In their first official response to the bankruptcy filing of 20 Bayard, lawyers for W Financial Fund last week urged a U.S. Bankruptcy Court judge to reject a motion by developer Isaac Hager to continue operating the Williamsburg condominium with monthly rent and parking fees.
Hager, president of North Development Group, threw the 64-unit condo into bankruptcy last month, when he was unable to make a $170,000 interest payment to W Financial, or refinance a $17.4 million bridge loan.
In a Dec. 9 filing, Martin Ehrenfeld, restructuring officer for the developer, asked permission to use the rent and parking fees to cover monthly maintenance charges for at least 120 days until a reorganization plan is worked out with creditors.
After selling 24 apartments before the real estate market collapsed in 2008, Hager rented out nearly all of the remaining units until the condo market recovered. According to the court documents, 20 Bayard has $1.28 million in net operating income per year.
“By this motion, the debtor seeks to continue its pre-petition practice of paying the condominium maintenance costs, which in turn protects the value of WFF’s collateral,” said John Mairo, a Morristown, N.J.-based attorney representing the developer.
The developer also asked that the monthly income be used to pay for his administrative fees, including legal expenses.
In the reply motion Dec. 16, however, lawyers for W Financial argued that the developer’s motion is based on an outdated appraisal from September 2008, and would force the developer to essentially cover Hagar’s legal expenses.
“Moreover, despite the debtor’s optimism regarding a quick exit from Chapter 11 and the reigning in of the professional fees, the debtor already has a fleet of professionals that it seeks to pay with WFF’s collateral,” said Herrick Feinstein attorney Andrew Gold, the lawyer for W Financial.
Court documents show that 20 Bayard has $21.2 million in assets and nearly $21 million in liabilities, including $17.1 million in debts secured by the property and $3.85 in unsecured claims. The condo has incurred about $175,000 in legal fees upfront, plus another $75,000 in retainer fees.
The 20 Bayard collapse is one of the few bankruptcy filings of a completed condo project in New York since the September 2008 collapse of Lehman Brothers. Lenders very often include a so-called “bad boy” clause that holds developers personally liable if they file their projects into bankruptcy to avoid a default.
In September, developer Yair Levy threw his 95-unit Park Columbus condo at 101 West 87th Street into Chapter 11 bankruptcy, one day before a scheduled mezzanine loan auction by Garrison Special Opportunities Fund.
Almost a year before the filing, the New York state attorney general declared the condo offering plan abandoned, forcing Levy to refund deposits to 16 buyers. The few tenants remaining at the property were several retail shops and a handful of affordable housing tenants that lived in the building prior to its conversion.
In February, developers filed for Chapter 11 bankruptcy protection at the 130-unit Viridian in the Greenpoint neighborhood of Brooklyn. The investors, which included retired basketball legend Magic Johnson, had a $36 million loan from Bank of New York, which refused to make a final advance on an existing mortgage loan, according to Crain’s. The building was later repositioned as a rental.