UPDATED, 1.35 p.m., Mar. 7: A partnership headed by SL Green Realty claims it is in danger of being evicted from its ground lease at a distressed Times Square retail property at 1604 Broadway if it does not work out a deal with its lender, The Real Deal has learned.
Farmore Realty, the owner of the land beneath the building, initiated a summary nonpayment and eviction proceeding against the partnership in civil court in December 2012. The action came after SL Green missed a series of lease payments on the land lease, following a December decision from their lender to cease payment of protective advances to fund the ground rent and protect the collateral.
The eviction proceeding is happening in tandem with a $20 million lawsuit that SL Green and its partners filed against their lender, U.S. Bank National, on March 5. The partnership which controlled the property previously included retail mogul Jeff Sutton but a spokesperson for SL Green said Sutton was no longer a partner in this investment. The spokesperson declined to comment further.
The partnership claims that U.S. Bank declined to provide a necessary stamp of approval for a new tenant to move into the building in 2009, in an alleged effort to keep the building in a distressed state as fodder for a separate legal action against Deutsche Bank.
Deutsche Bank had originally provided the $27 million mortgage to the partnership in 2007, but allegedly made misrepresentations about the status, quality and performance of the loans it sold to U.S. Bank, triggering the litigation between the two lenders.
The partnership started falling behind on their mortgage payments in 2009 after a major tenant, the Spotlight Live Club, closed, leaving the majority of the property vacant. The club served as the scene for a murder at rapper Lil’ Kim’s birthday party prior to shuttering.
Shortly after, the mortgage was transferred to special servicer LNR Partners, which soon began “pressuring” the partnership to surrender 1604 Broadway U.S. Bank, they claim.
Indeed, the partnership—an entity known as 1604-1610 Broadway that includes SL Green and Onyx Equities—alleges that U.S. Bank had purposely delayed giving approval for a tenant to lease the majority of the vacant space in 2009, despite its meeting all of the criteria for approval. The partnership entered into lease negotiations with a Jeckyll & Hyde themed restaurant which wished to open in the space in 2009, according to the complaint, and made a provisional deal for the property pending approval from the lender. Under the terms of the agreement, the Jeckyll & Hyde restaurant would have paid a base rent to the owners of more than $18 million per year, the complaint says.
However, the lender failed to respond to requests to sign off on the restaurant’s proposed lease, and the deal fell through, the partnership claims. Instead, the restaurant moved into a space at 229 West 44th Street, as The Real Deal previously reported. The owners allege that the lender purposely evaded their requests for approval on the basis that it wanted to preserve its claims against Deutsche.
“Increased occupancy and operating income is of course beneficial to a lender looking simply to have its loan repaid, but it is detrimental to a lender’s claim that it was duped into buying non-performing loans,” the complaint said. “There was no basis for [the] lender to refuse its consent to the Jeckyll & Hyde lease. It was a valuable lease, with a creditworthy tenant, and at no cost to [the] lender.”
The partnership has since tapped Newmark Grubb Knight Frank to market the vacant retail space. Jeffrey Roseman of NGKF did not immediately return a request for comment.
The lead for the Jeckyll & Hyde restaurant was procured by the previous marketing team for the building, SRS Real Estate Partners.
The partnership is seeking a judgment of $20 million against U.S. Bank as compensation for losses in rental income, management and leasing fees and the “diminished value” of their leasehold interest, the complaint said. They also allege that the lender has been in talks with Farmore to put a new ground lease in place.
SL Green, Sutton and an attorney for the partnership did not immediately respond to requests for comment. It was not immediately clear who was representing U.S. Bank in the suit. A spokesperson for Farmore was on vacation.