Creditors aim to force One Madison Park into bankruptcy over $12M in unpaid loans

TRD New York /
Jun.June 11, 2010 03:30 PM
Barry Slotnick and One Madison Park

The developers of One Madison Park have been hit by a potentially serious new legal maneuver, as three creditors, including a Queens-contractor, filed a petition to throw the building into involuntary bankruptcy, citing $11.6 million in unpaid loans and mechanic’s liens.

Kraus High Tech Home Automation, based in Long Island City, Queens, filed a petition in U.S. Bankruptcy Court in Delaware that would force building sponsor Slazer Enterprises Owner LLC, into Chapter 7 bankruptcy. Under Chapter 7 bankruptcy, the court liquidates assets rather reorganizes them as is done under Chapter 11.

“We’re owed money by debtors,” said Kraus’ attorney Barry Slotnick in a phone interview with The Real Deal. “We figured before it all goes south we might as well go to a court that will protect our interests as creditor.”

According to the filing, the supplier of high-end home theater and security systems has a mechanics lien against the property for $927,752. Company president Stephen Kraus has a claim of $6.5 million, while Mitchell Kraus and Barbara Kraus, a Manhattan-based couple who are not executives of the company, each have claims of $2.1 million against Slazer.

The three were named as defendants in the iStar Financial foreclosure suit against Slazer, which claimed that they may hold an interest in a condo apartment. Slotnick confirmed that the Kraus’ did loan money to the One Madison sponsor, but would not comment on whether they were promised apartments in return, which is the case for several other local investors.

Legal sources say the move is a radical, but potentially brilliant step by the contractor, as the condo has already been placed into receivership by a state Supreme Court judge.

Under federal law, a group of three creditors can join together to force a debtor into involuntary bankruptcy. Under bankruptcy, all of One Madison’s creditors, who are owed hundreds of millions of dollars, would have to be worked out in bankruptcy court. The move improves the contractor’s chances of getting paid.

“Three creditors got together and said if we wait for that receiver to pay us, we’re going to get the short end of the stick,” said Barry LePatner, a prominent Manhattan attorney who specializes in real estate construction. “Everybody’s looking for a financial edge to secure their obligation.”

Ben Thypin, senior market analyst at Real Capital Analytics, said he’s never seen a group of creditors go after a condo developer in bankruptcy once the project went into receivership.

“Having them hire Barry Slotnick like this makes me think this is a pretty bold and proactive move,” said Thypin. “It seems to make me think they have no other choice.”

Slotnick, in a letter to Judge James Yates today, argued that the bankruptcy filing should halt the foreclosure case and move everything to The Bankruptcy Court, citing the multi-million dollar fraud case at the Salander O’Reilly Galleries, where Lawrence Salander was sued by multiple investors who claims they sold single pieces of art to multiple investors.

Under the current financial structure at One Madison, iStar gets first preference on all proceeds. It is not immediately known why Slotnick, best known for representing subway shooter Bernard Goetz in the famed 1984 subway shooting, took on this case.

Attorney Stephen Meister, who is representing Slazer Enterprises, said the developer is mulling over the impact the filing would have on its case against iStar.

“We are reviewing our options and trying to determine whether The Bankruptcy Court would be a good venue to adjudicate all claims,” Meister said.

Matthew Parrott, attorney for iStar, was not immediately available for comment. A spokesperson for state Attorney General Andrew Cuomo, whose office regulates condos; Jonathan Newman, the court appointed receiver; and the lead developer Ira Shapiro, were not immediately available for comment.


Related Articles

Governor Andrew Cuomo and Senator James Skoufis (Credit: Getty Images, NY Senate)

Owners of some residential properties can’t hide behind
LLCs anymore

Governor Andrew Cuomo and 538 Johnson Avenue in Brooklyn (Credit: Google Maps and Getty Images)

Landlords take another hit: Cuomo signs expanded Loft Law

Governor Andrew Cuomo (Credit: Getty Images)

Cuomo wants to exempt NYC from prevailing wage bill

From left: Deputy Mayor of Housing and Economic Development Vicki Been, Sen. Brian Kavanagh (inset), Brooklyn Borough President Eric Adams, State Division of Homes and Community Renewal Commissioner Ruthanne Visnauskas (inset), Council member Keith Powers, with Governor Andrew Cuomo and Mayor Bill de Blasio (background) (Credit: Anuja Shakya, Getty Images)

Politico shows and no-shows: What public officials attended the REBNY gala?

Governor Andrew Cuomo (Credit: Getty Images)

Cuomo rakes in real estate cash — but not from LLCs

Rep. Alexandria Ocasio-Cortez, Governor Andrew Cuomo (inset) and a rendering of LaGuardia's AirTrain (Credit: Getty Images, ANewLGA)

AOC joins in fight against Cuomo’s $2B LaGuardia AirTrain project

Gov. Andrew Cuomo and a rendering of Penn Station (Credit: Getty Images, Governor's Office)

Landlord to Cuomo: “No intention of selling” Penn Station site

Governor Andrew Cuomo delivers his 2020 State of the State Address to the Legislature (Credit: Governor's Office via Flickr)

Cuomo delivers 10th State of the State Address