Sheffield57 owners allege Swig illegal withdrawals
May 22, 2009 10:30AM By David Jones
Owners at Sheffield57 allege that Kent Swig's Swig Equities improperly withdrew money from the building's reserve fund.
Owners at the Sheffield57 condominium allege that developer Swig Equities improperly withdrew hundreds of thousands of dollars from the building's reserve fund in order to pay attorney's fees and other expenses unrelated to legally mandated capital improvements, according to a complaint filed with the New York State Attorney General's office.
Swig, already facing litigation for alleged failure to pay $5.4 million in common charges on the building's unsold units, has made more than 40 withdrawals from the fund, and had failed to provide evidence that more than $564,000 was repaid, the complaint states.
The withdrawals were used to cover a wide variety of expenses, including $60,000 in legal fees in a lawsuit filed by Square Mile Capital; another $87,329 to pay a tax escrow shortage to Key Bank, the servicer of the Sheffield57 mortgage loan and $109,825 to cover legal expenses for a forbearance agreement, according to the complaint.
The owners also allege that Swig spent nearly $6 million from the reserve fund to replace windows, even though there is no documentation to justify the need to replace the windows. They say, in the complaint, that as a result of these various withdrawals, the reserve fund is nearly depleted.
"We believe that the foregoing conduct by the sponsor is in clear violation of New York City Administrative Code 26-703 and, as such, respectfully request that your office take all possible enforcement measures," attorney Robert Braverman, who represents the owners, wrote in the April 27 complaint.
Braverman told The Real Deal that members of the Sheffeld57 Owners group and representatives of the building sponsor are scheduled to meet with the attorney general's real estate finance bureau May 29.
A spokesperson for Swig did not comment, despite the receipt of e-mailed questions. Officials at the attorney general's office did not return repeated telephone calls for comment.
The allegations come at a critical time for company head Kent Swig, who is scrambling to refinance millions of dollars in debt after being forced to suspend sales at Sheffield57 earlier this month due to a failure to submit a valid amendment to the condominium offering plan.
Swig, along with developers Yair Levy and Serge Hoyda, acquired the building, at 322 West 57th Street, for $418 million in 2005, and proceeded to convert the 845 rental units to 576 condos. Swig has sold less than 240 apartments, according to city Department of Finance records, and has hundreds of millions of dollars in mezzanine loan debt related to the conversion.
In addition, Signature Bank filed suit against Swig personally, earlier this month, alleging that he defaulted on a $4.75 million loan, according to a separate complaint obtained by The Real Deal. It was not immediately clear what the funds were used for.
The suit, filed May 15 in State Supreme Court in Manhattan, alleges that Swig signed a promissory note April 8, 2008, for the loan, which became due April 15, 2009. The complaint notes that the loan replaced and superseded an earlier loan agreement dated Nov. 15, 2007.
Signature said it notified Swig of the default in a letter dated April 16, 2009, with a loan balance of $4.72 million, plus interest, attorney's fees, late fees and other expenses. Philip Campisi, attorney for Signature Bank, was not immediately available for comment.
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Comments
Anonymous
swig is a dead man walking.
Comment #1 Posted By: Anonymous 05/22/09
Anonymous
When I was in my early 20's and trading stock on Wall St it was ingrained in me that pigs get slaughtered. Swig's entire business model here -buy market rate rental buildings, kick everyone out, remodel and flip was disgusting. In NYC tenants often move into a rental expecting to live there for decades. It's not like a garden style apartment in Ohio. Tenants pay thousands of dollars in rent, they pay huge broker fees, they buy furniture that will fit perfectly in that apartment expecting that they'll be there a long time. We stay for longer periods than most because the expense of finding a new place is cost prohibitive and we move in thinking that as long as we pay our rent we can stay and that our landlord will keep our rent increases in line with current market conditions.
Comment #2 Posted By: Anonymous 05/22/09
Anonymous
cont. This same greed that made Swig think it was a good idea to kick over 1,000 families out of their homes so this multi-millionaire rich kid could make even more millions will prove to be his downfall. In an effort to squeeze out every last penny he priced his units too high. We brought The Sheffield and 25 Broad St to market in the hottest real estate market ever and he didn't sell them out. Had he been less greedy and priced them more moderately he would have sold them all and made hundreds of millions, instead he'll lose all of his and his investors' money. I don't feel bad for the guy one bit.
Comment #3 Posted By: Anonymous 05/22/09
Anonymous
knock knock whose there Glad Glad who I'm glad am not you
Comment #4 Posted By: Anonymous 05/22/09
Anonymous
wow! So much more than just incomplete construction and market related troubles!
Comment #5 Posted By: Anonymous 05/22/09
Anonymous
wow...i hope this doesnt spoil his weekend!...
Comment #6 Posted By: Anonymous 05/22/09
Anonymous
defaulting on a measly <$5mm personal loan. My how the mighty have fallen.
Comment #7 Posted By: Anonymous 05/22/09
Anonymous
Does anyone know how many other bills were not paid in the building?,..are the regular operating expenses up to date?? I think we should ask for an audit of that too, from the AG"s office. I think there may be more to know.
Comment #8 Posted By: Anonymous 05/22/09
Anonymous
yes there is more to know. My understanding from the owners board is that Swig has not filed the 2007 or 2008 audit. Now I know why!
Comment #9 Posted By: Anonymous 05/22/09
Anonymous
"swig's a stand up guy. He has sold more apts at the Sheffield tv any other NY developer. He is making millions on this project. He will rise and prevail. A kinder man I have not met" Sorry, the usual post like the above has Not yet shown up, so I thought I'd add it in anticipation.
Comment #10 Posted By: Anonymous 05/22/09
Anonymous
AND # 18, where are you posting from....the closed real estate sales office of Sheffield 57?? Give it up already! Swig a guy alot of people love to hate..and with good reason, LET THE ICE BUCKETS FLY!
Comment #11 Posted By: Anonymous 05/22/09
Anonymous
CORRECTION #14
Comment #12 Posted By: Anonymous 05/22/09
Anonymous
HAHAHAHAHAHAHAHAHAHAHAHAHA
Comment #13 Posted By: Anonymous 05/22/09