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.