The developer rehabilitating a Meatpacking District apartment building to include retail is accusing its lender of trying to take over the project through illegal activities, in a new $20 million lawsuit.
The developer, 344-46 West 14th Associates, claims in the lawsuit filed Aug. 26 in New York State Supreme Court that the lender, Connecticut hedge fund Patriot Group, is trying to wrest control of the delayed and over-budget project at 344-46 West 14th Street near Ninth Avenue by refusing to allow outside financing and telling contractors that money to pay them had run out.
The developer is claiming breach of contract; interference with contracts; fraud and other charges, and is seeking $20 million in compensatory damages, the suit says.
“Patriot has taken control of the project… [which] is a result of its bad faith and fraudulent conduct involving the mezzanine loan, bad faith negotiations and wrongful actions that caused the project to shut down,” the suit says.
Both the borrower and lender declined to comment.
The filing comes as real estate prices have plummeted in New York City by as much as half and borrowers and lenders are resorting, in increasing numbers, to litigation to battle over the remaining property value.
Patriot originally lent $17 million in acquisition and development financing in November 2007 to the developer, an affiliate of Real Estate Equities, a Midtown-based development firm.
The project to rehabilitate the 24-unit, six-story building was originally valued at $30 million, and its two new retail units were expected to be completed by July this year, the suit says, but now the retail completion is expected to be delayed by at least a year.
Each retail unit at 344-46 West 14th Street is to include 2,250 square feet of space on the ground floor and 2,100 square feet on a lower level, with 20-foot frontage, mostly composed of plate glass, marketing information indicates. A recent visit by a reporter reveals virtually no work done to the exterior wall of one of the retail spaces that is still the original masonry. The other retail space could not be viewed.
A property appraisal from last fall said the building was worth $23 million mid-construction, and $29 million when fully leased up with retail and residential tenants, the filing says.
Shay Zach, a managing partner at brokerage Itzhaki Properties, estimates the property to be worth far less. He has analyzed the local market because he is marketing a property at West 14th Street and Avenue of the Americas.
“If it went to market today, they would not get more than $18 million. But the retail is nice,” he said.
As the scope of the retail rehabilitation work grew, the developer sought more money from Patriot, but was denied; then it sought a $2.25 million mezzanine loan from a third party, but Patriot rejected that idea in January, the suit indicates.
In May, under pressure from Patriot, the developer held a meeting with contractors at which an agent of the lender told the firms that there was no more money to fund the project leading at least one to walk off the job, the court papers allege.
There are currently $1.3 million in mechanic’s liens filed since January by eight contractors for alleged unpaid work at the site, according to PropertyShark.com
The developer stands to lose $5.7 million of its own money, the suit says, if it loses the site.
Faith Hope Consolo, chairman of retail leasing at Prudential Douglas Elliman, said the Meatpacking District is full of vacancies, with rents in the $200- to $250-per-square foot range.
She had been marketing the building’s retail until the first quarter of this year, when another firm took over.
“We had activity,” but no deals were ever finalized, she said.
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