DelShah Capital has filed suit against the Flatiron Hotel, alleging that the troubled 65-room hotel defaulted on its lease payments.
In its suit — filed on Sept. 26 in New York State Supreme Court — the Manhattan-based turnaround firm named both the hotel and Smart Apartments, the management company headed by Robert “Toshi” Chan that’s overseeing operations there. DelShah is seeking to take over the hotel and replace Smart Apartments.
The lawsuit is the latest in a string of financial and legal problems at the hotel.
DelShah acquired the outstanding debt at the property, located at 1141 Broadway, earlier this year. That came less than two years after the hotel’s owners — Ibrahim Saleh, Main Team Hotel and Ming Chu Co. — defaulted on $8 million in debt from Long Island-based senior lender First Central Savings Bank.
After First Central filed a foreclosure suit in 2011, Manhattan-based Brick Realty Capital bought the debt. Then this past May, Brick sold the debt to an entity called Flatiron Noteholder, an affiliate of Michael DelShah’s eponymous firm.
As The Real Deal previously reported, the owners signed a five-year lease in 2011 with Smart Apartments, which operates through an entity called Flatiron Hotel T, to run the hotel.
However, Smart Apartments, an operator of short-term rental apartments, formerly known as Toshi Apartments, was effectively shut down in February after the city sued it for operating illegal apartments in more than 50 buildings citywide, according to legal sources.
DelShah, through Flatiron Noteholder, is seeking $618,000 in damages for back rent.
DelShah is also asking the court to allow it to replace Smart Apartments claiming that the lease agreement should be nullified because neither Smart Apartments nor the owners paid DelShah directly as they were required to. DelShah, which has also taken over as the plaintiff in the ongoing 2011 foreclosure case, alleges that the hotel owners owe it $206,000 per month from July through September.
Meanwhile, both Smart Apartments and the owners of the Flatiron are embroiled in several other lawsuits.
Smart Apartments is also being sued by the landlord at its former office building, 274 Madison Avenue. The landlord is seeking more than $400,000 in back rent and other charges. The company, which had a lease from 2011 to 2016, vacated its space in February. Company officials were not immediately available for comment.
Meanwhile, in December 2012, a state judge also ordered a $250,000 judgment against Smart Apartments after it was sued by the landlord at 224 East 48th Street for renting out apartments illegally. An attorney for the landlord confirmed that the judgment was paid.
In addition, in June, the hotel’s general contractor, Born to Build, filed a lawsuit against the Flatiron’s owners, seeking to enforce a $3.5 million judgment against Saleh for illegally transferring funds that belonged to the contractor. Saleh — who was indicted in federal court in 2010 for trafficking counterfeit clothing — failed to appear for a criminal court hearing in 2011 and hasn’t been seen since. According to court documents, he may have fled the country. Alexei Marc Schacht, an attorney for Saleh in the criminal case, said he did not have any involvement in the ongoing foreclosure case or any other civil litigation.
The owners filed a $2 million countersuit against Born to Build late last month, alleging that the contractor abused the legal system by trying to transfer Saleh’s $3.5 million lien onto the hotel, thereby preventing the owners from selling the property. The owners claim they paid Born to Build $7 million, but that the contractor walked off the job.
Ron Francis, an attorney for the hotel’s owners, declined to comment. Chan’s attorney said he would need permission from Chan to respond, but did not return calls by press time. And a spokesperson for DelShah did not return calls.