Olmstead sues Hersha for $10M at West 38th hotel site

By Adam Pincus | July 01, 2010 06:49PM

Samuel Rosenblatt, top, and Sam Chang. Chimney damage at 575 Eighth Avenue.

Midtown office building owner Olmstead Properties is suing hotel real
estate investment trust Hersha Hospitality Trust and others for $10
million in the latest chapter in a four-year dispute at the site of a
stalled hotel project four blocks north of Penn Station. 

In the lawsuit filed last week, Olmstead, whose president is Samuel
Rosenblatt, claims a demolition company hired by Hersha damaged
Olmstead’s 24-story headquarters building at 575 Eighth Avenue at 38th
Street on June 2007, as the contractor began to tear down an adjacent
structure to make way for a hotel project that remains unbuilt. 

Olmstead named Sam Chang’s McSam Hotel Group; Flushing
contractor Gateway Demolition; and Hersha’s ownership entity of 585
Eighth Avenue, called H Eighth Avenue Associates, in the papers filed
June 23 in New York State Supreme Court. Olmstead is seeking $5 million
for actual damages it claims to have suffered and $5 million in
punitive damages.
 

Olmstead owns and manages more than 3 million square feet of mostly
Class B properties in Manhattan. Pennsylvania-based Hersha, as of May 2010,
owned 77 hotel properties nationwide, including 14 in New York City.
Last month, Hersha announced Greenwich-based Starwood Capital Group
bought a 49.5 percent interest in Hersha Hospitality Management, an
affiliate of Hersha Hospitality Trust that manages the REIT’s
properties. 

The dispute began in late 2006, several months after Hersha — under
the consultation of McSam Hotel Group — bought the parcel at 585
Eighth Avenue for $20 million on June 28, 2006, city property records
show. The parcel is currently occupied by a partially demolished
three-story building with frontage on Eighth Avenue and 39th Street.
Then in July
2006 Hersha filed plans to build a 30-story hotel at the site to its
lot line adjacent to the Olmstead office building, Department of
Buildings records show. 

The problem with building to the lot line, according to the lawsuit
Olmstead filed in November that year, was that for approximately 40
years, three chimneys ran up the north face of the building, extending
about two feet over Hersha’s property line. The hotel plans required
those chimneys to be knocked off, which Olmstead opposed. It sued under
the concept of adverse possession, saying that because it had occupied
the space for so long, it now owned that space occupied by the
chimneys. 

Despite the pending lawsuit, on June 24, 2007, Gateway went ahead with
demolition and damaged the chimney, which partially collapsed three
days later, the recent suit says. 

“The defendants willfully and deliberately sought to damage
[Olmstead’s] stacks and chimney in order to destroy them and to
wrongfully attempt to obviate [Olmstead’s] easement and/or adverse
possession claims,” the suit says.  

The damages suffered, Olmstead says, include installing a sidewalk
bridge for several years, interior repairs and a negative impact on the
retail space in the building. The building at 585 Eighth Avenue remains
partially demolished but most of the steel skeleton remains intact, a
recent visit shows.  

And despite several years of negotiating — including tentative plans
to work around the chimneys — the two sides do not appear close to
resolving the underlying dispute today, David Jaroslawicz, attorney for
Olmstead, said. 

Hersha and Gateway did not immediately respond to a request for
comment. Sam Chang, who was identified in the 2006 application for a
new building on the DOB website as the owner of the property, said
today he never had a financial interest in the property, although he
had been an advisor on the project. And he said he is no longer was
involved in the project.