[Updated 7:13p.m. with comment from Starrett's attorney] Starrett Corp., the Manhattan-based real estate developer, is facing a $55 million foreclosure suit from lenders, including LNR Corp. and Angelo Gordon & Co., after allegedly defaulting on loans backed by the Axton, a former Mitchell-Lama high-rise on the Upper West Side.
Starrett defaulted this past May on principal and interest payments at the property, a 28-story rental building at 733 Amsterdam Avenue, the lenders alleged in a lawsuit filed Nov. 20 in New York State Supreme Court. The lenders are asking for a sale of the property, either as a single entity or in two parcels.
An attorney for Starrett, Andrew Shapiro of Shapiro and Gellert, said he is negotiating a deal to refinance the debt and hopes to have a deal completed in the next two weeks.
Starrett took out the original $55 million in loans from Morgan Stanley Mortgage Capital in April 2007. The loans were later split into three separate notes, and by July 2007 they were securitized and sold as part of a pool of commercial mortgage backed securities, according to court documents.
By October 2009, two of the notes, worth a combined $34 million, were sold at a 33 percent discount to a fund controlled by Angelo Gordon. The loans had been transferred to special servicing by LNR amid a threat of default due to “cash flow problems,” according to a report in trade publication Hedge Fund Alert.
According to the report, 80 percent of the 229 units in the building were rent stabilized, and the owners planned to convert some units to market rate apartments. Morgan Stanley had predicted net operating income would triple from the $1.2 million estimated in 2007.
One potential setback for the owners was a January 2011 decision against the Witkoff Group that limited the ability to raise rents on former Mitchell-Lama apartments. David Hershey Webb, a Manhattan-based tenant’s lawyer, told The Real Deal at the time that Axton tenants could benefit from the decision.
More recently, a series of meetings have been held at Community Board 7 regarding the owner’s plan to expand the building’s lower floors to include additional retail space, according to the Axton Tenants Association. The building has 11,700 square feet of retail space and a 185-space parking garage, Starrett’s website says.
The proposal would extend the lobby almost to the edge of the sidewalk between West 95th and West 96th streets. HSBC operates a bank branch in the building, tenants said, but they were not aware of specific additional retail tenants.
Additionally, the building has some occupied market rate units, but tenants at the building said they did not know the exact number.
Dan Fasulo, director of market research at Real Capital Analytics, told TRD that Angelo Gordon was “in the money” and would be in a position to take over the property itself.
However, City Councilwoman Gale Brewer, who represents the Upper West Side, noted that Mitchell-Lama buildings in general have a ceiling on the amount of market rents they can generate.
“It’s a shame to have all these Mitchell-Lama’s converted because they were made for middle-income housing,” she told TRD. “It’s a perfect place to raise a family, but it’s not a perfect place to make a killing.”
Starrett, the original developer of Stuyvesant Town and the Javits Center, owns about 7,000 apartments in the New York City area.
Lawyers for the lenders declined to comment. Starrett Corp. officials were not immediately available for comment.