On June 20, 2013, Joseph Chetrit was furious with Joe Tabak, chief of Princeton Holdings. “I am getting raped by you,” he wrote to Tabak. “I want to meet ASAP today.”
Nearly a year earlier, the Chetrit Group had entered into a joint venture agreement with Tabak’s Princeton Holdings. At the time, Princeton had a $112.5 million deal in place with Michael Ring to acquire his 50 percent stake in the Ring family’s portfolio of Manhattan office properties.
Upon the deal’s closing, Tabak and Chetrit’s joint venture would own half of the Ring portfolio – a 14-building treasure in the heart of Midtown South, which was quickly becoming the “it” neighborhood for Manhattan’s creative and technology sector.
But Ring had soured on the terms of the deal. In May 2011, just three months after striking the agreement with Tabak, he was trying to terminate the contract. Tabak sued Ring in order to push through the sale, but the two sides appeared set for a lengthy court battle.
More than two years after striking the deal with Ring, Tabak was no closer to closing. He decided to shift his contract on Ring’s 50 percent stake to Gary Barnett’s Extell Development for $65 million, court papers show. He returned Chetrit’s deposit to him, and also paid him a share of the profits from the Extell deal. But Chetrit was having none of it.
A buried treasure in Midtown South
Some context: Earlier this week, Chetrit filed a $400 million lawsuit against Gary Barnett and Extell Development claiming “tortious interference” in Chetrit’s plans for the Ring portfolio. It’s the latest chapter in the drawn-out saga over the Ring portfolio. Extell, as The Real Deal reported in October, has already made more than $700 million from the properties.
That windfall, presumably, contributed to Chetrit’s discontent about how the deal played out. The Ring portfolio was an “opportunity to develop, sell and/or lease more than 1.2 million square feet of prime New York real estate,” according to Chetrit’s complaint against Extell – an opportunity foiled by Tabak’s decision to flip the contract on Michael Ring’s stake to Barnett.
But it is Chetrit’s lawsuit against Princeton, filed in October 2013, that illuminates the inner workings of an ill-fated deal that continues to work its way through the courts.
A JV gone bad
Chetrit and Tabak’s respective firms struck their 50/50 joint venture agreement in August 2012. As part of the deal, Chetrit contributed a $12.5 million deposit on the Ring contract, which allowed Princeton to recoup its own initial $10 million deposit on the contract and remove much of its financial risk on the deal.
Where the deal got complicated, however, was a $46 million “embedded profit” evaluation on the contract, which accounted for the extent to which the portfolio’s value had appreciated in the 18 months since Princeton had struck its $112.5 million deal with Michael Ring.
According to court filings, Chetrit had agreed to pay half of that “embedded profit” evaluation – or $23 million – under the terms of the joint venture. But Princeton claimed in court that Chetrit never did contribute that $23 million, thereby disqualifying it from its right to 50 percent of the profits on the deal.
In June 2013, Princeton flipped the contract to Extell for $65 million. From that, more than $2 million went toward broker commissions and closing and legal costs. But Princeton also withheld the $46 million embedded profit, according to court filings that break down the profit distribution from the deal – leaving just under $17 million to be split between Chetrit and Princeton.
Chetrit ended up getting its $12.5 million deposit back, plus just over $8.4 million of the profits. Princeton, meanwhile, allegedly walked away with around $54 million from the transaction, or around 83 percent of the gross proceeds, according to Chetrit’s lawsuit.
Doug the Harmonizer
While he didn’t lose any money on the deal — far from it — Chetrit was irate about the way the deal shook out, emails disclosed in the lawsuit show.
“We were equal partners in the deal,” Chetrit wrote to Tabak. “That is why I put up the money replacing more than your deposit. You were entitled to receive the purchase price set forth in our agreement only if we closed the deal.”
“The reason we are not closing [on the Ring contract] is not because of me but because of you,” Chetrit went on. “You decided to sell the deal, not me… Do you think I would put up millions and share the expenses (including Fried Frank legal fees) for the privilege of giving you all or almost all of the profit?”
Tabak struck back with equal conviction, noting that Chetrit had told him to sell the contract — a notion Chetrit disputes in his suit — and that the agreement between the two sides allowed him to do so. “I brought you into the deal at a basis $92 million higher than my price,” he wrote to Chetrit. “Do you think I’m stupid enough to take you in at my price after the value went up so much?”
“That’s why our agreement says that you only become a partner after giving me a profit at closing,” Tabak added. “You’re NOT [sic] a partner yet and under our contract if I don’t close you get your deposit back and go home. So say thank you and stop killing me for no damn reason.”
Eastdil Secured’s Doug Harmon tried to broker peace between the two sides, court documents show. In an email chain with the subject line “Ring a ding ding boys,” Harmon spelled out a process by which both parties would agree to hammer out their differences via a “third party arbiter” who would be “not a friend or rabbi but a true mediator.”
“Whichever way the arbiter rules, the loser will pay his share within a just and reasonable time period,” Harmon wrote, ending his correspondence on a rather humorous note.
“’Hey Doug we all made money on something you helped us both out with,’’” Harmon wrote, channeling his desired response from Chetrit and Tabak. “’Whatever happens Doug we both love and thank you once again for steering us profitably thru [sic] the storm…’”
But that didn’t mollify Chetrit. He filed suit against Princeton that fall, a battle that continues to this day, nearly three years later.
In his lawsuit, Chetrit claimed that Princeton “knew (or should have known) that [Chetrit] would have paid substantially more than $65 million to own” the contract on Michael Ring’s stake in the buildings.
The Chetrit Group did not return requests for comment on this story, while a representative for Extell said the company does not comment on litigation. Harmon did not return requests for comment.
“We believe that there’s absolutely no merit whatsoever to the Chetrit lawsuit against Princeton, or the lawsuit against Extell,” Fried Frank’s Janice Mac Avoy, who is representing Princeton in the dispute, told TRD. “They’re just striking out in desperation.”