The Real Deal New York

Developer sues iStar in foreclosure case at 47 East 34th Street

March 22, 2010 02:33PM
By David Jones

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47 East 34th Street and David Scharf (building photo source: PropertyShark)

IStar Financial is being sued for $150 million by Manhattan-based Esplanade Capital, which claims the lender conspired with another investment partner to foreclose on its 36-story mixed-use building and allow BridgeStreet Corporate Housing to operate the site as an extended-stay hotel under a separate deal. 

The Manhattan-based lender previously filed suit to foreclose on $76.1 million in loans backed by the 110-unit building at 47 East 34th Street, which was being developed as an extended-stay property under the BridgeStreet name. 

Esplanade, operating through its 47 East 34 Partners affiliate, alleged that in 2007 it entered a deal with Istar to borrow $76.1 million in construction loans to develop the property. At the same time, it entered a “bulk-sale” agreement to sell the property for $96.7 million to one of its general partners, Dublin, Ireland-based Sorrento Asset Management. 

Esplanade alleges that Sorrento, in October 2008, failed to make a payment under the bulk sale agreement, causing Istar to call in a default. Esplanade alleges that Istar then stopped funding construction on the loan, however told it not to terminate its bulk sale deal with Sorrento. 

Esplanade claims that due to iStar’s insistence, it forgave Sorrento’s default and allowed the bulk sale deal to continue. It claims that Sorrento then defaulted again in February 2009. Esplanade claims Istar continued to insist that the bulk sale deal remain in place, even though Esplanade says there were other parties willing to lease or buy the building when construction was completed. 

Esplanade alleges that Istar began negotiating with Sorrento behind its back. However, in a suit filed in New York State Supreme Court March 9, the lender alleged that 47 East 34 Partners, an affiliate of Manhattan-based Esplanade Capital, failed to repay the loan which matured Aug. 31, 2009. 

Esplanade officials, led by David Scharf, co-chairman and chief executive (a cousin of attorney Y. David Scharf), and Jay Eisenstadt, co-chairman and president, were not immediately available. 

Also named in the lawsuit were Herndon, Va.-based BridgeStreet, Manhattan-based Sorrento S34 Madison Limited Partnership, an affiliate of DLA Piper. Istar says it entered into a bulk purchase agreement with Sorrento S34 to buy the dwelling units of the property. Istar alleges that Sorrento deposited an $11 million letter of credit on the deal in 2007, but failed to make an additional $3.5 million deposit. 

Officials at BridgeStreet were not immediately available for comment, while the attorney for Sorrento S34 declined comment. 

iStar said the defendants also entered into a temporary deal to allow the property to sell extended-stay corporate housing starting Sept. 30, 2009. 

iStar alleged that the defendants also defaulted on a 90-day forbearance agreement also dated Sept. 30, 2009, which extended the loan deadline to December 2009.

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