Peter Duncan, president of George Comfort, and 119 West 40th Street (building photo source: PropertyShark)
L.H. Charney Associates and George Comfort & Sons have reached an agreement with lenders on a deal that would save their struggling office tower at 119 West 40th Street from going into receivership.
High-level sources familiar with the negotiations say they have reached an agreement to settle a lawsuit by mezzanine lender Wein & Malkin and are finishing up a deal with their senior mortgage lenders.
“It’s done,” Leon Charney, chief executive of L.H. Charney, confirmed to The Real Deal, in a brief telephone interview.
On Oct. 16, W&M, now called Malkin Properties, filed suit against Charney, George Comfort President Peter Duncan and Fortis Property principals Joel and Margaret Kestenbaum alleging they defaulted on a $22.25 million mezzanine loan with the original mezzanine lenders, Wachovia Bank and Greenwich Capital, who issued the loan in April 2007.
That year, George Comfort, Charney and Fortis Property Group agreed to buy the 340,000-square-foot office tower from Colliers ABR and AEW Capital Management for $182 million, and launched a major renovation of the property, including extensive common area and tenant improvements.
The original mezzanine loan was sold to W&M in December 2007 for $16.8 million, however by 2008, the new owners ran into trouble.
“Obviously the original acquisition structure was not going to work anymore,” said Dan Fasulo, managing director of research at Real Capital Analytics. “This was almost a 100 percent financed deal.”
The goal was to completely overhaul the building and double the rent roll, said Fasulo, but the market downturn changed all that.
In October 2008, the landlords signed a lease extension with Kensington Publishing for the entire 21st, and part of the 22nd, floors of the building, after signing an initial lease in June 2008. The deal included an allowance for free rent and reimbursement for tenant improvements and a promise to renovate the building‘s common areas.
By June, W&M sent a default letter to Duncan and Charney alleging they failed to renovate the common areas and turn over the building’s financial records. One month later, they defaulted on a $116 million interest payment, incurred millions in mechanics liens and failed to pay commissions on new lease signings, according to the October lawsuit by W&M.
A non-judicial foreclosure sale, originally scheduled for Aug. 17 was postponed, and the loan was later placed into special servicing. Duncan and Charney have been in talks with the lenders to block the foreclosure sale, however officials did not provide any details about how the case was allegedly settled.
In a lawsuit filed last week in New York State Supreme Court, Kensington alleges that George Comfort failed to reimburse $1.2 million in renovations it paid for at the space and also that it failed to complete renovations of the building lobby, which were scheduled to be completed by the spring of 2009.
Ed Cohn, the lawyer for Kensington, was not immediately available for comment. Kensington President Steve Zacharius did not return phone calls requesting comment, nor did attorneys for the defendants.