Don’t like the deal? See you in court. At least that’s the approach some real estate execs took this year.
Brokers, investors and developers all went downtown to complain in 2018, introducing us to new characters like Hudson Yards’ “Coffee Boy #1” and new problems like a “stigmatized” building that hasn’t even been built yet.
But stakes were much higher in 2018 than with the usual commission spats and partnership pedantics. This year saw real estate executives indicted and sentenced for Ponzi schemes and frauds totaling tens of millions of dollars. There were also a number of prominent complaints of sexual harassment, leveled at large real estate companies — and in the case of one major brokerage, it was the second time in the last two years.
Here’s The Real Deal’s list of the most notable lawsuits in 2018.
1. “Coffee Boy #1”
Real estate heavies don’t just sue partners and competitors — they sue their workers, too. Earlier this year, Related Companies filed a suit alleging that the Building and Construction Trades Council of Greater New York overran construction costs at Hudson Yards by $100 million. The most egregious overcharge? Related claimed a pernicious “Coffee Boy #1” was paid $42.48 an hour plus $27.39 in benefits to retrieve coffee that the boy didn’t even pay for out-of-pocket.
That was just one example of what Related said was BCTC president Gary LaBarbara’s “condoning, if not actively participating in, various corrupt practices.” The developer wants $75 million in damages. Meanwhile, BCTC continues to protest the use of nonunion labor at 50 Hudson Yards.
2. Mike’s Mea Culpa
“I’m the guy who would take a bullet for the president,” Michael Cohen said last year. But this spring, Cohen found himself the target of investigations by Special Counsel Robert Mueller as well as the U.S. Attorney for the Southern District of New York. In the face of mounting legal fees mounted, Cohen sold his stakes in various Manhattan real estate properties this summer. In December, Cohen was sentenced to three years in jail for several offenses including tax evasion and campaign contribution violations, incurred for paying women not to talk about having had sex with “Individual #1” — possibly, maybe, potentially Donald Trump — while the individual was running for president in 2016. President Trump called Cohen a “rat” after the sentencing.
3. Please don’t sell
It’s slated to be the second tallest residential skyscraper in New York, but it’s been a slow roll at 111 West 57th Street. While developers Michael Stern and Kevin Maloney this year notched a big legal victory over a former equity partner AmBase, the project was hit with another suit. Corcoran Sunshine has alleged that due to a softening luxury market in 2015, the developers wanted to delay sales and left Corcoran dead in the water with its contract to sell the pre-construction building’s apartments, for which it was expecting to make as much as $30 million in commissions. Maloney, according the suit, made negative comments about the market to the press, which “stigmatized” the unbuilt project.
4. “I wonder what else you are good at”
Merrill Roth, a commercial real estate broker at Newmark Knight Frank, faced allegations of sexual harassment this year, but his company says it never happened. “We have thoroughly investigated allegations made by a former employee and have determined them to be baseless,” company spokesperson Sara Berman told TRD at the time.
But Roth’s accuser, Jeanine Holohan, claims she was fired in December 2017 after complaining to Newmark’s human resources department about Roth. In the suit, Holohan says Roth stroked her thigh, telling her “You know I’m not a sexual monster. But my wife thinks I am.” Another alleged line, according to the suit, was: “You think you’re so smart, don’t you? I wonder what else you are good at?” Get it?
In 2017, a separate Newmark exec faced similar allegations in Los Angeles.
5. Crooked construction
More than a dozen hard hats were charged with fraud this December in one of the biggest construction crimes cases New York City has seen in years. Executives at Turner Construction and Bloomberg LP allegedly conspired to overrun construction costs on the interior renovation of Bloomberg’s Lexington Avenue headquarters in order to line their own pockets and those of their subcontractors. Anthony Guzzone, the former global head of construction at Bloomberg, and two former Turner executives were indicted on fraud, theft and bribery charges. Guzzone’s attorney seemed to deny the charges in a statement to the New York Times. “Mr. Guzzone has had an unblemished life and a distinguished career,” he said.
6. WeWork’s trials
WeWork, a nine year-old real estate shared-office space provider, has “an entitled frat boy” culture, an ex-employee alleged in court filings this year.
Ruby Anaya says she was twice groped by superiors at the real estate unicorn, the second time including a forced kiss. WeWork called the suit meritless and said that the 33-year-old Anaya, who had been fired, had been let go because of her job performance.
WeWork also was sued by Regus this year, for what it called copyright infringement over the right to use the letters “HQ” to promote one of its real estate services.
7. Rapidly escalating
Rapid Realty was started by Anthony Lolli in the 1990s, but it didn’t really make much noise until 2013, when its brokers started tattooing the company logo on their body in exchange for higher commission splits.
Earlier this year, eight franchisees of the company were preparing to sue Lolli for fraud, alleging they forced them to borrow money at a high-interest rate from an out-of-state lender — money they Lolli pocketed. Lolli denies the allegations, and fired back with his own lawsuit against the franchisees lawyer, as well as others who Lolli says spray painted the walls of his office with the line “THE HEART OF THE STEAL” — a play on the title of Lolli’s book, “The Heart of the Deal.”.
8. Bye, Bye EB-5?
The EB-5 program — for years a favorite of New York developers looking for cheap capital — hit some road bumps in 2018. With wait times for visas reaching up to 15 years, some frustrated investors decided they wanted out. At 701 Seventh Avenue, Maefield Development’s Edition Hotel, a group of 124 EB-5 investors sued U.S. Immigration Fund and its principal Nicholas Mastroianni to stop their money from being “redeployed” into a new project nearby. The investors instead wanted to forgo the EB-5 process as a whole in order to get their money back. But a temporary restraining order was eventually dismissed and withdrawn by the investors as part of a settlement.
9. The Madoff of Westchester
Westchester Developer Michael D’Alessio didn’t have a great year. When his Manhattan condo projects started to tank, he got sued by his investors. Banks then pulled his lines of credit, and the developer ultimately declared various business bankruptcies.To top it off, he’s going to jail after pleading guilty to a Ponzi scheme that saw him divert investor money into unrelated accounts and a gambling habit. While the lawsuits and bankruptcies press on, the Feds plan to recover more than $50 million from D’Alessio’s remaining assets.
10. You’re gonna build what?
Developers have been ready to fill up the Two Bridges neighborhood in Manhattan with luxury high-rises for some time now, and just as they are primed to do that the City Council tried to stop them — by suing the city. The Department of City Planning had approved four new towers earlier this month, but was immediately sued by the Council, which alleged DCP employed bureaucratic trickery to get around the land-use process for the towers, a process that would require Council votes. So far the Council has least achieved some more delays — DCP agreed to put a pause on the project until the court can hear the matter in February.
Correction: An earlier version of this story said 8 Rapid Realty franchisees had sued the company. The franchisees, in fact, were preparing to sue the company, but have not filed a lawsuit.