Manhattan House buyer sues developer to get out of contract

The financially troubled Upper East Side condominium,
Manhattan House, is facing a $2.5 million lawsuit from a buyer who wants to back out of her contract amid concerns that the developer could default on its construction loan.

The buyer, Helene Kahn, is demanding that developer O’Connor Capital Partners return her deposit, after the company refused to guarantee that the building was solvent. The suit, filed March 20 in New York State Supreme Court, alleges breach of contract, unjust enrichment, breach of fiduciary duty and breach of implied warranty.

Kahn, who put a 10 percent deposit down on a $1.3 million apartment at Manhattan House, at 200 East 66th Street, in March 2008, demanded that the sponsor offer written assurances that it would complete construction and not default on its loan with Germany’s HSH Nordbank, the senior lender for the conversion.

“In or about December 2008, plaintiff became justifiably concerned about sponsor’s ongoing ability to meet its financial obligations to the condominium in light of various news reports and information which questioned the sponsor’s financial soundness and its ability to meet its obligations with various lenders,” said her attorney Peter Moulinos, in a court filing. “In response to such concerns, plaintiff through its counsel requested on various occasions from sponsor that it provide assurances regarding the sponsor’s financial ability to meet its continuing obligations to condominium and complete construction of the unsold condominium units.”

A Manhattan House spokesperson said the sponsor is in good standing with HSH Nordbank, and argued that buyers are trying to back out of contracts throughout the city due to concerns about the weakness in credit markets.

“O’Connor Capital Partners remains current and in good standing on its construction loan with HSH Nordbank,” said Suzanne Billett, a partner at the public relations firm of Quinn & Co., which represents Manhattan House. “This performing loan has over two years remaining on its term with the right to extend. Given the current market you would be hard pressed to find any building that doesn’t have somebody trying to muscle out of the contract.”

The response from O’Connor echoes a letter that the developer sent to Manhattan House residents in February, when it gave a detailed update on construction at the building and assured tenants and newly signed homeowners that the HSH Nordbank loan was in good standing. The bank loaned O’Connor $750 million in 2007 to convert Manhattan House from a rental building to a condo. However, a deal to syndicate the Manhattan House loan fell apart in 2008, and the bank has since shut down its U.S. lending business and announced plans to sell its real estate unit in Europe.

As The Real Deal reported in October 2008, several major banks were reluctant to approve mortgage loans for individual buyers.

A group of buyers represented by attorney Adam Leitman Bailey previously threatened litigation amid concerns about the slow pace of construction at the building, and sources say a large number of buyers have walked away from their deposits. Bailey declined to comment.