AG forces Sheffield57 to suspend sales

TRD New York /
May.May 14, 2009 03:20 PM

Sheffield57 developer Kent Swig was forced to halt sales after state regulators notified the sponsor that the offering plan at the troubled West Side condominium had expired, according to three sources familiar with the decision.

Swig will not be able to sell any apartments until Attorney General Andrew Cuomo approves a 19th amendment to the offering plan, which legal sources say is required to update prospective buyers about any material changes in the operation of a condo or co-op conversion. A spokesperson for the attorney general’s office did not return calls for comment.

On Sept. 9 of last year, Swig issued an 18th amendment, but that amendment only updated unit prices at the building, and the Martin Act, which regulates conversions in New York State, says that pricing-only amendments do not extend the expiration of the offering plan.

About three months earlier, Sheffield57 issued the 17th amendment, which included information about the reserve fund balance, working capital fund, certificate of occupancy, number of units sold and construction schedule at the building.  

The decision by the attorney general comes at a critical time for Sheffield57, which sources say has millions of dollars in mezzanine debt coming due this month, and is actively trying to refinance the building. Analysts say that with less than half of the building’s projected 587 apartments sold, lenders will be reluctant to finance a building with so many fundamental challenges.  

“It really hinders the ability of anyone to refinance unless they’re able to put up a tremendous amount of their own equity,” said Dan Fasulo, managing director of research at Real Capital Analytics. “The situation just gets that much more complicated.”  

As previously reported by The Real Deal, the sponsor is facing a lawsuit by condo unit owners who allege Swig failed to pay 20 months of common charges totaling $5.5 million. In addition, title insurance companies have been unwilling to do business at the building, as unpaid contractors have slapped mechanic’s liens on hundreds of apartments in the building.

Attorney Robert Braverman, who represents the plaintiffs and 70 other members of the Sheffield Owners Association, met with the attorney general’s office earlier this month to complain about construction and the lack of financial disclosure at the building, and said he was not surprised by the suspension order. He added that owners are negotiating a deal that could settle the lawsuit.

“We are working on an agreement with the sponsor that in the event they get refinancing [the building] would get all of the unpaid common charges,” Braverman said.

Courtney Puckett, a receptionist at the Sheffield57 sales office, confirmed that sales were suspended due to the attorney general order, and added that the sponsor hoped to resolve the issue in a couple of weeks with a new amendment. 

A spokesperson for the sponsor was more guarded.  

“The sales office at Sheffield57 is open,” a spokesperson for Swig said in a statement. When asked specifically about sales being suspended, the spokesperson said “We’ll have no further comment.”

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