The Real Deal New York

Macklowe sued over alleged defects at 150 E. 72nd St.

Condo board at UES conversion also claims developer underfunded reserve fund by $5.1M
By E.B. Solomont | December 28, 2016 01:10PM

Harry Macklowe and 150 East 72nd Street

Residents of Harry Macklowe’s condo conversion at 150 East 72nd Street are very unhappy with their purchases — they’re taking the notoriously litigious developer to court over alleged construction defects and what they’ve said is a woefully inadequate building reserve fund.

Condo owners began noticing problems with their apartments shortly after moving into the 24-unit building, according to the suit filed by the condo board on Dec. 23 in New York State Supreme Court.

According to court documents, there is “excessive odor transmission” between units, a lack of insulation in sections of the building and faulty HVAC units that freeze in cold weather. Some apartments experience uneven temperatures, while others have heating systems that can’t reach 68 degrees during the winter, the suit alleges. Court documents also describe “major façade issues” at the building, as well as water leaks related to corroded pipes in some un-renovated units. The board hired an independent architecture firm, Zimmerman Architects, to compile a list of alleged defects.

In the lawsuit, the board also alleges that Macklowe intentionally underfunded the building’s reserve fund by $5.1 million and misrepresented aspects of the building during its marketing “to induce prospective purchasers to enter into agreements to purchase units.”

“The above-described actions were willful, reckless, and wanton and in violation of the duties imposed by law to deal honestly in the marketing and sale of condominium units,” according to the complaint, which seeks $30 million in compensatory and punitive damages.

The board said that as a result of Macklowe’s actions, condo owners have seen their investments “vitiated,” while the apartments themselves are “unmarketable.” (There are no active listings on StreetEasy; two of the units were apparently pulled from the market this month.) The owners are also now incurring additional expenses on repairs, the condo board claims.

A representative for Macklowe Properties was not immediately available for comment.

Macklowe paid $70 million for the building in 2011, and subsequently converted the 34-unit rental into luxury condos. The new apartments hit the market in 2013, with prices ranging from $6.03 million to $13.5 million.

According to the suit, Macklowe was required to deposit $6.7 million in the building’s reserve fund — an amount that is 3 percent of the building’s total sellout of $223.35 million — by Nov. 22, 2013. Instead, the suit claims, the developer paid $1.6 million into the fund, “knowingly” underfunding the fund by $5.1 million.

The complaint accuses the developer of fraud, negligence and breach of contract for “overtly and blatantly” employing subpar materials and workmanship at the building. The suit names Vitruvius Estates LLC, the property’s ownership entity, and Macklowe personally on the grounds that it would be “unjust and inequitable” for the developer to make money off the LLC but use the LLC as a shield to avoid paying damages.

Macklowe, who is co-developing 432 Park Avenue and is behind the conversions of 737 Park Avenue and 1 Wall Street, has sparred with tenants at 150 East 72nd Street before.

In 2013, Macklowe and former retail tenant Eliot Rabin traded lawsuits, with Macklowe accusing the retailer of failing to pay rent. Rabin, meanwhile, said the developer forced him out of his lease. At one point in 2013, court documents alleged, Macklowe warned Rabin, “Don’t forget I am Goliath,” to which Rabin replied, “You just met David.”