The Real Deal New York

Swig technically defaulted, but may have broken even on UWS sale

July 11, 2008 11:41AM
By David Jones

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Six months before selling his Upper West Side tenement buildings for $61 million, developer Kent Swig was sued by the lender after technically defaulting on the property’s mortgage, according to documents obtained by The Real Deal.
 
Swig, president of New York-based Swig Equities, had originally acquired 201 West 92nd Street and 200 West 93rd Street in 2005 for $54 million, with plans to add a total of 56 condo units atop the roofs of the two six-story buildings and convert the complex into condominiums. By selling the property for $7 million more than he paid for it, Swig might have been able to break even after carrying costs.
 
The deal was financed by a $52.49 million acquisition and development loan taken out with Fremont Investment & Loan in March 2005. The 18-month loan was based on Swig’s ability to build two nine-story structures atop the 134-unit complex.
 
In January, a subsidiary of New York-based iStar Financial Inc. filed suit against Swig in New York State Supreme Court seeking to foreclose on the property. Records from PropertyShark.com show a lis pendens filed against the building on the same date as the suit.
 
Swig, who originally put the buildings up for sale in early 2007, denied any connection between the bank proceedings and the sale price.
 
“We sold the buildings at the highest price we could achieve,” said Swig, who said he would not discuss the building’s finances, citing a confidentiality pact with the new owners. “We found a buyer, who seemed like a very nice, smart person. It was pretty straightforward. There was no big thought process and complication.”
 
However, Swig said that the overall lending and building sales environment remains very difficult and will probably last through this year.
 
“There is clearly a capital liquidity squeeze in the marketplace,” he said. “The balance sheets of the banks are all taken up and not free to make new loans. There may be more lookers, but that doesn’t mean there are closers.”
Despite a slowdown in sales and rental income, it remains relatively rare for multifamily buildings to become delinquent in the New York metropolitan area, though the numbers are rising. Data from Foresight Analytics shows that multifamily delinquencies in metro New York rose to 0.9 percent in the first quarter, from 0.4 percent a year ago. The national average increased to 1.7 percent in the quarter from 1.1 percent a year ago.
 
Attorney Richard Nardi, counsel to the Mortgage Bankers Association of New York, said it made sense for the lender to slow down the proceedings long enough for Swig to sell the building.
 
“They’ll basically give certain borrowers an opportunity to sell,” said Nardi, who was not aware of the Swig case. “There’s a deal in place between the bank and the lender as to where the proceeds are going.”

The suit alleged that Swig failed to make an interest payment of $392,033 on Oct. 1, 2007. When the loan came due November 1, he failed to pay the principal of about nearly $52.5 million, the records show. By December 2007, Swig owed the lender iStar Financial Inc. more than $61.3 million, including principal, interest and penalties.
 
The lender, which had acquired Fremont’s commercial real estate portfolio for $1.9 billion in 2007, reached an agreement with Swig that would extend his deadline to respond to the complaint until March 24 of this year, according to court records.
 
A source familiar with Swig, who asked to remain anonymous, said that all issues with iStar were resolved prior to the sale of the complex to Adorama Inc. affiliate 92nd Street Equities, which was finalized last week. The firm is led by Eugene Mendlowits, whose family owns Adorama Camera and is a veteran landlord in Brooklyn and Manhattan.
 
Swig, along with partners Yair Levy and Charles Dayan, had submitted an offering plan in June 2006 to then Attorney General Eliot Spitzer, to sell the 56 newly built condo units for $145.5 million. The plan called for Swig to continue renting the existing 134 units and generate revenue from 14 retail stores and restaurants.

The Department of Buildings had initially approved Swig’s construction plans, which were put on hold amid opposition from tenants.

By early 2007, Swig hired Massey Knakal Realty Services to sell the building for $90 million, based on the premise that a new developer would be able to still convert the building into condos.
 
A copy of the Massey Knakal offer sheet shows the building had a net operating income of about $2 million, based on $68 per square foot in retail income and about $20 per square foot in residential rent.

The DOB issued a stop-work order on the property on April 17, 2007,  after Swig failed to respond to an inquiry regarding his construction plans. Sources say that Swig continued talks with DOB and other officials, but that revised construction plans were never submitted for public review.

Massey Knakal cut the asking price from $90 million to $79.6 million and set a deadline of April 27, 2007 for bids.
 
Sources familiar with the sale said that several prospective buyers were brought in to look at the property, including Boymelgreen Developers and Chetrit Group, but were not interested in completing the deal at the price Swig was looking for.
 
Swig eventually replaced Massey Knakal with Eastern Consolidated in October 2007 to market the building at an asking price of $72 million. Officials at Eastern Consolidated, which brokered the $61 million deal, declined to comment.  

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