Shah in trouble over early housing transactions?

February 06, 2012 10:00AM

[Updated 4:25 p.m. with statement from Shah’s attorney] Though DelShah Capital CEO Michael Shah has moved on to lucrative distressed acquisitions from his early investments in affordable housing, it’s his very first transactions that have him in trouble with the city.

Crain’s reported that Shah “is battling the city over fraud penalties, back taxes and interest, charges that officials leveled last month stemming from four of his early purchases.”

Shah purchased those buildings, starting with a $6 million buy at 1314 Seneca Avenue, with the African-American Parent Council under the non-profit group’s name. Within weeks the group transferred the deed to Shah. Though the council is exempt from property transfer taxes, Shah isn’t, and the city alleges that Shah took a series of steps in making the transactions to avoid his tax obligation. The city claims Shah made similar deals with the non-profit in Staten Island, the Bronx and the Upper East Side. (Crain’s reported the council hasn’t filed income records with the city since 2000.)

“I can say unequivocally that any allegation that either Michael Shah, individually, or DelShah have been ‘charged’ with (civil or criminal) fraud is categorically untrue,” said John Mitchell, Shah’s attorney, in a statement to The Real Deal. “All transactions referred to were fully transparent and were timely filed with the appropriate city and state agencies… These matters are being addressed in the proper tax proceeding forum and we are very confident that we will prevail.”

Still, the difficulty he has encountered in collecting rent at Seneca Avenue, which has limited his ability to make repairs, led him to call it “a terrible deal.” He now hopes to sell it for the same price he paid six years ago and continues to shift his focus to distressed assets and the potential for 20 percent returns he claims they provide. [Crain’s]