BlueCrest Capital Management, once one of Europe’s largest hedge funds with $37 billion in assets under management at its peak, was the real money behind Richard and Jonathan Kalikow’s $147 million bet at 3 Sutton Place, according to one of its former executives.
Headed by English financier Michael Platt, BlueCrest contributed more than $100 million of the high-interest loan provided to developer Joseph Beninati of Bauhouse Group by the Kalikows’ Gamma Real Estate for the construction of the planned, but ultimately stalled, 68-story, Norman Foster-designed condo tower.
BlueCrest, which reportedly faced an SEC probe earlier this year over possible conflicts posed by an internal fund that managed money for employees, was investing its own funds in the Sutton Place project as well as those of another unidentified foreign investor, Van Nguyen, the former head of equities derivatives trading at BlueCrest, said late last month in court papers relating to a lawsuit between Gamma and Beninati.
The hedge fund has since followed the leads of fund magnates such as George Soros and Steve Cohen in returning all outside money to its investors and becoming a private family office.
“Approximately two thirds of the economic interest in the lender, Sutton 58 Associates LLC, is held by an overseas investor,” Richard Kalikow confirmed in court papers.
Nguyen and Kalikow’s testimonies emerged as part of an ongoing legal battle between Beninati and his financial backers. Beninati has accused Gamma of engaging in a 15-month-long, calculated “loan to own” scheme, designed to sideline him from his own development.
“Manipulative actions taken by the lender to sidetrack the debtor forced the debtor into an untenable situation that made it virtually impossible to refinance its debt and develop the project,” he said in a April complaint.
Nguyen argues that a loan to own scheme made no sense for him, since neither BlueCrest nor its former client had any interest in holding an equity position in the project.
“A loan to own strategy would have put the defendants in conflict with investors such as myself…and the foreign investor I was working with — who had no desire to own the project for various significant business reasons,” he said. Nguyen noted that the investor’s funds were subject to the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA), meaning an equity investment would have come with significant tax consequences.
Instead, the Kalikows repeatedly urged Beninati to repay the loans by selling the project, Nguyen said.
Richard Kalikow said Beninati had come close at one point to selling the property altogether. One such discussion with Bruce Eichner of the Continuum Company progressed so far that a purchase and sale agreement was actually drawn up, Nguyen said. No sale was ever finalized.
In Kalikow’s testimony, he argues that the terms of the loan were entirely fair given that Beninati had barely any skin in the game and no established track record.
“The Plaintiffs had contributed less than $4.5 million of cash equity,” he said. “In addition, they had not completed the assemblage… Beninati …had no track record of successful real estate development in New York City, and had never developed a project of this magnitude and complexity anywhere.”
Spokespersons for BlueCrest, Kalikow and Beninati did not return requests for comment.