Lender alleges Swig defaulted on 25 Broad loan, inflated Sheffield stake
January 05, 2009 03:30PM By David Jones
Kent Swig
A Manhattan-based private equity firm filed suit against developer Kent Swig in late December alleging he defaulted on more than $39 million in loans and inflated his stake in the Sheffield57 condominium.
In a suit filed in New York State Supreme Court, Square Mile Capital Management claimed that in March 2007 it loaned $18.4 million to 25 Broad Mezz Preferred, a Swig Equities subsidiary that invested in Swig's failed conversion of 25 Broad Street, a luxury rental building in the Financial District. Square Mile claimed that the 25 Broad Street conversion began to run into financial difficulties in the summer of 2007, and that both loans were restructured at Swig's request.
Swig personally guaranteed the loan, and agreed that instead of paying the loan back in cash, the loan would be converted into an equity stake in 25 Broad Street, according to the suit. The 25 Broad loan was converted into a $21.35 million stake in the project, with a 21 percent preferred rate of return.
In July 2007 Square Mile alleged, the company made a separate, personal loan to Swig for $21.15 million, which could be converted into an equity stake in the conversion of Sheffield57, a luxury tower at 322 West 57th Street. The loan has been amended four times and restructured twice since then and has a current balance of $28.38 million, including interest and penalties.
Square Mile claimed that under the restructured deal, Swig agreed to repay the 25 Broad Street loan with future proceeds from the Sheffield or his Upper West Side tenement project at 201 West 92nd Street, which was sold in July 2008 after Istar Financial filed suit to foreclose on the building.
Swig, according to the allegations, told Square Mile that he owned 99.98 percent of a firm called SE West 57 Capital, which owned 29.99 percent of the Sheffield.
However, Square Mile charged in the suit that Swig owned just 30 percent of SE West 37 Capital, meaning he controlled just 9 percent of the Sheffield. Square Mile alleged that a firm called Shefa 57, a firm unaffiliated with Swig, controlled 70 percent of SE West 57 Capital. State records list Shefa 57 LLC at the law firm of Fishbach Hertan, but officials at Sefa were not immediately available.
"Upon information and belief, Swig knowingly concealed Shefa 57 LLC's interest from [Square Mile] because he knew if SM were aware of the truth, it would not agree to the equity conversion and to release Swig from his personal guarantee," Square Mile wrote in the complaint.
Swig Equities denies the charges, alleging that Square Mile is trying to force a resolution through the courts.
"In the wake of unprecedented economic dislocation in the capital and credit markets, Square Mile Capital has taken unwarranted legal actions in a misguided attempt to improve its position vis-a-vis the owners and developers of these properties, and to pressure a resolution of this complicated legal and financial situation," a Swig Equities spokesman, who asked not to be identified, said. "We will be answering the claims brought by Square Mile Capital in their complaints. We also are evaluating our defenses to these claims as well as our counterclaims. We are confident that our positions will prevail with the court."
The allegations mark the latest in a series of difficulties surrounding the Swig condo projects.
In 2005, Swig and Colonnade Properties teamed up to buy 25 Broad-The Exchange from Miami-based Crescent Heights for $260 million. As The Real Deal previously reported, the conversion ran into numerous construction delays and by June 2008, Swig entered discussions to prevent the collapse of the entire conversion. Lehman Brothers, the senior lender on the project, filed for bankruptcy protection in September 2008, and Swig shut down his sales office. More than 30 mechanics liens have been filed against Swig for non-payment.
In 2005, Swig, one of the city's biggest commercial real estate developers, teamed up with investors Yair Levy and Serge Hoyda, to acquire the 845-unit Sheffield from Rose Associates for $418 million.
After combining several hundred apartments, Swig sold more than 240 of the building's estimated 583 apartments, and recently won an appeal allowing him to evict more than 23 market-rate tenants. However, Standard & Poor's put Sheffield57 on a watch list in August amid concerns about Swig's ability to refinance a $104.7 million loan, plus six mezzanine loans worth $240 million. In October he got an extension.
In July 2008, Swig was forced to sell his West 92nd Street tenement buildings for $61 million to the Mendlowits family, which owns Adorama Camera. However, New York Department of Finance records from September 2008 show that Swig paid an additional $7.2 million back to Istar.
Square Mile named two of Swig's partners in the 92nd Street project -- Levy and investor Charles Dayan -- since they allegedly received proceeds from the sale. Dayan said he had not been notified of any lawsuit, but said that Swig released him from liability prior to the sale. Levy was not immediately available.
The Real Deal reserves the right to delete any comment it finds to be rude, obscene, racist, sexist, bigoted, irrelevant or repetitive, as well as inappropriate comments about anyone's personal appearance. The Real Deal does not endorse any comments posted on its Web site nor does it verify the veracity of comments or the identity of posters.
Comments
Anonymous
well I guess its time for me to go buy me some condos!
Comment #1 Posted By: Anonymous 01/05/09
Anonymous
there is no hope of The Sheffield 57 getting finished under these circumstances....the developer used fraud and deceit to get the loans, and now he can't pay up....who knew that the 2 other failed projects were linked to this place? Its even worse than anyone imagined. It is not hard to predict what will happen next.
Comment #2 Posted By: Anonymous 01/05/09
Anonymous
SAY GOODNIGHT KENT....
Comment #3 Posted By: Anonymous 01/05/09
Anonymous
So much for innocent until proven guilty, huh #2? Coming from litigous Square Mile, this is not surprising.
Comment #4 Posted By: Anonymous 01/05/09
Anonymous
so happy i dont work for him anymore
Comment #5 Posted By: Anonymous 01/05/09
Anonymous
Swig was sued before for stiffing someone. in 2002
Comment #6 Posted By: Anonymous 01/05/09
Anonymous
yeah, but Swig WON the 2002 lawsuit. suing someone doesn't mean much - in this market, everybody is going to be suing everybody.
Comment #7 Posted By: Anonymous 01/05/09
Anonymous
oh here we go..Swig people saying this is a normal thing...he owes these people alot of money, and they think this is the only way they are going to get it. Maybe this building will go into foreclosure over this?
Comment #8 Posted By: Anonymous 01/05/09
feezy wig pig x-slave
pig fig feeezy wig...i will neer work for that scrooge again as long as he lives....he can slowly fill the love you have in this industry.....what do ya say...we send him to Nevada ..Sin City thats where he belongs..as a gambling Real Estate Developer... not in NYC...
Comment #9 Posted By: feezy wig pig x-slave 01/05/09
Anonymous
number 7 obviously you are a shill. Swig LOST 600602/2002 NY state supreme court Plaintiff was Sterling 8 LLC Kent Swig was defendant in judges decision : "accordingly, plaintiffs motion for summary judgement is granted" you lie like a Swig
Comment #10 Posted By: Anonymous 01/05/09
Anonymous
damn...and i thought the work had stopped at the sheffield because they were just being nice and giving the workers off for the holidays..... surfs up!
Comment #11 Posted By: Anonymous 01/05/09
Anonymous
maybe this lender will go for a summary judgement too, and then the bldg. will go into foreclosure... happy new year!
Comment #12 Posted By: Anonymous 01/05/09
Anonymous
Not sure this thing affects Sheffield. Looks like an issue with 25 Broad.
Comment #13 Posted By: Anonymous 01/05/09
Anonymous
If math serves, Swig either made a couple of million on the Amsterdatam buildings or at least broke even. Certainly doesn't qualify as a loser deal in this market.
Comment #14 Posted By: Anonymous 01/05/09
Anonymous
the article says that Swig owes 28 million on the Sheffield loan. It also says that the repayment of the 25 Broad project was to come out of Sheffield profits. So the Sheffield is right in the line of fire, 38 million has to come out of somewhere. Its the only building left out of the trio that can produce money.
Comment #15 Posted By: Anonymous 01/05/09
Anonymous
Amsterdam was a loser. Big time.
Comment #16 Posted By: Anonymous 01/06/09
Anonymous
Levy was not immediately available? Where is he -- with the money in Israel? Where he can't be extradited! This group has stolen millions of $$$$$$$$$$$$$$'s -- the ice bucket story was a cover -- this is a plot to steal lots 'n lots of our money -- where is the FBI? DU and Phosphorous is being used in Gaza 800 children dead a war crime --- get the connection steal steal steal Why is Bloomberg in Israel now?
Comment #17 Posted By: Anonymous 01/06/09
Anonymous
Amsterdam - bought for $54 million - sold for $61 million. As was said before, even with interest carry, it was either a small win for Swig or a breakeven - not a loser. Big time.
Comment #18 Posted By: Anonymous 01/06/09
Anonymous
I think it was Lehman's bankruptcy that "screwed so many people over at 25 Broad" - let's not play blame the developer when the shoe doesn't fit.
Comment #19 Posted By: Anonymous 01/06/09
Anonymous
# 22 Amsterdam was bought for 54 mil, sold for 61 mil, so that leaves 7 mil, which Istar, who sued for foreclosure, was paid after the sale was completed. Actually is says Istar was paid 7.2 mil, so that means Swig was down 200k, provided the deal was done on the up and up, otherwise there would be more to know.
Comment #20 Posted By: Anonymous 01/06/09
Anonymous
The Lehman bankruptcy was the nail in the coffin, but 25 Broad was a screwed-up situation long before. This project ruined people's lives.
Comment #21 Posted By: Anonymous 01/06/09
Anonymous
Swig would be lucky if all of the mechanic's leins on 25 Broad do not get moved on to the Sheffield 57, as now it it public knowledge that they are linked together financially. WOW
Comment #22 Posted By: Anonymous 01/06/09
Anonymous
why all the hatin' on Kent? Surely there are plenty of others who deserve it more..........hello Joe Moinian......
Comment #23 Posted By: Anonymous 01/06/09
Anonymous
iStar was NOT paid $7.2 on top of the $54 million. I know this for a fact. This deal made Swig money.
Comment #24 Posted By: Anonymous 01/06/09
Anonymous
Whose lives were "ruined" by 25 Broad? Give me a break.
Comment #25 Posted By: Anonymous 01/06/09
Anonymous
#27, there are tenants at the Sheffield who are bitter that a judge is kicking them to the curb without a big buyout. They like to blame Swig and use posting on message boards as their only weapon. I guess it makes them feel better about their lot in life.
Comment #26 Posted By: Anonymous 01/06/09
Anonymous
contractors owed millions, 30 mechanic's leins, some individual small business owners owed millions, that is who.
Comment #27 Posted By: Anonymous 01/06/09
Anonymous
there are plenty of swig haters, and there are only 23 who are in that suit..there are 90 others who are allowed to stay. Stop trying to make people believe that all of the tenants will be kicked to the curb..it is just not true.
Comment #28 Posted By: Anonymous 01/06/09
Anonymous
I am confused, if Swig made money on the Amsterdam Ave deal, then that money should have gone to Square Mile. Maybe this is one reason why the lender is so mad. The proceeds from 92nd St and Sheffield were to go to them to pay down the debt. All of these projects are linked together with Square Mile. I do not think the Shills can read.
Comment #29 Posted By: Anonymous 01/06/09
Anonymous
It looks like Swig broke even on Amsterdam, doesn't it? Then there would be nothing to give Square Mile. Funny how reality is now called a shill. The tenants have been barking up a tree for years. This is tiring.
Comment #30 Posted By: Anonymous 01/06/09
Anonymous
Swig employees thousands of people in this City. The tenants looking for a buyout are so naive and selfish. Why should you make a windfall simply because you have a lease. It is the right decision for the court to kick those bastards out.
Comment #31 Posted By: Anonymous 01/06/09
Anonymous
no..I think what has been said on #33 is true. These are now all public documents.
Comment #32 Posted By: Anonymous 01/06/09
Anonymous
Sucks that Square Mile was so heavily invested in Madoff... they must be scrambling with all their investors calling their investments.
Comment #33 Posted By: Anonymous 01/06/09
Anonymous
can Swig service these loans and do construction too? I do not think so, Sheffield 57 has no work going on.. I was so waiting for the pet spa.
Comment #34 Posted By: Anonymous 01/06/09
Anonymous
I'm having difficulty with the numbers. The article says Swig is being sued for defaulting on $39 million in "loans". Yet the only loan outstanding, per the article, is for $28.38 million. The other loan cited, $18.4 million for 25 Broad, apparently no longer exists (as a loan) inasmuch as it was previously converted into a $21.35 million equity interest in the project. Somewhere the article appears to be short $10 million (i.e. $39 million versus $28.38 million). If Square Mile was claiming for the equity in 25 Broad the claim would presumably be for $50 million (i.e. $28.38 Loan plus $21.35 equity). Presumably Square Mile is claiming for something that is not referenced in the article.
Comment #35 Posted By: Anonymous 01/06/09
Anonymous
Square Mile is a wanna-be business person who is really just an over-his-head ex-lawyer... I won't be tempted to ruin my credibility by making fun of his height.
Comment #36 Posted By: Anonymous 01/06/09
Anonymous
Square Mile is a big business with connections to Lehman on some investments...very bad for SM but really bad for Swig...not much breathing room..bye bye
Comment #37 Posted By: Anonymous 01/06/09
Anonymous
there is no equity in 25 Broad, sales doors are shuttered...it is the Sheffield that is on the line. If there was not a problem there it would have been solved by now. Yes, it does not add up, but there is also a 3rd project (92nd st) that was sold with proceeds distributed.
Comment #38 Posted By: Anonymous 01/06/09
Anonymous
Not to worry Kent can apply for part of the $700 billion bail out, by the way wasn't Bernie Madoff one of his financial backers :)
Comment #39 Posted By: Anonymous 01/06/09
Anonymous
Like Madeoff,Buckethead SWIG is going down. Lies,deception,and a belief that its acceptable business behavior. "Don't worry we can all take the lenders out" not anymore Buckethead.
Comment #40 Posted By: Anonymous 01/07/09
Anonymous
I think #45 wrote this while packing his bags after a judge kicked him out of the Sheffield. The bitterness seaps out of these sad few...
Comment #41 Posted By: Anonymous 01/07/09
Anonymous
My opinion,Buckethead will be moving out of Park Avenue and in to a nice cozy cel, stealing and misrepresentation to lenders is a crime and punishable by Jail. Adam Hockfelder, Madoff and now Swig.
Comment #42 Posted By: Anonymous 01/07/09
Anonymous
Oh please. Swig should consider getting sued by the Square Mile jokers a badge of honor. Those guys would sue their own grandmother if they thought it would make them a buck (or, keep them from losing their shirts, as is the case here).
Comment #43 Posted By: Anonymous 01/08/09
Anonymous
that dye job will match his orange jump suit when he sets up his onsite office in his jail cell when he converts Ossining into condos
Comment #44 Posted By: Anonymous 01/09/09
Anonymous
Those lenders should go after Swig for the millions he's got invested in art... Look at the two Mao by Warhol paintings behind him in the portrait up above. Word is, he has a lot more where those came from... Force him to sell and pay up.
Comment #45 Posted By: Anonymous 01/13/09
Anonymous
Go after the ART....it is very easy to hide money in art.. Would love to know what other works are in his collection or corporate collection? If anybody has any other photo's of him....zoom in on the background..I am sure there are many other treasures to be found.... Go for it!
Comment #46 Posted By: Anonymous 01/13/09
Anonymous
So #25, did you live at the Exchange before Swig purchased it? Then perhaps you remember how everyone was thrown out? Remember the prospectus they sent us, and then reneged? Remember the great staff in the building? What happened to them? I lived at 25 Broad a long time, with a disabled husband. It is not easy to find a building completely in compliance with Local, State, and Federal building codes. We were displaced from our home. Swig would not extend us any additional time to relocate to an accessible building -- knowing our situation. 2 years after we moved out, we received a call from Swig's lawyer claiming we owed back rent. We did not live in the building during the dates they claimed we owed. We proved that with our current lease, moving records etc. If you are going to harass previous tenants, at least get your dates straight. It is obvious they are nothing but thieves -- and obviously have no idea that there are building codes, like the International Building Code or Local Law 58, which outline standards towards universal design.
Comment #47 Posted By: Anonymous 01/14/09
Anonymous
#47 You are right, Swig and Co. does not care about following the law, or building code regulations, as they think that following the law does not apply to them. They think they are entitled to do whatever they want, whenever they want. It is an integrity issue. I think all of their actions point to that fact.
Comment #48 Posted By: Anonymous 01/14/09
Anonymous
#47, did you own your apartment? did your lease allow you to stay forever? if you want to stay somewhere forever, buy your home. if you are a renter, you knew the deal before you signed the lease. if a landlord (any landlord) does not want to renew your lease, then unless you are a rent stablized tenant, you don't have the right. According to the law, the landlord did nothing wrong. if you want to moan about it, speak to your city councilperson. Lehman's bankruptcy has caused a lot of developments to suffer - if you liked your apartment so much, you could have bought it! Why do these tenants think that Property Laws DON'T APPLY TO THEM?
Comment #49 Posted By: Anonymous 01/14/09
Anonymous
#49 is dead-on. There should be laws against these extortionist tenants who think the world (and this City) revolves around them.
Comment #50 Posted By: Anonymous 01/14/09
Anonymous
Let's be clear, folks - it is NOT harrassment to simply not renew a market rate unregulated lease. It's called property rights.
Comment #51 Posted By: Anonymous 01/15/09
Anonymous
Then, #52, it is CLEAR that your issue is with the PRIOR OWNER of 25 Broad who SIGNED those tenants to leases and made those promises. Your issue cannot possibly be with Swig who neither promised you anything nor signed you to a lease.
Comment #52 Posted By: Anonymous 01/16/09
Anonymous
# 47 ( a rent stabied tenent of the Sheffield). I still stand by what I said. There is a lack of integrety, by Swig and Co., and the actions speak for themselves.
Comment #53 Posted By: Anonymous 01/16/09
Anonymous
There is a lack of integrity by Sheffield tenants and their actions speak for themselves.
Comment #54 Posted By: Anonymous 01/17/09
Anonymous
Live in the Building for many years now(20 years),and must admit that in the end of the road, Kent.Swig is very nice with me (& still is), even we didn't agreed on some Issue....in the end...Iam still getting happy Holidays e-Mails....leave him alone,let's see you all running one Billion Dollars project operation in perfect way.....BM
Comment #55 Posted By: Anonymous 01/19/09
Anonymous
now he can surf all day in the projects on the south shore!
Comment #56 Posted By: Anonymous 01/19/09
Anonymous
very bad shill #55..Swig hates all the tenants, and wishes they would go away for good. We feel the same about him, and it looks like by the content of this article we will get our wish.
Comment #57 Posted By: Anonymous 01/20/09
Anonymous
I'm a tenant at Sheffield and I admit that I was a staunch (and vocal) opponent of Swig and this conversion. But I must say, now that all of the construction is (mostly) done... mea culpa. Well done to mr. swig as he has accomplished a miracle and made our wonderful home even better. Houseguest after houseguest has come through my home and marveled at the finished product. I only wish I could delete the dozens of posts I made with misguided anger after listening to my tenant brothers who said I could share in a wonderful buyout. Well, I GOT my buyout by now living in my new special home. Thank you, Sheffield57 - looking forward to another dozen years in this happy place.
Comment #58 Posted By: Anonymous 01/20/09
Anonymous
well # 58 if that is true, then why are the apartments still flooding? Almost 4 years of this and counting..I guess this spring I will look foward to all kinds of heavy construction in the front of the building for the driveway and park work. Please take the scaffold down if you are not going to continue with the window project. There is a limit on how long that thing can be up..and I think the limit has been exceeded. This place is still not done, I am very sad to say,
Comment #59 Posted By: Anonymous 01/21/09
Anonymous
I am happy, I am sorry that your apartment has issues. Maybe it is specific to your apartment. I haven't heard of any issues with flooding and I know most of the building (at least most of the stabies and market tenants).
Comment #60 Posted By: Anonymous 01/21/09
Anonymous
#49 I think you need to re-read my statement, Swig gave everyone a prospectus and then reneged. Swig managers at the time told the tenants nothing would change with our leases. We did not have a chance to commit to purchase until the renovations were completed about 2 years later. The Swig sales office called and literally begged for us to come purchase an apartment at an insiders price. Unfortunately, the apartments were not handicapped accessible. They destroyed the entire building. Their architect and designers all need to go back to school or simply go online and read NYC building codes. And by the way I know and speak with Councilman Alan Gerson all the time. You must work for Swig on damage control. Obviously, you did not live in the building, so I suggest you think before you speak.
Comment #61 Posted By: Anonymous 02/01/09
Anonymous
I heard there are less than 25 people living in the building, who are all prospective buyers,currently paying rent below market value because they cannot close on their apartments.
Comment #62 Posted By: Anonymous 02/01/09
semsem
The Sheffield prices and real estate taxes are absurd. $1.4 million for small one bedrooms with hardly no closets and real estate taxes of $10.000 + annually. Outrageous. He paid too much for the building. Shame as it was a nice building.
Comment #63 Posted By: semsem 02/08/09