The Real Deal New York

Square Mile wins $28.4 million judgment against Swig

July 22, 2009 11:24AM
By David Jones

A New York State Supreme Court granted a $28.4 million judgment Friday against developer Kent Swig after he defaulted on a personal loan from a real estate investment firm led by investor Jeffrey Citrin for the Sheffield57 condominium conversion.

The case involved a $21.15 million personal loan that Swig took out in July 2007 from the lender, Square Mile Structured Debt, to help fund the conversion of Sheffield57, a luxury apartment building at 322 West 57th Street, which his company was converting from a rental tower.

Swig had promised to convert the loan into an equity stake in Sheffield57, at 322 West 57th Street, but did not get an agreement from his lenders. Judge Bernard Fried ruled that because it was a personal loan, Swig was still on the hook for the money.

“Furthermore, contrary to the defendant Swig’s assertion, the loan agreement and note are instruments for the payment of money only,” Fried wrote in his ruling. “This case does not involve a complex financial transaction. The loan agreement establishes a discreet obligation, and the note was, by its express terms, an absolute, unconditional promise of payment by Swig.”

Swig denied that the loan was ever intended as a personal obligation, and a spokesperson said he is confident that Swig will prevail in his appeal of the ruling.

“The court ruling follows a preferred equity investment made by Square Mile that was always intended to be secured by the property at Sheffield57 and not intended to be secured by Mr. Swig personally,” said a spokesperson for Swig. “The loan was, and continues to be, an investment in Sheffield57.”

The spokesperson added that “any obligations to Square Mile will be paid, as originally intended, by proceeds from the project.”

The case involving a separate $18.5 million loan from Square Mile to Swig is headed for trial. In that case, Swig promised to make the loan convertible into equity in the Sheffield57 conversion, but Square Mile alleged that Swig claimed to own 30 percent of Sheffield57, when Swig said in court filings that his stake was only about 9 percent.

The judgment marks the latest setback for Swig, who is fighting with lenders and investment partners on multiple fronts. In a Monday court hearing, attorneys for his partners Serge Hoyda and Yair Levy asked Judge Fried to allow them to question him under oath and block the scheduled Aug. 6 auction of defaulted loans at Sheffield57. The two investors accused Swig of misappropriating millions of dollars in construction funds and colluding with Fortress Investment Group and other lenders to wipe out their investment in the property.

Swig lawyers denied these charges in court, alleging that Levy and Hoyda are engaged in a groundless conspiracy theory to cover up the fact that they are nearly broke.

Separately, Lehman Brothers in June filed suit for a $50 million judgment against Swig after he defaulted on $100 million in mezzanine loans for his failed condo conversion at 25 Broad Street, which Lehman foreclosed on and sent into receivership. Swig personally guaranteed $50 million, according to the suit. The Swig spokesperson declined comment on the suit.

Meanwhile, The Real Deal reported yesterday that Swig has allegedly not repaid a $5 million personal loan from Citibank which the lender declared in default in April, according to a lawsuit filed earlier this month in New York State Supreme Court.

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