The developers of the troubled Tribeca Summit condominium are suing their law firm for $80 million for not telling them they could file for bankruptcy before they defaulted on a mezzanine loan.
Joel Silver and Ethan Eldon, of Manhattan-based Heritage Partners, filed a lawsuit Thursday in New York State Supreme Court against Stroock Stroock & Lavan, alleging malpractice. The firm has experts in bankruptcy law but appointed an inexperienced associate lawyer to the developers’ 2009 case, court documents state.
Heritage’s attorney, Jeffrey Liddle, did not return requests for comment; a Stroock spokesman denied the accusation: “Our firm rendered appropriate, professional and comprehensive legal counsel to this client throughout the matter.”
Silver and Eldon lost more than $86 million in equity in the 415 Greenwich Street condo after they failed to repay the $47.1 million construction loan from Kansas City-based KBS Capital; the lender gave the developers another eight months to pay back the money, then took control of both the property’s mezzanine and mortgage debt from AIG and Sun America.
Heritage’s attorney contends that KBS Capital, as early as February 2010, sold enough units at the condo to recoup the mezzanine loan balance of $63.1 million and make a $149.4 million windfall. A lawyer for lender declined to comment because he had not reviewed the case.
Silver and Eldon hired Stroock in 2003 for their project; Heritage, through a subsidiary called 415 Fee Owner, paid $60 million for the landmark 205,000-square-foot property and signed a deal to convert it to 63 apartments — 53 lofts, seven townhouses and three penthouses — plus commercial space and a parking garage. Sales at the project were projected to be $225 million.
The developers completed the project by July 2009. By the 23rd of that month, 33 units valued at $104 million were sold and five additional sales were pending as of Aug. 31, the lawsuit states. Another 24 units, including the three penthouses, remained on the market. The unsold units and the five contracts had projected revenue of $199.4 million, and the parking and commercial space had projected revenue of $18 million.
On Aug. 1, 2009, Heritage had entered a deal with KBS — drafted by Stroock — to repay the loan by Feb. 1, 2010; the original repayment date had been May 22, 2009. The agreement called for Silver and Eldon to transfer all rights in the project to KBS if they did not repay the loan by the new deadline.
Stroock also had a key role in more than 40 escrow disputes at the Rushmore condominium, at 80 Riverside Boulevard. Extell Development and Carlyle Realty Partners ended up refunding tens of millions of dollars in deposits because they missed a deadline to close the first apartment sale. They contended that the date was a typographical error made by the law firm. Extell and Carlyle, though, never sued Stroock.