The Real Deal New York

Partial-interest owner seeks forced sale of East Village apartment building

Mallah-linked company follows same legal strategy successfully employed by Extell

October 01, 2014 01:11PM
By Adam Pincus

Dolan-820-Mac-Avoy

From left: Richard Dolan, 820 Broadway (Photo credit: Google) and Janice Mac Avoy

An entity affiliated with a parking garage dynasty is taking a page out of Gary Barnett’s playbook to force a sale of the land under a large apartment building in the East Village.

A company known as NYRF LLC, which is tied to the Mallah family that owns Icon Parking Systems, is using a minority stake in the ground under the 133-unit rental building 820 Broadway to impose a sale, court records show.

NYRF filed suit Monday in New York State Supreme Court asking that a judge require a sale of the land, which is owned by NYRF and either other individuals, trusts and companies through a “tenants in common” or TIC structure, according to the court papers. Although not explicitly mentioned in the suit, it is possible that the Mallah entity would step in as the buyer at a judicial sale.

The lawsuit relies on New York state law that gives an owner of a TIC interest the right to seek partition of the property. But since it is virtually impossible to fully divide a building, the courts typically enforce a sale.

Barnett’s Extell Development has turned to the strategy twice to wrest control of interests from the notoriously difficult sellers, the Ring brothers. The first time, Extell was able to force the sale of the 14-story 20 west 47th Street. The company then reprised the approach in a dispute over the 16-story 251 Park Avenue South.

Several attorneys said such cases were on the uptick, because with high land prices, it is hard for tenant in common owners to agree on a buyout price.

“The old fashioned way was [for one TIC owner] to make a purchase offer that a reasonable individual holding a fractional interest would accept,” said Richard Dolan, senior partner with the law firm Schlam Stone & Dolan, who represented Extell in both partition suits, but is not involved in the Broadway case. “But often times people can be very irrational, and this is a way to get around that.”

Partition disputes are more likely in older TIC arrangements. In new uses of a TIC — to allow for a later 1031 exchange, for example — the parties often waive their rights to partition a property, said attorney Janice Mac Avoy, a partner and co-head of the real estate litigation practice at the law firm Fried, Frank, Harris, Shriver & Jacobson. She is not involved in this case.

“I have certainly seen people threaten it more,” Mac Avoy said. “What Gary [Barnett] did is to show it is feasible, [although] it’s not for everyone. It’s not for the faint of heart,” noting the time and expense.

The battle for the 13-story 820 Broadway can be tracked back to 1961, when the four owners of the property signed a long-term lease with a developer in exchange for a small annual base rent, initially between $10,000 and $30,000. The lease provides for the annual rent to be reset to 6 percent of the “market value of the land,” in 1986, in 2006, and again in 2026.

The 2006 reset bedeviled the ground lease owners, a group which swelled over the years as the original owners divided their stakes. Those owners battled with tenant Heller Realty in several lawsuits, including one in 2012 that finally pegged the value of the ground at $15 million.

In 2013, the Mallah entity quietly purchased a stake in the building from three family entities, for a total of $8.24 million. That stake is worth 33.3 percent of the ground.

The stake also allows NYRS to file the partition suit, which, according to court papers, was sparked after Heller asked for an update to the lease to smooth the next rent reset.

Attorneys note a partition lawsuit like the one filed by NYRS leaves diverse family members with little recourse other than to band together to try to purchase a property themselves — or find a white knight investor to help them.

“There really isn’t any recourse for the descendants other than to try to buy out the entity seeking partition,” Mac Avoy said. “The law grants TIC owners an absolute right to partition, for any reason or no reason.”

Calls to Heller Realty, Mallah, and to the firm’s attorney Larry Loeb, who signed the court papers, were not returned. Calls to some family members and to a lawyer who represented them in the past were not returned.

 

 

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