The Real Deal New York

Court orders full trial in dispute over Allen Street hotel

DAB Group claimed it was misled by lenders

April 04, 2014 06:10PM
By David Jones

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The construction scene at 139 Orchard Street

DAB Group won a surprise lower court victory Friday when a Manhattan Supreme Court judge ordered a full trial in a long running foreclosure case involving the stalled Allen Street hotel project, lawyers said.

In February, a five-judge appellate court panel rejected counterclaims by DAB Group saying Brooklyn Federal Savings Bank verbally promised an extension on a defaulted loan, then later sold the notes to Maverick Real Estate Group. That panel then ordered the case back to a lower court.

However, Judge Charles Ramos, in a March 26 decision, said that evidence that DAB Group was promised an extension did indeed exist but was hidden from full view. As a result, Judge Ramos granted the firm a motion for a full trial.

“There is evidence in the record that establishes a rational basis to find that Brooklyn Federal Savings Bank [BFSB] led DAB to believe that the loans were extended,” said Ramos in the opinion.

Judge Ramos cited testimony from BFSB loan consultant Bruce Gordon saying the bank put the loan up for sale, even though it was performing, because they “didn’t trust Mr. Zhavian,” the principal of DAB Group. The lender put the loan up for sale in 2012, either as a stand-alone, or as part of a mixed use project at 77-79 Rivington Street.

The 98-room hotel at 139 Orchard Street, at the corner of Rivington Street, was the site of a major residential and hotel development prior to the 2008 collapse of Lehman Brothers. The loan was originally due in December 2008, but DAB received an extension to repay a total of $19 million by September 2009. The developers got another set of three six-month extensions to repay the loan by March 2011.

Lawyers for DAB said the decision vindicates Zhavian’s argument that the lenders had agreed to extend the maturity of the loan, and then tried to make a quick profit through a sale.

“It was certainly a rush to judgment,” said attorney William Wallace, whose firm represents DAB. “The bank bought a loan on the condition that is was a loan in default. Why do you want a loan in default? Because they can proceed quickly to foreclosure.”

“We are bewildered by the decision…and are considering the appropriate next step to continue to steer the litigation to a conclusion that will allow the hotel to be built,” said attorney, Y. David Scharf, a partner at Morrison Cohen, which represents the lender.

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