The Real Deal New York

Did the Apthorp developers mislead the AG?

September 23, 2011 06:16PM
By David Jones

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Attorney General Eric Schneiderman and the Apthorp

The developers of the Apthorp condominium, who filed suit earlier this month to block Anglo Irish Bank from selling the property’s $385 million mortgage loan, previously told state regulators that the potential loan sale would have no impact on them or the property, according to documents obtained by The Real Deal.

In February, the Apthorp developers — led by Africa Israel — disclosed in a filing with Attorney General Eric Schneiderman that it was “not in default” on the mortgage, but there was a possibility that Anglo Irish “may sell the loan, however this would have no effect on the sponsor or the building.”

That disclosure stands in stark contrast to the language used by the developers in Sept. 12 suit against Anglo Irish, where they warned that the sale would violate a 2010 loan restructuring deal and would potentially harm the conversion.

Legal experts say the earlier filing raises questions about whether the developers misled the AG over the potential impact of the loan sale and whether the AG has a full understanding of the building’s true financial condition.

“On the face of it, it doesn’t seem to make sense,” said Andrew Weltchek, a New York-based real estate lawyer who has written numerous offering plans.

The Apthorp, at 2211 Broadway, has had a troubled history since the original developers, led by Maurice Mann, agreed to buy the property for $426 million in 2006 and later brought in Africa Israel as a partner to help convert the landmark rental building to a condominium.

The new lawsuit, filed in New York state Supreme Court, argues that the Apthorp would “suffer irreparable harm” if the loan is sold to a new lender, following the August auction of Anglo Irish Bank’s $9.5 billion U.S. portfolio. 

“The conversion project is a complex undertaking presently at a critical stage,” wrote Fried Frank attorney Gregg Weiner in the complaint, representing the Apthorp developers. “Apthorp’s express contractual right to have a single majority lender on the project and throughout the term of the loan will be lost absent prompt injunctive relief, thereby causing it irreparable harm.”

The suit states that Anglo Irish agreed to maintain 51 percent of the loan as part of a 2010 loan restructuring deal made with the developers. The suit indicates that Eastdil Secured marketed the Apthorp loan as a performing loan representing 48 percent of the bank’s New York City multi-family and condo building pool of loans.

The complaint states that Lone Star Funds, a Dallas-based private equity firm, agreed to buy the loan and published reports state that Lone Star is buying a total of $5 billion in non- and sub-performing loans from Anglo Irish.

The suit warns that a “change in the majority lender would upset Apthorp’s bargained-for-right to require Anglo to hold onto a majority of the principal of the senior loan , and would create uncertainty in the marketplace, thereby dampening the marketability of units and adversely affecting sales, which could potentially lead to the failure of the project.”

Attorney Stuart Saft, who has represented the Apthorp, but is not the attorney in the suit, said he stands by the language in the earlier filing with the AG.

“I think we negotiated something in the building loan agreement that prevents the building loan sale from going through,” Saft said. “Frankly I think Anglo Irish was wrong to handle it this way.”

A spokesperson for the AG said there has been no official disclosure of the lawsuit by the Apthorp developers, and declined to comment further.

Weiner declined to comment on the case and referred all questions to the developers. A Lone Star spokesperson declined to comment. Anglo Irish officials have declined to comment on the loan sale except to say it was expected to be completed in the coming months. Eastdil officials did not immediately respond to calls on the Anglo Irish sale.

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