Sour grapes at 111 West 57th: AmBase tries again to reclaim the Manhattan supertall

Jilted investor is again suing developers Michael Stern, Kevin Maloney, and their equity partner Spruce Capital, which foreclosed on the property last year

May.May 23, 2019 06:00 PM
From left: JDS Development Michael Stern, 111 West 57th Street, and Property Markets Group founder Kevin Maloney (Credit: Getty Images)

From left: JDS Development Michael Stern, 111 West 57th Street, and Property Markets Group founder Kevin Maloney (Credit: Getty Images)

At 111 West 57th Street, the under-construction luxury residential tower’s legal history is as long as the tower is tall. And it’s about to get longer.

AmBase Corporation, a Connecticut-based holding company that invested $65 million equity into the building’s initial partnership, has filed its fourth claim against the developers of the project, accusing them of a “corrupt agreement” that wiped the firm’s stake in the project and is now seeking to again to reclaim its ownership.

The filing Thursday in New York State Supreme court follows a long trail of litigation between the sponsors of the building rising at the southern end of Central Park on Billionaire’s Row. In 2013, Michael Stern’s JDS Development Group and Kevin Maloney’s Property Markets Group partnered with AmBase to acquire the former Steinway Hall and its ground lease for $132 million, and develop a 1,428-foot-tall building above it; set to be the second tallest by roof-height in Manhattan. To cover the construction costs, the partners brought in financial firms AIG and Apollo Global Management to provide a $725 million loan.

But amid cost overruns, the developers failed to make payments, and days before a forbearance agreement was set to expire, Apollo sold a $25 million junior mezzanine stake to Spruce Capital Partners in March 2017. Spruce promptly initiated a strict foreclosure proceeding on the building.

After extended negotiations, Spruce brought Maloney and Stern’s firms back into the project to complete construction. AmBase has since then alleged that Stern and Maloney conspired with the junior mezzanine lender to foreclose on the property, and cheat AmBase out of its stake.

AmBase, run by Richard Bianco, is now seeking a court-ordered constructive trust, which would force Spruce to control the asset on behalf of AmBase, effectively giving ownership to the latter. AmBase is also seeking damages for the sponsors allegedly breaching their fiduciary duty.

But it remains unclear if AmBase’s latest attempt to reclaim its stake in the property will be successful. In January last year, a state Supreme Court judge rejected AmBase’s attempt to block the foreclosure with a temporary restraining order. And in October, a federal Supreme Court judge dismissed a RICO suit filed by AmBase against the developers.

“As far as I’m concerned, AmBase owns the asset,” said Stephen Meister, an attorney with Meister Seelig & Fein, who is representing AmBase in the suit.

Tad O’Connor, an attorney at Kasowitz Benson representing Stern’s JDS, said in an emailed statement that AmBase’s claim is “meritless, just like the numerous other allegations Ambase has made related to this project that have been dismissed by the courts. Our client intends to vigorously defend itself against these baseless claims.”

Representatives for Maloney’s PMG and Spruce Capital did not respond to requests for comment.

Other legal troubles have dogged the building since it began rising from the ground. Last June, brokerage Corcoran Sunshine filed a $30 million lawsuit against the developers, accusing them of self-sabotage, which affected the rate of condominium sales. Douglas Elliman has since taken over sales at the building, where apartments are priced from $18 million to almost $60 million on the upper floors. It is not clear how many apartments have been sold, but the building has a projected sellout of $1.3 billion, according to filings with the New York State Attorney General’s office.

In December, The Real Deal revealed a $21 million investment in the building by two Russian oligarchs — including one who was deported from the United States for a bribery scheme — made through a web of shell companies, front men and promissory notes.  The current developers claimed to have no knowledge of their investment.

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