The developer of the Distrikt Hotel in Midtown filed a lawsuit Monday to block lenders, including Wells Fargo, from selling off a mortgage loan after refusing to grant them an extension.
The developer, an entity called 342 Property LLC, claims it asked the lenders for a one-year extension until June 1, 2011, however were denied in the claim for failing to maintain the required debt service coverage ratio, which is cash generated to cover principal and interest payments on the property.
“According to the lender, to satisfy this condition, the hotel would have had to open in or about September 2009, six months before the first extension notice,” wrote attorney Adrienne Koch in the complaint. While the lawsuit does not disclose who is behind 342 Property, New York City financial records link the firm to Victor Afonso of Saddlebrook, N.J. He declined to comment.
According to the lawsuit, the development entity found out through industry contacts that the lenders were actively seeking to sell the loans and offering the right of the buyer to take over management of the property, according to the complaint. The developer claims the hotel opened late, in part due to the lenders refusing to allow the developer to replace a contractor that had a dispute with the developer.
The 155-room hotel, located at 342 West 40th Street, was designed by Manhattan-based Otte Architecture and is part of the Choice Hotels Ascend collection.
The developer alleges that in 2007 it acquired two loans from Northstar Realty Finance, including a $9.7 million acquisition loan and a $15.8 million construction loan. The developer won approval from local regulators to build a larger property. By December 2007, the loans were increased to $15.9 million and $26 million, respectively.
The loan agreements required that the developer complete construction by June 1, 2010, and granted the developers the option of extending the loans for either one year, until June 1, 2011; or two years, until June 1, 2012. The developer alleges that since May 2007, they completed the hotel Feb. 1, 2010, four months ahead of schedule and have drawn down $40 million of the $42 million available to them under the loan agreement.
Manhattan-based Mode Hospitality, which operates the hotel, said they would contact the ownership. Lawyers for the owners were not immediately available for comment. A spokesperson for Choice Hotels said the firm only franchises the properties and was not connected to the ownership.