The developer of a troubled luxury condominium conversion project in Chelsea is facing lawsuits from two lenders for a total of roughly $20 million.
Flatiron District-based Broad Mill Development Group converted a former 1901 horse stable building at 159 West 24th Street at Seventh Avenue into 24 high-end apartments.
(Note: correction appended)
But in the midst of the economic downturn, Carriage House Chelsea has not been able to repay its loans.
In 2006, Broad Mill took out $14.5 million in acquisition and development loans from Midfirst Bank, based in Oklahoma. But after the borrowers failed to repay by May 1, after two extensions, Midfirst Bank filed suit in June in New York State Supreme Court to foreclose on the loan.
James Kuhn, president of commercial brokerage Newmark Knight Frank, was appointed receiver in mid-June, subsequent court filings show.
And this month, Midtown-based lender Terra Capital Partners sued for repayment of a $3.1 million, one-year mezzanine construction loan, state court papers filed Aug. 14 say.
With fees and interest, the two suits seek a combined $19.47 million, the filings show.
Making matters more difficult for the developer, the suits are claiming the development’s investors Eamon Roche, Eric Gray and Joshua Sacks, all affiliated with Broad Mill, have personal guarantees on the loans.
An attorney for Terra Capital declined to comment, as did Midfirst. The developer and investors did not respond to a request for comment.
And while Midfirst is suing to foreclose and then go after the personal guarantees for any losses, Terra Capital is foregoing a foreclosure and suing for breach of contract only, seeking the $3.1 million plus $877,542 in interest and fees.
Although work is mostly completed, the building does not yet have a certificate of occupancy, according to the city Department of Buildings’ Web site. The units were listed for prices as high as $1,369 per square foot for a one-bedroom, but no units are currently listed, Streeteasy.com shows. Citi Habitats Marketing Group was marketing the building, but did not return telephone calls for comments.
In addition, there are 25 mechanic’s liens with a total claim of $1.3 million in unpaid contractor bills filed between February and July against the property, records filed with the New York County Clerk show.
Experts said they were seeing more mezzanine lenders suing under contract breaches for personal guarantees instead of foreclosing as the value of real estate has dropped, giving the loans little or no value.
“I expect that as property levels decline you will see more. Where the subordinate debt position is reduced or the value is eliminated, the only alternative is to chase the guarantors,” real estate attorney Kevin O’Shea, managing partner of law firm Allen & Overy, said. He was not involved with the litigation.
One prospective condo buyer at the building, Massey Knakal Realty Services first vice president of sales Brock Emmetsberger, toured the building earlier this year and said it was mostly completed. He was not involved in the project, but had been considering a purchase for himself.
One popular way out of slow condo sales is to convert a building to a rental, but Emmetsberger expected it would be difficult for the developer because of the costs to create the luxury units.
“I assume with the combination of the price of the land and the construction costs, I am not sure rents would be high enough to carry the debt,” he said.