Brothers Meyer Chetrit, left, and Joseph ChetritTongues wagged in the real estate industry when news broke that the Chetrit Group — one of the city’s most prominent investment firms — had split in two.
Brothers Joseph and Meyer Chetrit would be relocating from the company’s longtime headquarters at 404 Fifth Avenue into offices at 512 Seventh Avenue, Real Estate Alert reported in June. Meanwhile, their two younger brothers, Jacob and Juda, would continue working out of the Fifth Avenue office, but operate under the name of Chetrit Organization.
Or would they?
The notoriously secretive family broke their silence last month in a rare, albeit brief, phone interview with The Real Deal to deny that a split has occurred.
“No, we did not split up,” Meyer Chetrit, often known as Mike, told The Real Deal when reached by phone. In a voice heavily tinged with a French accent, the Moroccan-born mogul said the rumors began because “we opened another office,” at 512 Seventh Avenue.
But multiple industry sources insist the opposite is true. The brothers “had a big fight, and they absolutely have split up,” said one insider veteran who has worked with the family.
In a sign that change may indeed be afoot, a new entity called the Chetrit Organization LLC filed for incorporation in April with the New York State Department of State, according to the agency’s online database. The entity’s address is listed as “c/o Jacob Chetrit, 404 Fifth Avenue, 6th Floor, New York, New York.” The Chetrit Group itself was incorporated in 1999 and is listed as still active.
And the Chetrits are facing significant challenges, the kind that can engender acrimony between partners — even the closest of siblings.
The first involves asset disposition. Two of the Chetrits’ major properties — the 800,000-square-foot Bed, Bath & Beyond Building at 620 Sixth Avenue, and the Willis (formerly Sears) Tower in Chicago — are for sale. The Chetrits’ Empire Hotel, meanwhile, is not officially on the market but is being quietly shopped around, industry sources said.
“They have assets for sale right now, some fairly large assets,” said one industry insider. “Usually, those types of situations lend themselves to conflict in terms of how the funds are going to be allocated.”
There are other struggles as well, as the New York Observer noted in a recent profile. In late 2010, a venture led by the Chetrit Group lost a development site at 855 Sixth Avenue to Durst Fetner. The firm’s $79.6 million loan on 123 William Street, an office building, is nearing default and has been transferred to special servicing. A plan to convert a former Toy Center building at 1107 Broadway to condos never got off the ground, and the building was recently sold at a foreclosure auction (though the Chetrits sold a 50 percent interest in the property in 2007).
The Chetrits are also being sued by the condo board at 1200 Fifth Avenue, an East Harlem condo conversion that began sales in 2006 and is still not sold out.
In the midst of all of this strife, the Chetrits have been catapulted to a new level of public scrutiny by their recent purchase of the iconic Hotel Chelsea. The sale closed last month for $77.8 million, according to public records. (The deed was signed by Meyer Chetrit, who listed his address as 512 Seventh Avenue.)
The landmarked redbrick hotel is a longtime gathering place for artists and musicians, many of whom have lived there for years as rent-stabilized tenants. The Chetrits have hired architect Gene Kaufman to renovate the building, and are likely hoping to repeat the success of their Empire Hotel on the Upper West Side, which they acquired in 2004, upgraded, and reopened with a popular rooftop bar, making it far more attractive to potential buyers.
Even the most die-hard of the Chelsea’s residents admit that the hotel — built as a co-op in 1883 — needs a renovation. Still, for a family that purportedly wants to stay under the radar, buying a historic property full of vocal, eccentric residents was probably the wrong move.
Protecting family assets
Nearly all real estate investors have faced difficulty during the downturn, and the Chetrits are no different.
Somewhat unusual, however, are the millions of dollars in personal guarantees the brothers signed on a number of their properties during the boom. These guarantees, which give the lenders “recourse” to the borrowers’ personal fortunes, were once common in commercial lending, but had largely disappeared in the early 2000s. Still, the Chetrits signed them on several projects, including 855 Sixth Avenue and 5 Beekman Street, according to sources and court documents.
That gives credence to one theory about why the ostensibly tight-knit Chetrits may have split: A number of industry experts suggest that the change is not actually a formal separation, but rather an internal restructuring designed to protect the family’s assets.
“I think they split to basically help protect all of them from a lot of the recourse that they’ve signed,” said one prominent developer who has worked with the family. “It’s basically a shell game — find the assets.”
Real estate experts said that’s a strategy some investors use when they get into trouble.
It’s possible that “they’re still affiliated as a separate group, within an umbrella organization,” according to Ben Thypin of Real Capital Analytics, who said he had no direct knowledge of the Chetrits’ internal structure. “That wouldn’t be unprecedented among New York real estate families.”
A PR nightmare
It’s hard to imagine a new owner less likely simpatico with the reputation of the Hotel Chelsea than the Chetrits.
For years, the balconied 23rd Street hotel has been a bastion of sex, drugs and rock ‘n’ roll, the stomping grounds of poet Dylan Thomas, legendary songstress Janis Joplin and Sex Pistols bassist Sid Vicious.
Former manager Stanley Bard famously let tenants pay their rent with artwork, and as a result, the Chelsea has become “one of the last outposts of artistic bohemianism,” said building resident Ed Hamilton, a blogger and author of the book “Legends of the Chelsea Hotel.”
The Chetrits, meanwhile, are perceived by residents as hard-driving businessmen more interested in the bottom line than in helping struggling artists. And in contrast to outspoken Hotel Chelsea bohemians, the Chetrits are deeply private, and religious.
The sale closed last month, with $85 million in financing for the Chetrit Group and junior partner Clipper Equities arranged by Meridian Capital Group. Perhaps not surprisingly, the deal has already become something of a PR nightmare for the Chetrits. When the hotel shut down last month, its iconic neon sign went dark, most of the staff was fired, and reservations were abruptly canceled. Scottish actor Jeffrey Stewart refused to leave his hotel room, then conducted a number of indignant interviews with reporters while still in his pajamas.
Tenants watching this spectacle — many of whom had been hopeful that Bard would regain control of the hotel — proclaimed their dislike for the Chetrits. One tenant, 30-year resident Tim Sullivan, stood on the sidewalk outside the hotel and loudly dubbed the new owners “slimeballs” and “bullies,” for firing staff and keeping tenants in the dark about their plans.
All this attention is likely the last thing the Chetrits want. The firm has a longstanding reputation for keeping their affairs to themselves, and rarely speaking to the media.
“They’re a pretty quiet organization,” said Prudential Douglas Elliman’s Yuval Greenblatt, who worked with the Chetrits for three years in marketing the Columbus Square residential complex on the Upper West Side.
But he disagreed with the frequent characterization of the Chetrits as mysterious.
“They were pretty straightforward, gregarious, friendly people,” Greenblatt said.
Of course, people in the industry have a strong incentive to respect the Chetrits’ distaste for publicity.
“They’re very litigious,” said one industry insider. “That’s why no one wants to talk.”
When reached by phone, for example, developer Yitzhak Tessler said: “I prefer not to comment — not off the record, not on the record. I don’t want to speak about it.”
Developer Joseph Moinian, a friend of the Chetrits and their partner at the Willis Tower, declined to speak about the family unless the story said only positive things about them.
As a result of this mania for privacy, little is publicly known about the Chetrits.
In fact, there’s often confusion about who’s who in the family.
What is known is this: Joseph Chetrit is the oldest son of Simon Chetrit, a prominent player in the Moroccan shipping business. Joseph came to the United States from Casablanca in the 1980s, working in textiles. Things seemed to go awry: In 1990, he pled guilty to one felony count of violating customs laws, and served 90 days of community service.
However, he had better luck with real estate.
According to a July Observer story, Chetrit started with apartment buildings in Brooklyn and Queens. He did his first commercial real estate deal in the U.S. in 1994, with a $13 million purchase of an office building at 19 West 44th Street. From there, he ascended rapidly through the real estate ranks, partnering with his brothers Meyer, Juda and Jacob (who also goes by “Jacques”). Isaac Chetrit, a cousin, heads the separate real estate investment firm AB & Sons.
By 2007, the Chetrit Group had an interest in some 50 commercial and residential properties nationwide. That year, the group purchased heavily, The Real Deal reported, buying roughly $627 million in properties (often with partners like Moinian and Tessler), including the Standard Oil Building at 26 Broadway for $225 million; a former nursing home at 1760 Third Avenue for $80 million; and 90 and 100 Trinity Place for $64 million. The same year, however, the company’s sales yielded around $1.2 billion, thanks to deals like the sale of 200 Fifth Avenue, which netted a 42 percent return just two years after the Chetrits bought it.
The Chetrits also began to delve into ground-up development.
“They’re known less as developers — they really are landlords,” Elliman’s Greenblatt said. Columbus Square, a multi-building rental and condo project, was “their first foray into something that big in terms of new construction,” he said.
At Columbus Square, where the Chetrits partnered with Larry Gluck of Stellar Management, “they did phenomenally well,” Greenblatt said, despite the fact that rentals started in 2009, during the downturn. Now, “rents are quite high there,” he noted, adding that a four-bedroom apartment in the complex just rented for around $20,000.
Family affair
Business associates say Joseph is the company’s front man and the clear leader among the brothers, in both business and personal affairs.
“I’ve always seen Joe as being the father figure, and everybody else just kind of following,” said one friend of the family.
“There are decisions that are made by other members [at the Chetrit Group], but I make the main decisions,” Joseph said in a recent deposition for a religious discrimination lawsuit, which the company settled after The Real Deal published a story about the case. (Also while being deposed for that case, Joseph described himself as a “modern Orthodox” Jew and said he attends Manhattan Sephardic Congregation on the Upper East Side. Among other things, the lawsuit alleged that a rabbi regularly comes to the Chetrits’ office to pray with employees.)
Meyer, who spent several weeks in the hospital after suffering a stroke last year, appears to function as a second-in-command.
Throughout the company’s history, “it was really Meyer and Joe that had all the control,” said one associate. “They made all the decisions.”
In public, the seemingly tight-knit Chetrits have presented a united front, with Joseph generally credited as the mastermind behind their deals. But behind the scenes, the younger Chetrit brothers appear to have taken charge of certain projects, and launched their own independent undertakings. For example, when asked in the above deposition about an entity called Simgad Long Island LLC, which is headquartered at 404 Fifth, Joseph said one of the Chetrits was involved, but “I don’t even know which brother.”
Jacob Chetrit, meanwhile, is the point person on a deal with investor Charles Dayan at 5 Beekman Street. In 2008, the two took out a loan for $45.75 million from Pacific National Bank to convert the office building into a 180-room hotel. Each contributed about $11 million of his own funds, according to court papers.
In 2009, Pacific National filed to foreclose on the mortgage, alleging that the loan was in default. The parties settled in July 2010, with the bank accepting a discounted payoff of the outstanding amount of the loan. In a lawsuit, Jacob, who had signed a personal guarantee, claimed that Dayan had failed to contribute to a $4.25 million initial settlement payment to the bank.
Dayan knew Jacob would front the money, the suit claimed, for fear of losing his $11 million capital investment and “enforcement of the guaranties, under which … [both parties] are jointly and severally liable but under which only [Chetrit] has real exposure.”
In 2010, a judge ordered Dayan to pay his share of the money. When reached by phone, Chetrit’s attorney, Stephen Meister, said the suit had been resolved. He declined to comment on other Chetrit affairs.
Deals in trouble
The project at 5 Beekman Street isn’t the only deal causing headaches for the Chetrits.
The Chetrits and Tessler purchased 855 Sixth Avenue in 2007 for roughly $140 million, and had been planning a 355,000-square-foot condo tower on a retail base. Even before the downturn, observers felt that the $402-per-square-foot price was too high for the emerging neighborhood.
“By way of underwriting, I [was] saying to myself, ‘How is this going to work?’” recalled one industry veteran. Then, during the downturn, “they weren’t finding any retail tenants and they definitely weren’t finding any office tenants, which made it even harder, because now your cost basis on the land is so high, you can’t make a rental work. You have to do a condo. Well, 30th and Sixth is not a condo market.”
With the loan in default, Durst Fetner signed an agreement to buy the note for about $104 million in March 2010, as The Real Deal reported last month. That put Tessler and the Chetrits in a vulnerable position because they were responsible for personal guarantees of up to $19 million, so the latter parties cut a deal to hand over the title to Durst Fetner.
The Chetrits also have other legal issues to contend with. One lawsuit involves 1200 Fifth Avenue in East Harlem, a condo conversion where the Chetrits partnered with owner Maurice Mann, the former co-owner of another ill-fated conversion, the Apthorp.
In October 2010, the condo board at 1200 Fifth Avenue filed a $15 million lawsuit against the Chetrit Group, naming Meyer Chetrit specifically, along with its contractors and architects. The pending suit alleged “various construction defects” at the project and said the sponsors “elected to ignore and deliberately conceal a number of instances that have proven to be potentially dangerous conditions.”
Specifically, they claimed, the building’s 782 new windows were “improperly designed, fabricated and installed.” The suit cited the case of elderly building resident Ruth Newkirk, who alleged that the newly installed window in her bedroom fell in on her when she tried to close it, breaking her hip.
Newkirk filed a separate lawsuit, which was settled for $375,000, said her attorney, Robert Ginsberg.
The 1200 Fifth Avenue case is ongoing. Jonathan Fink, the attorney representing the Chetrits, said they have filed a motion to dismiss portions of the complaint, but declined to comment further.
Industry sources said that the suit is having a negative impact on sales at the building, where brokers are now reluctant to bring buyers.
“If you try to bring a buyer to 1200 Fifth Avenue, you have to tell them the sponsor is being sued,” said one industry source. “This thing at 1200 Fifth hasn’t been wonderful for [the Chetrits'] profile.”
When contending with these types of problems, splitting up — even if it’s a legal maneuver rather than a true separation of business interests — is one method used by real estate players to protect their assets, industry experts noted.
“That’s the strategy people [use] when they have trouble — split up,” said one insider.
Still better off
Still, the Chetrits are in some ways better off than other real estate developers.
“They were involved in some pretty profitable transactions during the boom,” Real Capital’s Thypin said.
He cited the combined $715 million sales of 200 Fifth Avenue and 1107 Broadway in 2007, which a Chetrit-led group had purchased two years earlier for $355 million. Also, the Chetrits sold 1450 Broadway for $204 million in May, after buying it in 2004 with Moinian and other partners for $122.5 million.
“They had a few very good years, so losing a few million here or there in the crash isn’t a big deal,” Thypin said. “A lot of people have lost much more.”
And while hotel values in the current marketplace are something of a question mark, the Empire Hotel has “gained in value over the last couple of years since they bought it,” said one industry source.
Still, according to multiple sources, disagreements between the brothers contributed to the establishment of separate offices. After all, it’s not uncommon for real estate families to part ways, especially as the generations wear on. In 2009, for example, the Elghanayan brothers divided their well-respected real estate company, Rockrose, into two separate companies.
“Once you get to a certain point in age and net worth, your goals tend to start to go in different directions,” one industry veteran said.
