Charney faces suit from Malkin over tower on West 40th Street

By David Jones | January 14, 2011 02:29PM

From left: Leon Charney, Peter Malkin and 119 West 40th StreetBillionaire investor Leon Charney is facing a new lawsuit filed last month from Malkin Properties for allegedly reneging on a deal to buy a $22 million mezzanine loan on his Midtown office tower, almost a year after the property was placed under a court-appointed receiver.

The 340,000-square-foot building, at 119 West 40th Street, has been in trouble since December 2009, when CW Capital Asset Management filed to foreclose on a $160 million senior mortgage. Charney, the Manhattan-based head of L.H. Charney Associates and former Carter administration advisor, originally acquired the property for $182 million in 2007 with Manhattan-based George Comfort & Sons and Brooklyn-based Fortis Property Group, one of the city’s top commercial real estate firms.

The buyers planned an extensive renovation of the building, and then expected to sign a new series of commercial tenants and double the property’s annual rental income. But, Charney, George Comfort & Sons and Fortis ran into problems at the property starting in 2008, when tenants allege the owners failed to complete construction at the building and incurred millions in unpaid mechanic’s liens.

YK Brook, in a July 2010 lawsuit, alleges that it signed a lease for a ground-floor restaurant at the building in 2008, but that Charney and George Comfort & Sons failed to build out the space. YK Brook claims that a $104,000 deposit has not been returned, according to court filings.

As The Real Deal previously reported, Kensington Publishing, a tenant in the building, filed suit in 2009 against the developers allegedly failing to complete the lobby and failing to reimburse $1.2 million in costs related to the renovations. Kensington’s lawyer, Ed Cohn, was not immediately available for comment.

Malkin, a Manhattan-based real estate firm, called in a default on the mezzanine loan in July 2009, when Charney failed to make payments on the loan and the building’s reserve fund was depleted, according to court filings. The parties entered negotiations to work out a payment schedule, and
Malkin reached an October 2009 deal with Charney to buy the loan for $7
million, and made a down payment of $830,000.

The deal was scheduled to close with a payment of $4.17 million and financing of the remaining $2.5 million. Court documents and sources familiar with the investor say that Charney became “incapacitated” in February 2010. Sources familiar with Charney say he became ill in early 2010.

Charney was scheduled to open the hotel last year at 120 West 41st Street under an agreement with Minnesota-based Graves Hospitality; however, the project fell behind schedule due to the economic downturn. Ben Graves, president of Graves Hospitality, told The Real Deal that construction on the hotel is scheduled to begin shortly.

A spokesperson for George Comfort & Sons said the firm had no comment. Thomas Dewey, Malkin’s attorney, and Steven Simmons, Charney’s attorney, declined to comment. Charney was not immediately available for comment.