Troubled Midtown-based commercial lender CIT Group is seeking to foreclose on a $12 million loan made to a developer that has been successful in Manhattan but recently came up short with a luxury Noho condominium conversion at 654 Broadway.
CIT claims developers 654 Broadway Partners LLC, an affiliate of Cardinal Real Estate Investments, has missed a total of $890,603 in mortgage payments since November 2008 in the two-year loan that was due in August and is now in default, a complaint filed in New York State Supreme Court Sept. 9 shows.
El Segundo, Calif.-based Cardinal Real Estate Investments, with offices in Noho, was successful in prior years converting rental buildings into condos — for example, a 16-unit building at 212 East 70th Street in Lenox Hill, as well as properties in California.
654 Broadway Partners bought the six-story loft-style property on Broadway between Bleecker and Bond streets in August 2007 for $12.6 million, and at the same time obtained the $12 million loan from CIT, the suit says.
Cardinal planned to convert the five upper floors to residential condos and the ground floor retail space to a commercial condo, the firm’s Web site says.
In addition, the lender claims two members of Cardinal — Kyle Ransford, company co-founder, and Trevor Stahelski, New York manager — personally guaranteed the loan. The developer also owes Grubb & Ellis $142,310 in brokerage fees, the CIT filing says.
CIT, which reported its ninth straight quarterly loss in the second quarter of 2009, is fighting to hold off bankruptcy through negotiations with bondholders and possible asset sales. The lender to small and mid-sized companies reported last month that it had set aside $588 million for loan loss reserves, which would be used to cover losses in cases such as 654 Broadway.
Neither CIT nor the developer responded to a request for comment.
Stephen Nahley, a partner at Moses & Singer, who was not involved with this project, said banks find the decision whether to foreclose or not a difficult one, as they try and determine the best course of action to get the maximum money back on the loan.
“Banks don’t really want to foreclose,” he said, because most are not equipped to manage properties. He speculated that during the months while Cardinal’s missed payments were adding up the parties were engaged in negotiations. Yet foreclosure remained the ultimate option for the bank.
And meanwhile, the market for the sale of notes and post-foreclosure commercial property remains muted.
“There are a lot of sharks circling around,” but buyers want bargain basement prices, he said.