The Real Deal New York

Inside the dramatic battle for control of Eichner’s Flatiron condo tower

“We needed to be very considerate, careful and deliberate in structuring our joint venture,” Fortress exec testified
By Rich Bockmann | April 17, 2018 01:35PM

Ian Bruce Eichner, Dune’s Russell Gimelstob and 45 East 22nd Street

Ian Bruce Eichner once allegedly handed a potential lender a copy of “High Rise: How 1,000 Men and Women Worked Around the Clock for Five Years and Lost $200 Million Building a Skyscraper.”

The 1993 book expertly details how the developer built and lost a Times Square office tower as the real estate market turned in the late 1980s. The banker, astonished, vowed never to work with Eichner. But the developer’s many high-profile losses haven’t prevented him from time and time again rebounding for what seems to be another of his nine lives.

The head of the Continuum Company’s latest contested project – his $700 million Flatiron District condominium tower– sheds some light on how a developer with such a track record continues to be financeable.

“We had a successful history with Mr. Eichner. We had done, as Bruce mentioned, a couple of deals in Florida where we had made some money,” Randall Shy, a managing director at Fortress Investment Group, testified earlier this month in a court hearing over control of the project. “Nonetheless, we needed to be very considerate, careful and deliberate in structuring our joint venture.”

“It was made clear to us that we needed to be very thoughtful and careful about how we structured our transaction,” Shy added.

Shy said that when Fortress and Dune Real Estate Partners teamed up to partner with Eichner on the development project he had assembled at 45 East 22nd Street, they decided they needed to put the developer on a short leash.

That meant structuring the joint venture so that Fortress and Dune – not Eichner – served as the managing member, which Shy said made the project more attractive to lenders. (Fortress and Dune have $85 million worth of equity in the project, while Eichner has $61 million, according to legal documents.)

The managing members also negotiated specific default events and their remedies, a “loser pays” clause covering attorneys fees and recourse provisions for Eichner that were particularly important considering “what we believed to be his litigious nature,” Shy testified.

The Fortress executive bristled at the idea that sitting in court arguing over control of the project was exactly what the partners were trying to avoid when put an arbitration clause into their joint agreement. Eichner sued when it appeared Fortress and Dune would find him in default of the JV agreement, and the judge in the case granted the developer a preliminary injunction, partly because he found Eichner to be the more credible witness (though he doesn’t say why).

Russell Gimelstob, Dune’s head of acquisitions and a member of the firm’s investment committee, said the managing partners negotiated the agreement knowing there was a real possibility they would find themselves in a situation where Dune and Fortress would be willing to sell at a different price than Eichner.

“That is why we set that up in the contract, specifically for this instance, because now we are sitting here at a point where our interests are not aligned with Bruce’s any more,” he said. “We set this up very carefully.”

Fortress and Dune say Eichner missed the $500 million sales milestone by more than 20 percent.

Eichner’s main shortcoming as a partner, Gimelstob said, is that he repeatedly held out too long when markets changed.

“He has lost other people a lot of money,” the Dune executive said.

“[H]istorically in real estate the way people get hurt is when they hold on to things too long that are not really representative of the market,” Gimelstob continued. “And in all fairness to Bruce . . . a willingness to continue to not be reflecting what the market is at that time is the reason for which he has handed back so many properties and has inflicted so many losses upon partners, equity partners, preferred equity partners and lenders.”

Fortress’ Shy said he was reasonably satisfied with the job done by Eichner, who claims that it’s only now that the tower is near complete that his partners want to force him to the side.

One of the main points of contention between the partners is where the market currently is. Eichner argues that Fortress and Dune – which get paid off first and receive a preferred return – want to slash prices and get out of the project, which would wipe out his equity.

But despite the messy legal battle, Fortress has agreed to finance Eichner’s latest development in Crown Heights, presumably fully aware of what they’re getting into.

In court, Eichner described an instance where Fortress reacted harshly when he moved $10 million out of a reserve account.

“They went nuts,” he said, detailing a meeting with Fortress head Dean Dakolias where Eichner admitted to getting “quite hot, which I tend to be from time to time.”

“I didn’t quite storm into his office,” Eichner explained. “We had a meeting and he said to me, ‘you know, the partnership agreement says that you have to put this money back.’ And I said I don’t give a damn what the partnership agreement says.”

Eichner’s attorney, though, recalled the particulars of the event differently.

“I think the word you used might have been a little stronger than damn,” he said.