SL Green battles Levy, Chetrit in Chelsea

By Adam Pincus | September 24, 2009 01:39PM

Owners of 620 Sixth Avenue (left, source: PropertyShark) removed a parcel (see red box on image on right) once covered by a $235 million mortgage.

Top real estate investors including Yair Levy and Joseph Chetrit are close to defaulting on a $235 million loan on the Bed Bath & Beyond building in Chelsea, a recent lawsuit by an SL Green affiliate says.

But to preserve some value in their holdings, the owners transferred a vacant slice of the building’s lot to another entity they own without SL Green’s consent, the court filing says.

“With a payment default looming and foreclosure proceedings inevitable, [the owners] sought to convey away a necessary and valuable piece of lenders’ collateral to obtain an unfair advantage in future negotiations, in blatant and egregious violations of the bargains struck by the parties to the loans,” the lawsuit by Green Loan Services, an affiliate of SL Green, says.

Developers Levy, Chetrit and Charles Dayan are investors in an entity called CF 620 Owner One LLC, which bought the property at 620 Sixth Avenue between 18th and 19th streets in December 2005 for $289.8 million, city property records show.

They then took out a loan for $235 million from Wachovia Bank in January 2006, the records show.

The seven-story office and retail building is home to retailers such as Bed Bath & Beyond, T.J. Maxx and Filene’s Basement. The building is 11.2 percent vacant but that could rise because currently 44 percent of the building, mostly in the office portion, is listed as available, according to CoStar Group.

But SL Green, which has $60 million invested in loans on the property, is not suing to foreclose on that senior loan, which was originated by Wachovia.

Instead, the real estate investment trust claims the borrowers improperly removed a vacant slice of the property that was part of the security for the loan, in order to sell it at some future time, a lawsuit filed Sept. 14 in New York State Supreme Court says.

SL Green holds a $30 million junior piece of the $235 million first mortgage. And it holds a $30 million mezzanine note from the owners, the suit claims.

The suit proposes a series of potential fixes for the dispute, including forcing the return of the property, putting a lien on it, or demanding the entire $30 million mezzanine note is due.

SL Green, through a spokesperson, declined to comment, citing a policy not to comment on suits involving debt holdings. Levy, Chetrit and Dayan either declined to comment or did not respond to requests for comment.

The property owners are also battling a suit filed in February by Winick Realty that they did not pay $806,000 in commissions. 

The approximately 5,000-square-foot parcel on West 19th Street is east of the building and shares its address, but has a unique lot number, 58, used by the city to identify parcels within city blocks.

The property was transferred Sept. 3 to an entity called East 19 Out-Parcel, city records show. That entity has the same ownership as the building owners, the suit says.

A source familiar with the dispute said the owners had the right to transfer the parcel, which they intend to develop. However, he would not say what they would build or when. The source added that the owners were in negotiation with SL Green to resolve the issue.

The lawsuit says any development on the site would impair access to the building’s loading docks, and because of that would reduce the value of the building and the loans.