The Real Deal New York

Jeremias faces foreclosure suit in $48M office tower default

October 26, 2009 06:22PM
By David Jones

Embattled developer Harry Jeremias is facing a new round of litigation for allegedly defaulting on $48 million in loans from Bank of America, used to purchase and renovate a 13-story office tower at 216 West 18th Street.

Jeremias, founder of the Harch Group, allegedly defaulted on the loans after the project encountered months of construction delays, multiple stop-work orders from the Department of Buildings and deteriorating safety conditions at the site, according to documents filed Oct. 22 in New York State Supreme Court.

Mortgage Electronic Registration Systems, a firm that services the loan on behalf of Bank of America, is asking for a court-appointed receiver, and warning that the building could lose its existing base of tenants without “competent” supervision of the project.

“Unfortunately, within the last year, construction at the building has stalled, and the building’s marketability has declined,” according to an affidavit submitted by Newmark Knight Frank broker David Falk, who was hired by Jeremias to market the building. “With construction stalled, it became increasingly difficult to convince businesses to consider the building and now it is nearly impossible.”

The lawsuit notes that besides the stop work orders, the building has an incomplete roof, a mold problem from water leaking into the site and two tenants that are threatening to walk away from their leases if they cannot move in.

Company 3, a video production firm at 535 Fifth Avenue, signed a 10-year lease for three floors in the building in November 2007. The company deposited a $752,000 letter of credit and has spent more than $4 million to build out its space, according to an affidavit filed by Raymond Horn, its vice president of real estate. The space was supposed to be ready by July 2008, however due to extensive construction delays, the firm had to spend an additional $1.1 million in holdover rent, after the lease at its existing Midtown offices expired.

In June 2008, SYPartners, a San Francisco-based consulting firm, signed an eight-year lease for one floor in the building and has spent about $900,000 to build out its space, according to an affidavit by Susan Schuman, chief executive of the firm. SYPartners was scheduled to move into the new space in July 2009.

Jeremias, also a partner at PHH Realty, originally acquired the building for $50 million in April 2007, according to city Department of Finance records.

Court papers show that Jeremias has 15 outstanding judgments from the city’s Environmental Control Board and five mechanics liens totaling $507,000.

In the court filing, Falk added that businesses are also reluctant to sign new leases because of Jeremias’s current legal issues involving two residential projects. As The Real Deal previously reported, Jeremias is facing foreclosure at the Jasper, his condominium project at 114 East 32nd Street.

In August, U.S. Bank National Association, filed suit against Jeremias and his two business partners, Henry Orlinsky and Francisco Pujol Meneses, for a judgment after they allegedly defaulted on $31.4 million in personal guarantees related to the Renwick, a luxury condo project at 23-29 Renwick Street.

Jeremias was not immediately available for comment. MERS officials were not immediately available for comment and the attorney for MERS declined to comment.

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