Just weeks after negotiating an agreement to rescue 119 West 40th Street from a mezzanine loan default, George Comfort & Sons and L.H. Charney Associates are facing foreclosure on a $160 million senior mortgage at the site.
CW Capital Asset Management, which is servicing the senior loan on behalf of Bank of America, filed suit in New York State Supreme Court Dec. 14 to foreclose on the property.
George Comfort and Charney originally borrowed $160 million from Wachovia Bank and Greenwich Capital Financial Partners in April 2007, according to the lawsuit, with half coming from each bank. The loan was later sold to GS Mortgage Securities Corp. II, as part of a July 1, 2007, loan purchase deal signed between Greenwich and GS.
In July 2009, Fitch Ratings warned that the 119 West 40th Street loan was performing below expectations. Fitch said the loan was underwritten based on the expectation of resigning below-market leases at higher rents; however, the building fell behind schedule and was transferred to the special servicer in June 2009 with the expectation of imminent default.
Fitch warned at the time that the building’s debt reserves were depleted and the property failed to achieve positive cash flow. Fitch also reported that cost overruns related to renovations resulted in unfinished construction of the main lobby.
As previously reported by The Real Deal in November, L.H. Charney owner Leon Charney and George Comfort president Peter Duncan reached an agreement with mezzanine lender Malkin Properties to work out a default on a $22.25 million mezzanine loan, and were in talks with senior lenders on a similar deal. In addition, the landlord was sued by tenant Kensington Publishing for failing to reimburse $1.2 million in funds spent to renovate the 21st and 22nd floors.
The foreclosure suit marks a major blow for George Comfort & Sons, the Manhattan-based commercial developer that bought WorldWide Plaza in 2009 for $590 million, the first major acquisition of a commercial building in New York after the Lehman Brothers collapse.
Charney, George Comfort and Fortis Property Group originally bought 119 West 40th Street in 2007 for $182 million, and quickly launched a major renovation of the office tower.
George Comfort declined to comment. Charney, lawyers for CW Capital and Edward Cohn, the attorney for Kensington Publishing, were not immediately available for comment.