Lightstone gave its neighbors $7M to build a hotel. Then the neighbors secretly went to war, suit claims.

Developer wants almost $9M in damages
By Mary Diduch | July 25, 2019 08:30AM

Lightstone Group CEO David Lichtenstein and Moxy Chelsea at 105 W 28th Street (Credit: Lightstone and Facebook)

Lightstone Group CEO David Lichtenstein and Moxy Chelsea at 105 W 28th Street (Credit: Lightstone and Facebook)

In 2015, the Lightstone Group paid $6.75 million to the people who run condominium next door in exchange for the development rights to build a new, 35-story Moxy Chelsea Hotel.

But as the work progressed, the developers were hit with a series of inspections from the city’s Department of Buildings that delayed the project. Throughout the building’s construction and the first months of its operation, the inspectors looked into dozens of complaints — such as work going on after hours, or that the construction was causing flooding.

David Sinclair and Lisa Chapman, a married couple who are the sole members of the managing agent for the Flower House Condominium, were behind the numerous complaints, which started after the condo secured the multi-million-dollar deal to sell its development rights, a new lawsuit filed by Lightstone in New York County Supreme Court alleges.

“This is an egregious case of bad-faith ‘bait and switch’ by sellers who received millions of dollars for development rights, and then sought to prevent the very deal for which they were paid so dearly,” the complaint states.

Lightstone wants over $8.7 million in damages and for a judge to force the defendants — which includes another resident, Patricia Kirshner, and the law firm that represented the condo throughout the development process — to stop “their campaign to sabotage the hotel,” the complaint states.

Lightstone, Sinclair, Chapman and their attorneys did not immediately respond to requests for comment. Kirshner couldn’t be reached for comment.

Sinclair, Chapman and Kirshner made close to 30 calls to 311 — the non-emergency contact line for New York City government services — to make false allegations about the project’s construction and to try to get a stop work order, according to the complaint.

Lightstone says the complaints were false because the DOB never issued a violation for the specific complaints made. However, on occasion, the inspectors “found generally minor, technical violations, such as lack of proper paperwork like daily logs or operating manuals … which resulted in stop work orders” and took days for the department to lift, the complaint states.

These inspections led to 56 days worth of delays, causing the hotel to miss its opening before Thanksgiving and the 2018 holiday season, the complaint says. The calls to the DOB also led the agency to “expend resources for no legitimate reason,” the complaint alleges.

The plaintiffs also allege that by making the calls and complaints, the defendants violated another agreement the parties signed as a requirement to close on the development rights. The agreement states that the condo and North West — the condo’s managing agent with Sinclair and Chapman as members — would “cooperate” with the development.

After the hotel opened in February, the complaints continued. The defendants’ counsel contacted the DOB to revoke the hotel’s temporary certificate of occupancy, which would have caused the hotel to shut down. This initiated a DOB audit, and Lightstone had to give the DOB evidence to disprove the claims, the complaint states. (The audit and notice of intent to revoke the TCO were eventually lifted, according to the lawsuit.)

The setbacks cost Lightstone over $5 million in revenue and over $1.8 million in additional interest on loans because the hotel was not making any money, according to the complaint.

In March, Lightstone secured a $155 million refinanced loan for the hotel, which is located at 105 West 28th Street, from LoanCore Capital and KSL Capital Partners.

Lightstone plans to bring a fifth Moxy Hotel to New York City. The developer’s new Opportunity Zone fund will finance that development, which will be in Williamsburg.

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