Attorney General Eric Schneiderman has shut down the sales office at the Apthorp, fined the developers $190,000 and ordered rescission for all contracted buyers following an investigation into misleading statements made to the AG months before they filed suit to block Anglo Irish Bank from selling their $385 million mortgage loan.
The Apthorp developers, led by Africa Israel USA and Broadwall Management, filed suit against the troubled bank Sept. 12, alleging the sale of the $385 million Apthorp loan would “adversely impact sales” and potentially “threaten the conversion project itself.”
The Real Deal reported last month that the suit directly contradicted a February filing with the AG, where the developers said the bank may sell the loan, but it would have no impact on them or on the 163-unit building, at 2211 Broadway on the Upper West Side.
After The Real Deal inquired about the statements, Schneiderman immediately fired off a letter to the developers Sept. 22, demanded a halt to all marketing and sales and demanded answers about the contradictory statements. A settlement was signed today with the signature of the sponsor’s four principals, Tamir Kazaz, CEO of Africa Israel USA; Andrew Ratner, executive vice president of Broadwall and investors Ralph Braha and Robert Spiegelman.
“Homebuyers in New York have every right to expect honesty and fair dealing from property developers,” Schneiderman told The Real Deal in an emailed statement. “Today’s settlement will allow those who may have been misled by the Apthorp developers to be released from their contractual obligations, and makes it clear that this office will hold developers accountable to the law.”
The developers, without admitting nor denying the allegations, will offer contracted buyers a 15-day window to get their deposits back. They will also wire $190,000 within the next few days to the AG, who will upon receipt, allow the sales office to open back up. According to Streeteasy.com, the Apthorp has 42 recorded sales and three listings under contract.
Attorney Andrew Weltchek, who has written numerous offering plans in New York City, but is not affiliated with this case, called the punishment “pretty severe.”
“You don’t pay anybody $190,000 unless you absolutely have to,” Weltchek said. “It means the AG was absolutely convinced that these guys had misrepresented the facts.”
The Apthorp condo has been one of the most controversial in the history of New York real estate. Africa Israel, led by billionaire Lev Leviev, joined developer Maurice Mann, to buy the landmark rental building for a record $426 million in 2007, and later decided to convert the 163-unit building into condominiums. The building, former home of writer Nora Ephron, Conan O’Brien and Al Pacino, struggled during the early phases of its conversion when Mann tried to sell units for $3,000 a square foot.
After lenders threatened Mann with foreclosure, Leviev’s group filed suit to replace him as the main developer and slashed prices in an effort to spur sales. Tenants and other unit owners complained of being repeatedly harassed by the developers and former attorney general Andrew Cuomo investigated the condo amid allegations that units were sold to insiders and other business associates of the developers.
The developers restructured the Apthorp debt in 2010 in a bid to get the condo on the right footing amid a weak market, but sales continued to be difficult as few buyers could obtain loans and the developers were unable to dislodge rent stabilized tenants at the property.
In the lawsuit, the developers claimed the bank had agreed to hold 51 percent of the loan, but the bank decided to sell its entire U.S. portfolio following a 2009 takeover by the Irish government. The Real Deal reported last month that the bank specifically changed language in the loan documents that gave Anglo Irish the right to sell the loan to a third party without permission.
The Apthorp loan sale is part of a $9.5 billion loan sale to JPMorgan Chase, Wells Fargo and Lone Star Funds. Dallas-based Lone Star is buying a total of $5 billion in non-performing and sub-performing loans, including the $385 million Apthorp loan. The Apthorp loan balance was $224.9 million as of Sept. 3, court documents show.
Earlier today, lawyers for the bank and the developers met behind closed doors with Supreme Court Judge Jeffrey Oing, regarding a request by the bank to block the loan. Lawyers for the developer, who initially failed to appear when called by the court, later stormed out of the judge’s chambers without commenting. Court documents say the hearing was adjourned, but sources familiar with the case say the injunction request was withdrawn. An Oct. 19 hearing is scheduled on the bank’s motion to dismiss, court records show.
Stuart Saft, attorney for the Apthorp developers, declined to comment, as did attorney Gregg Weiner, who represented the Apthorp in the Anglo Irish lawsuit. Reed Oslan, attorney for Anglo Irish, also declined comment. A spokesperson for the Apthorp said it would not comment on pending litigation and a spokesperson for Corcoran Sunshine Marketing Group, the broker for the Apthorp, was not immediately available for comment.