The Flatiron Hotel, which has been the focus of acquisition talks with controversial real estate figure Robert “Toshi” Chan, is facing a foreclosure suit by a Long Island bank, which alleges the owners defaulted on $8 million in loans.
Glen Cove, N.Y.-based First Central Savings Bank filed suit in New York state Supreme Court July 22, alleging the hotel’s loan guarantors — Ibrahim Saleh, Main Team Hotel and Ming Chu Co. — defaulted on a $5.1 million first mortgage and a $2.99 million second mortgage.
The suit also names Smart Apartments, the firm that previously operated under the name Toshi Apartments, because of a ground lease that the firm recently acquired at the hotel.
Toshi has built a lucrative underground business in New York leasing out extended-stay apartments to tourists, but laws passed by the City Council have made it illegal to offer extended-stay leases of 30-days or less.
As The Real Deal previously reported, Toshi was in talks to acquire several hotel properties, including the Flatiron Hotel, at 1141 Broadway at 26th Street, as a legal means to continue his extended-stay business. According to the July 22 lawsuit, First Central made an initial loan of $5 million in April 2007 to Ibrahim Saleh, Yaakoub Saleh and Ming Chu Wu Li, with monthly payments scheduled from May 1, 2007 to May 1, 2009.
In August 2009, the bank amended the loan to extend the due date until November 2009. As The Real Deal also previously reported, the hotel was scheduled to open in 2009 under the management of Danbury, Conn.-based Meyer Jabara Hotels, but stalled out amid a series of construction delays and stop work orders.
The property’s owners have been in a series of court battles with contractors, and a state Supreme Court judge recently issued a $2.7 million judgment against Saleh, who may have fled the country.
Meanwhile, the borrowers also took out a $3 million line of credit in November 2007, with monthly payments due from December 2007 until May 2009. The borrowers drew down $3 million against that balance. That note was extended until November 2009.
On May 23, 2011, the bank notified the borrowers that they were in default on the $5 million first mortgage and the $2.99 million second mortgage.
First Central Savings is demanding a judgment against the borrowers, the appointment of a receiver and the sale of the loans. If nobody bids on the loans, then First Central is asking the court to be named the owner of the property, which it would then put up for sale.
Lawyers for the bank said they were not authorized to comment on the case. Lawyers for the owners were not immediately available for comment and nor were officials at Toshi’s firm.