The Real Deal New York

Durst Fetner clears hurdle at 500,000-square-foot Herald Square site

July 21, 2011 04:11PM
By Adam Pincus

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From left: Durst Fetner CEO Harold Fetner, developer Baruch Singer and 855 Sixth Avenue

A state court judge handed a victory to Durst Fetner Residential this week,
removing a nagging legal speed bump the developer was facing at its large
Herald Square site.

The legal cloud has hovered over the property at 855 Sixth Avenue since 2006,
when two real estate investors sued a group of developers led by Baruch Singer over a failed partnership bid to acquire a portion of the site.

Durst Fetner became involved in the dispute after it bought the defaulted note for about $104 million from iStar Financial and took title in December 2010 from owners Tessler Developments and the Chetrit Group. It plans to construct a 500,000-square-foot mixed-use tower on the site, between 30th and 31st streets.

The potential amount of the claim was in dispute, but a source close to plaintiffs
Gary Don, Lawrence Gerstein and their company New York Developers
Collaborative said it could have amounted to as much as an 18 percent
ownership stake.

In addition, insiders said such a pending legal action would make it more difficult
to get financing for the project.

State Supreme Court Justice Joan Madden’s ruling, issued Monday, dismissed
the claim affecting Durst Fetner that sought to place a so-called “constructive
trust” on the property, which would have allowed the plaintiffs to gain an equity
interest in the site.

The judge allowed the other 10 claims of the suit for monetary awards to go
forward against Singer and fellow investors Mark Junger, Moses Rosner as
well as three related development companies. Insiders noted the plaintiffs could
appeal the decision. The next court date is July 28.

Harold Fetner, president and CEO of Durst Fetner Residential, said he was
pleased with the decision. He paraphrased the ruling, saying, “[The plaintiffs] had
an agreement with Baruch Singer, but there was never any contract with the fee
[title], therefore [their] claim can’t run with the land.”

In addition, he said he believed the value of the plaintiffs’ claims was overblown,
with Don and Gerstein only entitled to little more than $1 million at most.

Fetner added that if Don and Gerstein do file an appeal, he may ask the judge to
require them to post a $100 million bond because they would be impacting the
value of his development site.

Attorneys representing the plaintiffs and defendants either declined to comment
or were not available for comment.

Don and Gerstein sued in April 2006, seeking either more than $20 million or an
ownership interest. They claimed Singer, Junger and Rosner cut them out of the
deal to buy and develop the site.

Singer’s group ultimately bought the site in February 2006 for $117.5 million, and then
sold it in March 2007 for $140 million to a partnership between the Chetrit Group
and Tessler Developments. They added another piece to the assemblage for
$12.3 million in January 2008.

As part of their legal effort, Don and Gerstein filed a notice of pendency, or lis
pendens, in April 2006, based on the request for a constructive trust. That claim
was reaffirmed three years later in 2009, court records show.

Durst Fetner bought the note last summer for approximately $104 million from
iStar Financial, and closed on the purchase of the site located along Sixth Avenue from Tessler Developments and the Chetrit
Group in December 2010.

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