Right before a foreclosure auction was due to proceed for a loan tied to Wonder Works Construction’s condo project on the Upper East Side, the developer filed a last-ditch motion to stop it.
But Justice Jennifer G. Schecter was having none of it.
“The default here predates the pandemic and, since then, [the] plaintiff has been unable to comply with the terms of forbearance agreement,” she wrote in a decision denying the motion last week.
Afterward, the UCC auction went ahead as planned, according to Genghis Hadi, managing principal of the mezzanine lender, New York-based Nahla Capital.
Hadi said multiple interested parties had shown up but Nahla ultimately won the auction through a credit bid, which is when the lender bids using debt it is owed.
The result means Nahla has now taken over the interests in the LLC that got the loan, effectively assuming the developer’s position. “The sale closed on the same day and our firm is ultimately the owner of the asset,” Hadi said.
It was a dramatic end to a fraught year between lender and developer, as Manhattan’s condo market floundered and troubled projects were pushed closer to the edge.
Vitre, a 21-story boutique building at 302 East 96th Street, launched sales in 2017 and though it had some early momentum, deals later stalled. Wonder Works defaulted on the mezzanine loan this January, according to Hadi, who said his firm provided “ample space and opportunity for the borrower to correct the situation.” Nahla hired a team of brokers from JLL to market the foreclosure auction in October.
Hadi said the firm would continue to try to sell units in what he acknowledged was a “very difficult marketplace.”
“We are going to work with our senior lender to make sure they’re serviced directly, and really just do the best we can to make sure this building continues to perform,” he said.
Wonder Works principal Eric Brody did not respond to requests for comment. Ryan Banich of Tsyngauz & Associates, who represented the developer, also did not respond.
Though commercial mortgage foreclosures are technically banned by the state because of the pandemic, UCC auctions — a quicker process than foreclosure lawsuits — have mushroomed in recent months as talks between mezzanine lenders and developers break down.
But some developers, including Wonder Works and HFZ, have pushed back against the auctions, arguing that holding them during a pandemic is not “commercially reasonable,” a requirement of the Uniform Commercial Code.
In HFZ’s case, a judge agreed, halting the scheduled auction until a later date. But in Wonder Works’ case, Justice Schecter said the loan default was not purely a product of the pandemic, noting that Nahla had been paying the carrying costs on the building for almost a year.
To the wider argument about timing, she appeared unmoved, commenting simply that “mezzanine foreclosures have been proceeding under current conditions.”