Developer seeks $110M in loan suit
February 19, 2009 05:10PM By Adam Pincus
4102 13th Avenue
In the current economic downturn, even the building loan contract -- the fundamental guarantee that the bank will make construction payments to the developer -- continues to be weakened.
Developer Alexander Gurevich sued the California-based Chinatrust Bank (U.S.A) after it allegedly failed to complete payments to him on his seven-story residential construction project at 4102 13th Avenue in Borough Park, Brooklyn.
Gurevich is also developing residential project 802 Avenue U in Sheepshead Bay and Manhattan projects at 313-317 East 46th Street and 250 East 49th Street.
In a lawsuit filed last week in Manhattan State Supreme Court, Gurevich is seeking a total of $10 million in compensatory damage and $100 million in punitive damages for breach of contract and maliciously inflicting economic harm from the lender who has funded several of his projects over 10 years.
In a building loan, the bank generally pays the developer in monthly installments, and the developer then pays contractors.
But his case is just one among a growing number of incidents in which banks are threatening to freeze construction funding, an action that was virtually unheard of in recent years, real estate experts said.
At least a half-dozen projects in New York City have been threatened by banks who are demanding that the developers slash construction spending, said Louis Coletti, president and CEO of the Building Trades Employers' Association, which represents union contractors. He began hearing such stories since the beginning of the year from developers and contractors, but was not familiar with the Brooklyn lawsuit.
Lenders are telling the developers: "If you don't reduce construction costs by 25 percent we are going to withdraw the loan even though we pre-approved it," he said.
Real estate attorney Andrew Jagoda, a partner at law firm Katten Muchin Rosenman, who had no knowledge of the Gurevich case, said in economic downturns banks comb through the loan documents for reasons to halt funding.
"Lenders try and pull back. It is a natural reaction because they are worried the projects will be a disaster," he said.
In the Gurevich lawsuit, the developer alleged the bank stopped funding the $10.4 million loan at his condominium project at 4102 13th Avenue in Borough Park in September, causing delays which reduced the project's value. The building was mostly completed after about $8.9 million of the loan had been paid, he said.
Deborah Meng, senior vice president with Chinatrust, said it has not seen the lawsuit, "But when it is served it will respond accordingly through the legal process." She had no further comment.
Gurevich attributed the halt in payments to a dispute over a request for an extension of a loan made by Chinatrust at his Sheepshead Bay project which was completed in August 2008.
"Their behavior is completely irrational," he said.
To cover the lost payments, Gurevich obtained a high-interest, $1 million mezzanine loan, and so far there are no mechanic's liens filed on the property, indicating he is paying his contractors on time.
He also claims in the lawsuit that in December the bank cut off letters of credit and a line of credit, despite Gurevich being fully secured with cash collateral, out of malice.
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Comments
Anonymous
The bank did the right thing. The developer ask for extension on another project. Also I know very well both area where these projects are build, and there no way the price the developer is asking for apt.'s that he will get it.
Comment #1 Posted By: Anonymous 02/19/09
Grammar Girl
This article is generally incomprehensible -- the terminolgy...ouch! As an aside, the first two paragraphs are contradictory -- do banks "make construction payments" (or, as anyone with any knowledge of real estate finance would call, "loan advances"), or do they make payments to the borrower (as indicated in the second paragraph "...Chinatrust Bank (U.S.A) after it allegedly failed to complete payments to him on his seven-story residential...").
Comment #2 Posted By: Grammar Girl 02/19/09
Anonymous
I know the Vice Chairman of Chinatrust Bank. I went to business school with him and the bank is reputable. Something must have been amiss there.
Comment #3 Posted By: Anonymous 02/19/09
Anonymous
Amiss? For sure...no buyers for the 46th street and 49th street condos. Chinatrust is doing what they have to do to protect themselves from owning empty buildings. THERE ARE NO BUYERS FOR THESE RIDICULOUSLY OVERPRICED GARBAGE CONDOS!!! Another Russian low-life trying to pull the wool over our American eyes...no chance this time!
Comment #4 Posted By: Anonymous 02/19/09
Anonymous
he's so full of himself that he called his 315 E 46th developement Alexander Plaza...
Comment #5 Posted By: Anonymous 02/19/09
Common Sense
Clearly this article is one sided, however for those of you who rush to the banks defense, lets not forget they made a commitment and they're backing off from that commitment. Do the right thing, let the developer finish the project, at least then you have a finished product that you can rent out, or sell for a loss. Either way all parties are better off then they are with the status quo, an unfinished building.
Comment #6 Posted By: Common Sense 02/20/09
Anonymous
Most likely, the loan was out of balance and the bank could cut off funding...with poor sales, banks these days are more likely to want to cut their losses rather than pump more money into an asset that isn't going to pay off. In the end, both sides would prefer a completed building, but the article doesn't provide enough facts on which to say who is more at fault in this case.
Comment #7 Posted By: Anonymous 02/20/09
Anonymous
I lived in the same aparment with the China Trust CEO. We shared underwear. He is reputable. It must be the developer.
Comment #8 Posted By: Anonymous 02/20/09
Anonymous
Hey Developers, get over it. You are not going to make it!
Comment #9 Posted By: Anonymous 02/20/09
Anonymous
Iwas the gay lover, dog walker, beeper salesman and proctologist of the China trust CEO. He good man. Vely vely good man.
Comment #10 Posted By: Anonymous 02/21/09
Anonymous
Anonymous #10 -- you can walk MY dog if you want.
Comment #11 Posted By: Anonymous 02/21/09
Anonymous
Both the banks and developers deserve eachother. As long as buyers aren't having to deal with shoddy workmanship due to a deficiency in $ to pay contractors (although it appears that there aren't any buyers) let the buildings rot until the bank forecloses, and is able to resell them at market value (at a huge loss to the bank).
Comment #12 Posted By: Anonymous 02/23/09
Anonymous
Gurevich is obviously grasping at straws. Next stop for him will be bankruptcy court.
Comment #13 Posted By: Anonymous 03/02/09
Anonymous
ALEX IS FULL OPF CRAP! HE IS A THEFT! HE TRIES TO SCREW EVERYONE!
Comment #14 Posted By: Anonymous 07/02/09