calculated.
After the two parties discussed the dispute, REEC claims that Alfieri asked for additional funds for the reserve, after New York-based investment firm Savanna made an $85 million offer for the site on May 12.
“We talked to Savanna and they love the project,” said attorney Stephen Meister, who represents Real Estate Equities in the suit. “It remains to be seen whether Alfieri wishes to respect the offer and sell or whether Alfieri wants to buy us out.”
He added that a number of ‘household name’ companies have talked with them about becoming tenants, but said he could not disclose any particular names. He said the project is within a hair’s breath of completion.
Alfieri officials declined to comment. A Savanna spokesperson declined to comment.
The Meatpacking District has been a hot market for retail development after the High Line was redeveloped for commercial use under the Bloomberg Administration.
The nearly 20,000 square foot space at the center of the legal dispute is located on the corner of 10th Avenue. It has been marketed by Robert Futterman. Asking prices were not immediately available, but retail rents in the area were ranging up to $500 a square foot in that submarket.