Pre-auction frenzy at Sloane mansion

Behind-the-scenes negotiations pave the way for city's priciest foreclosure sale
By Candace Taylor | July 01, 2011 02:09AM

Sloane mansion
The Sloane mansion

The Henry T. Sloane mansion made headlines in 2008 when it hit the market for $64 million, an eyebrow-raising price even for the dizzying heights of the boom. Had it sold at that amount, it would have become the most expensive home sale in New York City history. Instead, it prompted the city’s priciest-ever residential foreclosure auction last month, according to PropertyShark.com.

Located at 18 East 68th Street between Fifth and Madison avenues, the mansion has been the object of public fascination since its inception.

Henry Sloane was a Gilded Age carpet manufacturer whose wife Jessie scandalized New York society in 1899 by taking up with another man (and marrying him just hours after her divorce to Sloane was final). Sloane responded, the story goes, by hiring architect C.P.H. Gilbert to build him a new, grand mansion.

The resulting six-story, limestone house has a marble staircase and a wood-paneled ballroom, with the original oil-painted murals still in place.

But when investors John Rice III and Joseph Ingrassia — managing members of Manhattan-based Capstone Business Credit, a private finance and investment company — bought it for $20 million in 2007, the upper floors had been divided into more than 10 rental apartments.

“Some of the grandeur was taken out of it,” explained Matthew Lesser of the brokerage Leslie J. Garfield & Co.

After acquiring the mansion, Rice and Ingrassia set about removing the building’s tenants so the property could fetch top dollar as a single-family mansion.

But like many investors during the boom (Stuyvesant Town’s notoriously ill-fated investors being the most famous example), they underestimated the difficulty, and cost, of removing tenacious rent-stabilized tenants.

“It took a little bit longer and cost more to vacate the property” than the owners expected, said Marcus & Millichap vice president Peter Von Der Ahe.

The owners also leveraged the house to the hilt, borrowing some $28 million from real estate investment firm Madison Realty Capital, and also taking out a second mortgage of $5.5 million with the bridge fund North Hill Capital Management (though that loan also involved another property, Von Der Ahe explained).

When Rice and Ingrassia put the property on the market in February of 2008, brokers deemed the $64 million price tag far too high. “It was completely overpriced,” Lesser said.

When Lehman Brothers collapsed a few months later, the prognosis only worsened. The house saw price chops of $54 million, then $39 million. Finally, with the owners in default, the lenders filed to foreclose.

By the time Marcus & Millichap’s Von Der Ahe, Seth Glasser and Scott Edelstein took over the listing in April of this year, the house was priced at $37.9 million and headed for a foreclosure auction. Due to fees and penalties, Rice and Ingrassia now owed more than $42 million to their creditors.

Around that time, the property caught the eye of Ukrainian-born billionaire Alexander Rovt. He already had a mansion on 63rd Street between Second and Third avenues, which he’d purchased from Hiroaki “Rocky” Aoki, founder of Benihana restaurants. But a few years later, Rovt “decided he wanted to be further west,” said Lesser, who has worked with the fertilizer magnate for several years.

Rovt wanted a particularly wide house, so the 36-foot-wide Sloane mansion quickly came on to his radar. He tried for months to buy it as a short sale, but the various creditors could not agree on a price. “We tried to make a deal where everybody would get paid, but no one could agree on how much of a haircut to take,” Von Der Ahe said.

Rovt wasn’t ready to give up, however. With a foreclosure auction set for June 22, the various parties looked for a way for him to buy the house, ideally while avoiding the competitive atmosphere of an auction.

“We all determined that the best way for him to do that was to buy the mortgage before the auction, instead of participating in the auction,” explained Von Der Ahe.

So, in the middle of last month, Rovt and Lesser set up meetings with both Madison and North Hill hoping “to go in and negotiate and walk out with the deed,” Lesser said. North Hill, however, “played hardball,” he said. “We made an offer and it wasn’t sufficient for them, and we walked out.”

Madison’s loan was senior to North Hill’s, so it was more receptive to selling the note at a discount. “Of course, they didn’t want to lose money, but we ultimately reached an acceptable offer with them,” Lesser said.

Rovt paid $33 million for the note, Marcus & Millichap said.

Without North Hill’s cooperation, a foreclosure auction was unavoidable. But if Rovt “all of a sudden became the note holder, then he would essentially win the auction,” Von Der Ahe said.

Accepted offer in hand, the brokers and attorneys involved started working around the clock to orchestrate the loan sale in time for the auction. There were thousands of pages of documents to review in only a few days.

“We struck the deal only days before the auction, and brought the whole note sale to fruition within 48 hours,” Von Der Ahe said.

Rovt’s payment was wired into Madison’s account only hours before the
auction.

“It was down to the wire, literally,” Lesser said.

Despite a packed auction at 60 Center Street, no one bid against Rovt, so the property fell to him as the debt holder. Now, Rovt is excitedly planning a “substantial renovation” to prepare the house for his own use, Lesser said. His 63rd Street house is now on the market with Lesser for $27 million.

As for the brokers, they received negotiated fees rather than commissions, since the property sold at auction. Rice, Ingrassia and North Hill did not fare as well; the money they invested in the deal was “completely wiped out,” Lesser said.