The Real Deal New York

Istar wins foreclosure case against Esplanade

February 08, 2011 01:10PM
By David Jones

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Jay Sugarman, head of iStar, and 47 East 34th Street (building photo source: PropertyShark)

A state Supreme Court judge late last month handed a major victory to iStar Financial in the lender’s foreclosure case against Esplanade Capital’s 36-story mixed-use hotel at 47 East 34th Street.

Manhattan-based iStar filed to foreclose on the 36-story tower in March 2010 after the real estate developer defaulted on $76 million in loans.

Esplanade, led by investors David Scharf and Jay Eisenstadt, countersued later that month alleging that iStar launched the foreclosure suit as part of a “predatory” deal with Dublin-based Sorrento Asset Management to operate the property under the BridgeStreet Corporate Housing brand and cut Esplanade out of the picture.

Judge James Yates didn’t buy that argument by the developers, because Sorrento stood to lose too much by entering such a deal, he said.

“Here, the scheme as described by plaintiffs, requires a suspension of disbelief because it requires the court to accept that the Sorrento entities were willing to commit economic suicide,” wrote Judge James Yates in his ruling.

As part of the foreclosure, iStar was awarded judgments against Scharf and Eistenstadt, as well as investors Kevin and Donal O’Sullivan, who co-founded Manhattan-based Time Square Construction & Development.

Analysts say there are other extended stay hotel chains that are interested in acquiring the property.

“Assuming they don’t want to hold onto it, they’re going to sell it to another extended-stay operator,” said Ben Thypin, senior analyst at Real Capital Analytics.

Esplanade is involved in a similar foreclosure case at the S48, a 43-story hotel and condominium at 306 West 48th Street. BridgeStreet was scheduled to operate that property as an extended-stay hotel as well.

PB Capital, the U.S. subsidiary of Deutsche Postbank, was awarded a receiver in that case in November 2010.

Neither Esplanade officials, nor lawyers for the firm, nor the O’Sullivans were immediately available for comment. Lawyers for Esplanade, iStar and BridgeStreet declined to comment.

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