Sheffield57 foreclosure clears hurdle, but others remain
July 15, 2009 12:30PM By David Jones
A state Supreme Court judge rejected a request to appoint a receiver to complete the Sheffield57 condominium conversion, a decision that could help clear the way for Fortress Investment Group to foreclose on millions of dollars in defaulted loans and take control of the property.
Judge Bernard Fried ruled that Sheffield57 investors Yair Levy and Serge Hoyda failed to prove that the condo was in imminent danger of being lost or destroyed, despite their lawsuit accusing developer Kent Swig of misappropriating millions of dollars in construction funds.
"Indeed plaintiffs here have not proven that the property at issue, unsold condominium units, will be removed, lost, injured or destroyed," Fried wrote in his decision. "At best, plaintiffs have shown that the units are likely to be sold at a discount from their actual value. This can be remedied by the payment of money damages."
The June lawsuit alleged that Swig, the managing partner in the Sheffield57 condominium conversion, spent millions of dollars in construction money on personal and other uses unrelated to the project. In May, the state attorney general halted sales at the condominium, and the mortgage lender and senior mezzanine lender declared their loans in default.
Swig entered an agreement with Fortress in June that would allow the investment bank to foreclose on the notes, pay off millions of dollars in unpaid common charges and mechanic's liens and effectively take control of the property after an Aug. 6 auction of the mezzanine debt.
Levy and Hoyda want to block Fortress, which acquired those loans from Wells Fargo and Guggenheim Structured Real Estate, respectively, from foreclosing on the loans and taking over the building. Such an action would effectively wipe out the 70 percent ownership stake in Sheffield57 controlled by Levy and Hoyda.
Stephen Meister, attorney for Levy and Hoyda, said the judge is separating the issue of whether there is a legitimate need to delay the Fortress deal with Swig before the auction, and whether the receivership is the best way to accomplish that.
"I think the judge is reserving his right to make a decision on the preliminary injunction and that is how the judge is going to deal with these issues on an immediate basis," Meister said.
Meister has raised concerns about the agreement between Swig and Fortress, as questions remain about whether Swig would derive some financial benefit from Sheffield57. Swig attorney Y. David Scharf said that the terms of that agreement are confidential, but said that Swig would no longer be an equity partner in the building. Scharf says, without providing any specifics, that the deal between Fortress and Swig would benefit the entire Sheffield57 entity, and not just Swig.
Judge Fried is still scheduled to hear arguments on Monday, on whether to grant an injunction to Levy and Hoyda that would block the Aug. 6 auction and allow their attorneys to depose Swig and Fortress.
Scharf expressed confidence that the court is leaning towards the defendants.
"The way I look at it is, it's one down, one to go," he said.
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Comments
Anonymous
If Swig doesnt have an equity interest it will be amusing to see exactly what role he will have .
Comment #1 Posted By: Anonymous 07/15/09
Anonymous
big win for swig.
Comment #2 Posted By: Anonymous 07/15/09
Anonymous
Swig to the rescue. Can I get hree cheers for Swig?
Comment #3 Posted By: Anonymous 07/15/09
Anonymous
Just put them all in jail where they belong. ALL of them.
Comment #4 Posted By: Anonymous 07/15/09
Anonymous
Swig has lost millions. He will end up with nothing, but a huge tax bill. The only question now is if he stole millions.
Comment #5 Posted By: Anonymous 07/15/09
Anonymous
Swig screwed up that project. The quality of construction is horrible.
Comment #6 Posted By: Anonymous 07/16/09
Anonymous
Fortress is a hedge fund . its other peoples money and that money will be in jeopardy if Swig stays around in a meaningfull way.
Comment #7 Posted By: Anonymous 07/16/09
Anonymous
Swig is a crook and a bad one at that. He deserves to be wiped out. The construction is not bad. His management of the conversion was a catastrophe.
Comment #8 Posted By: Anonymous 07/16/09
Anonymous
Levy is most definitely the bad guy here.
Comment #9 Posted By: Anonymous 07/16/09
Anonymous
the Swig Equities website is currently "under constuction". i can't wait to see what the Key Executives roster looks like when it comes back up. i wonder what kind of Artistry in Ownership they are whipping up over at 770 Lex.
Comment #10 Posted By: Anonymous 07/16/09
Anonymous
Woweee! Website maintanance. What an unbelievable turn of events - how incredible that Swig Equities is working on their website!!! WOW-O-WOW-O-WOW.
Comment #11 Posted By: Anonymous 07/16/09
Anonymous
Levy's website is up, but he doesn't own any of the buildings listed on his site. ALL GONE to foreclosure.
Comment #12 Posted By: Anonymous 07/16/09
Anonymous
not true 12 - all are successful projects by one of the top developers
Comment #13 Posted By: Anonymous 07/16/09
Anonymous
Levy is the most fantastic failure in New York City. He was hated when he had (moderate) success. He is despised as he loses everything he owns and then some. He might very well be the worst developer in New York City. Look at his website - EVERY project is a failure and has been lost or sold for huge losses. No wonder he does not pay his staff or professionals - Yair Levy is broke.
Comment #14 Posted By: Anonymous 07/16/09
Anonymous
Levy, Levy, Levy, blah blah blah - thread hijackers want to obfuscate that this debacle is 100% Kent.
Comment #15 Posted By: Anonymous 07/17/09
Anonymous
obfuscate....wow..big word..
Comment #16 Posted By: Anonymous 07/17/09
Anonymous
#16 - Read a book!
Comment #17 Posted By: Anonymous 07/17/09
Anonymous
anything Levy touches fails miserably. It's no wonder that his career is over.
Comment #18 Posted By: Anonymous 07/17/09
Anonymous
Ha Ha Ha, no receiver..good for the owners and tenants, take the problem up in a different court/venue..we have waited long enough to get this building finished. Let the 3 partners fight it out on their own time.
Comment #19 Posted By: Anonymous 07/19/09
Anonymous
can someone tell me in english what is going on? I'm 15 and in califiornia with my dad - my mom lives in the sheff 57.
Comment #20 Posted By: Anonymous 07/29/09
Anonymous
A New York State Supreme Court granted a $28.4 million judgment Friday against developer Kent Swig after he defaulted on a personal loan -enough said
Comment #21 Posted By: Anonymous 07/30/09