UPDATED Oct. 27, 15:45: First came the condo market slowdown. Then came the pandemic. And now, Aby Rosen’s luxury development at 100 East 53rd Street is in crisis because of an improper “backdoor deal.”
The partner, Vanke US, “orchestrated an irreconcilable and grossly improper conflict of interest” that put it “on both sides of the borrower-lender relationship without RFR’s consent,” Rosen’s firm alleges in a lawsuit filed last Friday in New York County Supreme Court, Crain’s reported.
Vanke now has a $115 million interest in a defaulted $360 million loan on the project, which the Industrial and Commercial Bank of China originally provided in 2015. The Chinese developer now has the right to foreclose or make other decisions about the fate of the property while also having insider access to RFR’s plans — making it “a mole for the lenders,” the lawsuit claims.
Dan Perry of Milbank, the law firm representing Vanke US in the suit, said in a statement that his client believes “the lawsuit is without merit.”
“Vanke believes the facts will show that it has consistently taken action to protect the value of the project, whereas RFR has elected to put its own interests ahead of the partnership’s interests,” the statement continues. “Purchasing a subordinate position in the debt was an option of last resort that it believed was necessary to protect its significant equity interest in the project, eliminate the risk of a near-term foreclosure and stabilize the partnership.”
Perry added that Vanke had given RFR the opportunity to purchase a proportionate interest in the debt as well.
RFR had selected Vanke to partner with it on the 63-story, 94-unit development in 2014, “in large part” due to the company’s “sales and marketing channels overseas” which would help attract buyers from China, the lawsuit states.
The group’s high hopes for tapping the Chinese market did not pan out, as capital controls soon put a damper on demand for luxury properties. The loan went into default upon maturity this May.
A few months before the default, according to the suit, Vanke offered to buy 25 of the least expensive condo units for about $75 million, to help pay down the loan and make it possible to get an extension. RFR rejected this as a “self-serving” move that made “no economic sense,” as it would be “saddled with only the most expensive and hardest-to-sell units” in the midst of the pandemic.
RFR notes in the suit that as China’s largest bank and one of its largest residential property developers, respectively, ICBC and Vanke had a longstanding relationship that enabled them to execute this “power grab” — in violation of contractual terms that gave RFR the exclusive right to deal with the lender.
According to prior reports, RFR’s other partners on the development include Hines and China Cinda Asset Management. Those partners are not mentioned in the present lawsuit, and their involvement is unclear. [Crain’s] — Kevin Sun
This story was updated to include Vanke’s response.