The Real Deal New York

Bauhouse sues Gamma to block 3 Sutton Place foreclosure

Developer gets temporary restraining order against lender's planned auction of Midtown property
By Rey Mashayekhi | February 18, 2016 12:40PM

UPDATED, 6:00 p.m., Feb. 18: Bauhouse Group is striking back against Gamma Real Estate’s bid to foreclose on its planned 68-story 3 Sutton Place condo tower, filing suit against the lender and obtaining a temporary restraining order against a foreclosure auction for the property.

Bauhause defaulted on $128.8 million in loans from Gamma Real Estate last month, prompting the Richard Kalikow-led lender to initiate foreclosure proceedings on the development site at 428-432 East 58th Street.

Gamma was scheduled to sell off the loan collateral via auction last week and later pushed back the auction to Feb. 29, according to a lawsuit filed in New York State Supreme Court on Wednesday. The lender retained Eastdil Secured to market the property to potential bidders.

But on Thursday, Bauhouse received a temporary restraining order against Gamma’s planned foreclosure sale at the end of this month, according to attorney Stephen Meister of Meister Seelig & Fein, who is representing Bauhouse. The two sides will meet again in court on Tuesday morning.

Meister Said The Court was “troubled” by a confidentiality agreement implemented by Eastdil, which he said “does not permit a bidder to give information about the project to his own lender” before the foreclosure auction.

The Joseph Beninati-led development firm’s lawsuit mirrored those concerns, claiming Gamma had made it “extremely difficult to access information” about the 3 Sutton Place development site with the goal of “chilling any bids” and assuring the lender was the sole bidder for the project.

“There is no purpose to the confidentiality agreement other than to chill bidding, and Kalikow’s lawyers were unable to dream one up,” Meister told The Real Deal. “Kalikow is trying to steal this project, which has way more than enough value to pay off his loans.”

Representatives for Gamma Real Estate could not be immediately reached for comment.

Bauhouse claimed Gamma moved forward with the auction in an “unreasonable manner,” according to the complaint, adding that the lender is demanding $45 million above the original $147.25 million loan principal – which included a $127.25 million mortgage loan and a $20 million mezzanine loan. Gamma is also charging Bauhouse “over $100,000 a day in default rate interest” on the loans, the suit said.

According to investment documents filed several months ago, Bauhouse has actively sought an $80 million mezzanine loan to fund the troubled, Norman Foster-designed skyscraper, as The Real Deal reported. The 113-unit, 283,000-square-foot condo tower has a market value “approaching $1 billion,” according to the Bauhouse complaint against Gamma.

Beninati has been searching for a joint-venture partner for months and in August said he’d have “no choice but to sell” the property if one didn’t emerge. Bauhouse received demolition permits for the site late last year.