It appears that developer Joseph Chetrit has been quietly stewing for months after he lost out on an opportunity to buy a stake in the 14-building portfolio previously owned by brothers Michael and Frank Ring.
Chetrit claims he was an equal partner in a joint venture with Joseph Tabak’s Princeton Holdings to acquire Michael’s 50 percent stake in the 1.2 million-square-foot portfolio for $112.5 million.
But before the deal closed, in June, Tabak flipped the contract to Gary Barnett’s Extell Development for $65 million, giving Barnett the chance to purchase Michael’s share.
Tabak “secretly embark[ed] on a scheme to sell” the contract, Chetrit alleged in a complaint filed yesterday in New York State Supreme Court, and asserted that he would have bested Extell’s offer.
For years, real estate investors have vied to purchase the portfolio or partner with the brothers, widely considered difficult negotiators.
Tabak seemed to have broken the spell when in February 2011 he inked a deal to buy control of Michael’s stake for $112.5 million.
But ultimately it was Extell that prevailed, not only closing on Michael’s stake but also acquiring Frank’s interest this month for an undisclosed amount. The notorious package of buildings, pulled together by the Rings’ father over decades, is valued at between $600 million and $800 million and includes buildings such as 212 Fifth Avenue and 251 Park Avenue South. The majority of the buildings are vacant.
Chetrit accused Tabak of breach of contract, breach of fiduciary duty and fraud, among other claims.
Chetrit’s attorney, David Feuerstein, a partner at the law firm Herrick, Feinstein, declined to comment.
Janice Mac Avoy, a partner with Fried, Frank, Harris, Shriver & Jacobson, representing Tabak, called the lawsuit, “frivolous and inaccurate.”
“Mr. Chetrit was only entitled to the return of his deposit. However, out of a sense of fairness, Princeton paid Mr. Chetrit what he would have gotten had the deal with Ring closed and then the interest was sold to Extell,” Mac Avoy said in a statement to The Real Deal.
“Princeton and Joseph Tabak’s skillful management of this complex transaction netted Mr. Chetrit a very handsome return on his short-term investment,” she said.
According to the suit, Tabak received about $65 million from the sale to Extell. Out of that, he paid Chetrit $8.4 million, and Tabak and Princeton kept the remaining approximately $54 million. The joint venture also recovered its deposit, the suit says.
But Chetrit alleged he was due far more: $32.5 million, or half the contract sale price, as well as the return of the $12.5 million he had put in as a deposit.
“In blatant violation of its contractual fiduciary obligations to [Chetrit], defendant Princeton surreptitiously sold [the contract to Extell] and then stole most of the sales proceeds for itself and Tabak,” the suit said.
Chetrit pointed out that he had agreed to pay $46 million to own 25 percent of the portfolio — that is, half of Michael’s stake — and thus would have paid quite a bit more than Extell’s $65 million to own the right to buy the entire interest.
The partnership dates back to early 2012, when Chetrit approached Tabak with an offer to split the purchase of Michael’s share and operate the stake together, according to the suit. Chetrit was expecting to fund the acquisition through a so-called 1031 exchange, so the timing was more constrained than in a typical transaction. But by August 2012, the parties had hammered out a deal, the suit says.
As part of the agreement, Chetrit pledged to give Tabak $46 million in a one-time “profit payment” once the venture had closed on the purchase of Michael’s share. Crucially, Princeton maintained the power to engage in negotiations, the complaint says.
Tabak had initially put down a $10 million deposit, which was in escrow, the complaint says. But later Chetrit wired Tabak $12.5 million to cover the deposit, freeing up capital, and Tabak then assigned Chetrit the rights to the funds that were in escrow, according to the suit. In addition, Chetrit contributed another $1 million to cover expenses.
At the end of the day, Tabak effectively had no money exposed in the deal, the suit claims, leaving Chetrit wondering why he sold to Extell and did not offer to sell to Chetrit.