The New York Educational Construction Fund is suing Verizon New York for more than $53 million, alleging the $172.5 million sale of a majority stake in 375 Pearl Street in 2007 was based on fraudulent data.
The fund, which originally sold the site to Verizon in 1972, is seeking an injunction preventing the new owners — defendants Taconic Investment Partners and investment partner Square Mile Capital — from renovations that would allegedly violate existing zoning laws and make use of air rights to which they are not legally entitled.
The suit alleges that Verizon originally discussed developing a
1-million-square-foot building, but told the fund that the building was
only 744,000 square feet and that the remaining space would be zoned as
“mechanical space.” The fund alleges that it accepted a lower price for
Verizon, based on the claim that the building used only 744,000 square
feet of space.
“Taconic parties [Taconic, Square Mile and the two LLCs that control the building] knew that Verizon was attempting to transfer more building space and development rights than Verizon was entitled to, and the purchasing Taconic parties were therefore complicit in Verizon’s fraud against the fund,” the document states.
In the sale, Taconic and Square Mile acquired 29 floors in the 32-story building, and announced plans to spend up to $100 million to renovate the property for future office tenants. Verizon retained office space on the remaining floors.
Verizon, under its previous name of New York Telephone, acquired the site under a 1972 agreement that allowed the telecom firm to construct a building that was no bigger than 744,000 square feet nor more than 544 feet tall. Under the agreement, New York Telephone built a headquarters building as well as a school building that later became Murray Bergtraum High School, at 411 Pearl Street.
The long-dormant educational construction fund, created by the New York state legislature in 1966, has financed school facilities for 18,000 students, and created 1.2 million square feet of office space and 4,500 units of housing.
Verizon officials said they had not yet reviewed the case sufficiently to comment on the specific allegations.
“We have not studied the suit, so at this time we cannot comment on its merits,” said Alberto Canal, a spokesperson for Verizon. “I can tell you that more than 35 years ago New York Telephone Co. and the New York City Education Construction Fund came to an agreement, and we absolutely fulfilled the terms of the agreement. We will study the complaint thoroughly and take appropriate action.”
Taconic is not aware of the litigation, according to a spokesperson. Attorneys for the fund were not available for comment.