Just weeks after Fortress Investment Group filed to foreclose on a $70 million mezzanine loan at Sheffield57, a state Supreme Court judge is set to hear arguments by investors Yair Levy and Serge Hoyda tomorrow morning to appoint a receiver at the troubled condominium.
In a June lawsuit, Levy and Hoyda alleged that developer Kent Swig misappropriated more than $50 million in construction funds at Sheffield57 and made critical decisions about the condo conversion without their consent or approval.
Levy and Hoyda, who control about 70 percent of the building ownership [with Swig and other investors controlling the remaining interest], claimed the foreclosure would wipe out their $17 million investment in the building.
However, a group of 100 condo unit owners at Sheffield57 filed an amicus brief opposing the appointment of a receiver, arguing that the three partners are engaged in a blood feud and Swig, Levy and Hoyda do not have the best interest of Sheffield57 at heart.
“It is abundantly clear from their submissions in connection with the instant application, that none of the sponsor principals have the best interests of the owners group or the condominium in mind and that none of them come to this court with clean hands,” said the Sheffield owners’ attorney Robert Braverman in a court filing.
Braverman argues that the “white knight,” Fortress, has agreed to pay the $5.4 million in outstanding common charges, pay the $17 million in outstanding mechanics liens and would pour millions of dollars into Sheffield57 to complete construction of the project.
Fortress agreed in June to buy a $70 million senior mezzanine loan from Guggenheim Structured Real Estate and a $32 million senior loan from Wells Fargo after Swig defaulted on those loans. Fortress notified Swig in a June letter that it would foreclose on the loans and offer them for sale in an August 6 auction. Under this so-called uniform commercial code foreclosure, Fortress will take over the property unless another bidder successfully buys the loans during the auction.
Sources say that Fortress has retained Rose Associates, the former owner of the Sheffield57, at 322 West 57th Street, to help supervise the renovation of the building. Analysts estimate that more than $50 million is required to complete the construction of common areas and the upper floors at Sheffield57.
A spokesperson for Swig declined to comment, but in an affidavit obtained by The Real Deal Swig denies charges leveled in the Levy suit and argues that a receiver is not in the best interest of the property.
“While the project initially proceeded smoothly under guidance of SE Management [a Swig Equities affiliate], as microeconomic issues began to weigh heavily on the project in late 2007, and into 2008, plaintiffs tried to capitalize on the company’s misfortunes to seize control of the project from the SE defendants,” Swig stated in the affidavit.
Swig alleged that Levy and Hoyda began accusing him of diverting or misappropriating funds and began to unreasonably withhold consent on decisions that Swig claims did not require consent. He also alleged that Levy and Hoyda gave up some approval rights at Sheffield57 after Swig loaned them $8.4 million in 2006.
Stephen Meister, attorney for Levy and Hoyda, was not immediately available for comment.