The Real Deal New York

Developer Karmely’s suit over Tribeca condos revived

Project at 443 Greenwich involved one of the richest men in Israel as a partner
By David Jones | December 20, 2013 01:30PM

Developer Shahab Karmely will get another chance to make his case that two former investment partners cut him out of a Tribeca condominium development, for which he is seeking $40 million, a federal appeals court ruled.

Karmely, the owner of Kar Properties, filed suit in U.S. District Court in Manhattan in April 2011, after W-D Group, an Israeli investment firm, foreclosed on his stake in 443 Greenwich Street, a proposed 118-room hotel and 40-unit condo project. The developers had defaulted on a $20 million mezzanine loan from W-D Group, according to court documents, but Karmely argued that the mezzanine debt could not be repaid until the mortgage was satisfied, and the mortgage hadn’t yet come due.

In 2006, Karmely bought the former office building at 443 Greenwich for $113 million, with plans to convert the property. He obtained an $85 million loan from senior lender Anglo Irish Bank and the $20 million mezzanine loan from W-D Group, led by Eitan Wertheimer, considered the richest man in Israel, and Ezra Dagmi. All three partners pledged their shares in the project as collateral.

In August 2012, a Manhattan federal judge dismissed Karmely’s suit, ruling that the investment partners had the right to enforce a default on the mezzanine loan.

But in a unanimous decision Dec. 9, a three-judge panel in the U.S. Second Circuit court ruled that language in loan documents between Karmely and the partners was ambiguous enough that he had the right to discovery, or a full exchange of evidence, to determine whether a foreclosure was justified.

“We do not doubt that an entity can make a loan to itself and a partner, but the unusual nature of such an arrangement prompts close scrutiny of the documents purporting to provide the lender with a right to foreclose on the partner’s interests for an alleged default on the loan,” Judge Jon Newman wrote in the decision.

David Pellegrino, a partner at the law firm of Phillips Nizer who represented Karmely in the appeal, said that the Second Circuit’s decision gave his client a chance to show the “full picture” to the court.

“We believe this will show that his partners improperly cut him out of his profit share in a project in which [Karmely] had invested millions of dollars and years of work,” Pellegrino said.

Lawyers for the defendants did not return calls seeking comment.

Wertheimer and Dagmi in 2012 agreed to sell the entire project to developer Metro Loft Management and a Russian billionaire investor, who has not been identified, for $150 million.

This past October, Karmely put his 7,700-square-foot Upper East Side townhouse at 48 East 81st Street up for sale for $23 million.

He previously listed the 5.5-acre Gardner Estate in East Hampton for $25 million.

Correction: A previous version of this story incorrectly referenced the senior lender as part of the case. Anglo Irish Bank was named originally, but the current case no longer involves them.