The Real Deal New York

Apthorp developers plan to withdraw suit against lender

October 17, 2011 03:23PM
By David Jones

The developers of the Upper West Side’s Apthorp condominium are planning to
withdraw their lawsuit against Anglo Irish Bank, according to documents filed in
New York state Supreme Court this past Friday, and will allow the lender to sell the
property’s troubled $385 million building loan to Dallas-based Loan Star Funds.

Anglo, the senior mortgage lender at the troubled condo, at 2211 Broadway, blasted
the developers, led by Africa Israel USA and Broadwall Management, in a proposed
order submitted to Judge Jeffrey Oing, detailing what it considers numerous
attempts by the building sponsors to squirm out of their crumbling lawsuit, which
sought to block the bank from selling the senior mortgage.

“Plaintiff’s current effort to dismiss this case in its entirety suggests that Anglo’s
contention that this is a strike suit may well be correct,” Anglo Irish lawyers wrote
in the proposed order. “Nevertheless, no matter what plaintiff’s true intentions
were, plaintiff has caused Anglo to incur unnecessary legal fees, expenses and other
costs associated preparing for these depositions, and in opposing plaintiff’s motion
generally.”

The Apthorp developers filed suit Sept. 12, asking the court to block Anglo Irish’s
planned sale
of the senior mortgage to Lone Star, claiming that such a sale would
potentially undermine the conversion of 163-unit building into luxury condos.

Anglo Irish is selling its entire $9.5 billion portfolio of U.S. loans to JPMorgan
Chase, Wells Fargo and Lone Star, after the Irish government took over the Dublin-
based lender, which collapsed in 2009 amid billions of dollars in bad loan deals and
allegations of massive fraud.

Meanwhile, The Real Deal reported last month that the developers knew of Anglo
Irish’s plans to sell the Apthorp loan back in February, and told the AG, in a
sworn statement, that it would have no impact on them or the building. The AG immediately launched an investigation into the contradictory statements, shut
down the property’s sales office and fined the principals of the development group
$190,000 for making misleading statements.

The AG also ordered the developers to offer refunds to any buyers that have
contracts, but have not closed on their apartment purchases. Sources said at least
three buyers fall into that category and court records show 46 units have closed,
while about 80 apartments are filled with rent-regulated tenants.

Following the revelations in The Real Deal, the bank accused the Apthorp
developers of making false statements and failing to correct them in five subsequent
amendments to the Apthorp offering plan. The Apthorp developers, starting in
August, wrote urgent letters to the lender, urging them not to sell the loan, claiming
they had promised to maintain 51 percent stake in the loan in a 2010 deal to
restructure the senior mortgage, which has a $224.9 million balance.

The bank, however, filed court documents showing it revised the loan agreement
to give it permission to sell the loan to a third-party without the permission of the
developers.

Court papers show that the bank had agreed to a “standstill” agreement that
would block the sale of the Apthorp loan until Oct. 12, and had agreed to expedited
discovery, in which the bank and the developers would take sworn depositions. But
court records show the Apthorp lawyers contacted the judge the night before the
scheduled injunction hearing attempting to withdraw plans to block the sale, and
then failed to show up in court the next morning until they were later summoned to
court.

A visibly annoyed Judge Oing told the Apthorp lawyers, “nice of you to show up,”
when they arrived in court at least 35 minutes late, while a large number of lawyers
in a separate case involving ESPN and EchoStar awaited for their case to be called.
The Apthorp lawyers later stormed out of the judge’s chambers after both sides met
with Oing.

Much of the case has been either sealed or heavily redacted, following a Sept. 23
agreement to keep several key documents and pieces of evidence confidential.
Following the AG settlement and the collapse of the Apthorp case, Anglo is
demanding that the Apthorp developers reimburse it for $223,735 in legal fees,
which included travel from Chicago by lawyers from Kirkland & Ellis, the firm for
Anglo Irish.

The Apthorp owners declined to comment. Stuart Saft, attorney for the Apthorp
developers, declined to comment. Fried Frank attorney Gregg Weiner, who
represented the Apthorp in the Anglo Irish suit, was not immediately available for
comment.

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