The Real Deal New York

Herald Square Properties claims AJ Property Management lied about existing leases in order to boost $50M Chelsea purchase price

Buyer filed $13M lawsuit over deal for 251 West 30th St
By Rich Bockmann | April 25, 2017 01:30PM

251 West 30th Street, Michael Reid and Gerry Nocera

UPDATED, April 25, 6:44 p.m.: Herald Square Properties is suing AJ Property Management over its purchase of a Chelsea building last year, claiming the seller lied about the ability to terminate existing leases in order to push the sale price up to $50 million.

Herald Square is suing for more than $12.6 million over its purchase last year of the 16-story, 114,000-square-foot building at 251 West 30th Street, according to a complaint filed in Manhattan State Supreme Court Monday.

The buyer, headed by SL Green Realty alums Michael Reid and Gerry Nocera, claims that when it went into contract to purchase the property in December 2015, AJ Property provided paperwork verifying that Herald Square could terminate all the leases in the building.

Despite this, Herald Square claims the seller conspired with tenants they knew “really planned all along to assert rights to long-term occupancy with the intent of extracting payment from” the buyer.

A spokesperson for Herald Square declined to comment, and a representative for AJ Property Management could not be immediately reached.

The new landlord planned to vacate and reposition the 1927-era property so that it could boost rents into the upper $50s per square foot.

After the closing, Herald Square served notice to the rehearsal studio Ultrasound Music that it planned to terminate its 7,200-square-foot lease under an existing termination clause within 180 days. Ultrasound was paying a monthly rent of about $17,000, which works out to an annual rent of roughly $28 per square foot, on a lease set to expire in 2019.

But a few days before Herald Square planned to terminate the lease, Ultrasound filed a lawsuit in late October claiming that the company hammered out an amended lease with AJ Property in 2014 that removed the demolition clause.

Herald Square said it never saw the purported 2014 amendment, despite the fact that the seller asserted it had provided all the pertinent leases. On top of that, Herald Square’s lawsuit claims that Eugene Sinigalliano, a principal at Ultrasound and personal friend of AJ Property’s Andrew Justin, leases a 2,000-square-foot residential apartment in the building.

Herald Square’s lawsuit claims that the seller told them that Sinigalliano didn’t use the apartment as his primary residence, and therefore wasn’t protected under rent stabilization and wouldn’t push for a buyout. The landlord said it learned in February that Sinigalliano plans to “remain in the apartment indefinitely.”

(To view more commercial sale transactions in Chelsea, click here)

Correction: A previous version of this story incorrectly identified the defendant as Justin Management. The defendant, in fact, is AJ Property Management.