Swig v. Macklowe

Over the past four years, real estate developer Kent Swig has found himself under siege from creditors seeking to recoup loans and other investments lost in the 2008 economic crash. Thus far he’s been able to prevent the collapse of his considerable real estate empire, but an ongoing battle with his estranged father-in-law, legendary developer Harry Macklowe, is threatening to push him over the edge and could derail any attempt at a comeback.

Swig — the 51-year-old president of the development firm Swig Equities and Terra Holdings, the parent of brokerages Brown Harris Stevens and Halstead Property — has been locked in a bitter dispute with the parents of his soon-to-be ex-wife, Elizabeth, since May. As The Real Deal and others have reported, that’s when Macklowe and his wife, Linda, sued him, alleging that Swig defaulted on a $200,000 personal loan they made to him in 2009.

But in September, the Macklowes failed in their attempt to obtain a judgment that would have forced Swig to pay back the loan immediately. As a result, the suit is now moving forward and setting the stage for a full-blown legal battle in state Supreme Court.

Swig did not take the suit lying down.

He fought back with a $1 million counterclaim against the Macklowes in October, alleging that his in-laws are conspiring to push him into bankruptcy. Swig claimed the $200,000 loan was supposed to be used to pay his law firm, Morrison Cohen, as it worked to restructure his holdings and help him recover from the financial crisis. In addition, he charged that the Macklowes entered a secret deal to hire Morrison Cohen to represent their daughter in her divorce case against him.

“The Macklowes appear to be using the courts to inflict injuries and not redress them,” a spokesman for Swig said in a statement. “Now that Mr. Swig’s long-term marriage to their daughter, Elizabeth, has ended, this lawsuit only serves to hurt all of those involved.”

The spokesman declined to comment further, citing the pending litigation.

Macklowe, through a spokesperson, declined to comment on Swig’s allegations. But in a sworn affidavit filed June 18, Macklowe denied that he ever tried to ruin his son-in law.

“At no time have I encouraged or supported any person to, or at any time initiated or commenced any involuntary proceeding against Kent Swig,” he said in the court filing. “Indeed to my knowledge, none of Swig’s creditors or anyone else has ever filed or sought to commence any involuntary bankruptcy against Mr. Swig.”

Happier times

Swig and Elizabeth Macklowe during happier times. The couple filed for divorce in 2010

The marriage of Elizabeth and Swig, himself the scion of a powerful San Francisco real estate family, must have seemed like a match made in real estate heaven.

When Swig married Elizabeth in 1987, she was working as an assistant vice president at the Harry Macklowe Real Estate Co., where her father was founder and president. (The firm is now called Macklowe Properties.)

Meanwhile, Swig had recently joined Macklowe’s firm from Swig, Weiler & Dinner Development Co. in San Francisco, where he was vice president and his father served as chairman. The two companies were partners on several New York real estate deals.

Harry Macklowe seems to have been taken by Swig from the start, as he set the up-and-coming executive up on a blind date with his daughter. Swig told the magazine Haute Living that on the night of their date, he and Elizabeth both had to cancel and that by happenstance they ran into each other later that evening at a restaurant called the Saloon (which has since closed) on the Upper West Side. Swig proposed about two weeks later.

Swig spent more than seven years at Macklowe’s company, rising to executive vice president and ultimately managing a portfolio of about $4 billion in commercial and residential real estate. But in 1994, he left and partnered with David Burris to launch Swig Burris Equities. (Burris previously worked for Manhattan Pacific Management Co., the property management division at Macklowe.)

A year later, in 1995, the two partnered with brothers Arthur and William Zeckendorf, whose family had a long history of investing with the Swig family in real estate deals, to form Terra Holdings. The company acquired Brown Harris Stevens that year from the Helmsley Organization, and Halstead Property in 1999.

By the early 2000s, Swig had built up a reputation as a major dealmaker in the commercial office market, acquiring and redeveloping major office towers in Lower Manhattan  — including 80 and 90 Broad Street and 110 Williams Street — and establishing a reputation as a New York philanthropist.

With his reputation as a commercial real estate mogul cemented, Swig began to enter into some highly leveraged residential deals, including the 2005 acquisition of the Sheffield at 322 West 57th Street for $418 million with partners Yair Levy and Serge Hoyda, and the $260 million acquisition of 25 Broad Street in the Financial District. Both condo conversions ended in foreclosure.

In 2009, Manhattan-based real estate fund Square Mile Capital won a $32.4 million judgment against Swig for loans connected to both of those buildings.

The  judgment from Square Mile was followed by $116 million in lawsuits brought by various banks and other creditors — each scrambling to get priority for rights to Swig’s assets.

A major New York City real estate analyst said that Swig has yet to recover from the Square Mile debacle.

“I don’t hear him as an active buyer in any deals,” the analyst said. “He’s still nursing his wounds.”

More recently, Swig has been fighting for nominal control over some of his remaining properties, including 48 Wall Street. Indeed, his minority partner, M. Myers Mermel, filed suit in November 2011 to take control of the office building.

The suit cited an earlier deal in which Swig’s assets would be sold off to pay for his $116 million debt. Mermel said that agreement allowed him to remove Swig as managing partner at 48 Wall because he was no longer financially capable of running the building.

Broken marriage

The downturn also took a heavy toll on Swig’s personal life. When the marriage was strong, Liz Swig, as she’s known, took an active role in her husband’s business and became a design consultant in many of Swig’s properties, including 25 Broad Street.

But in 2010, Swig filed for divorce, and Elizabeth put their Sagaponack estate on the market for $6.9 million.

Then, things got uglier.

In a 2011 suit against Bank of America, Elizabeth claimed that her husband conspired with the lender to use her as a front to shield his assets from being seized by creditors. In court papers, she claimed that Swig forged her signature on a 2006 letter of credit to rescue a $30 million nursing home deal that he was backing in Southampton called the Payton Lane project.

She claimed the forgery allowed Swig to use the shares at their 740 Park Avenue co-op as collateral to protect the deal against delays and cost overruns that threatened to derail the project.

Elizabeth alleged that a second $12.8 million loan was obtained through a forged signature along with a cover story from her husband that the loan was being used to refinance their Park Avenue apartment.

Her father, meanwhile, also suffered devastating real estate losses during the financial crisis. Macklowe famously lost the prized possession of his portfolio, the General Motors Building, along with a half a dozen other prime Midtown towers.

But now he’s back in the New York real estate game, teaming up with the Los Angeles–based CIM Group to convert 737 Park Avenue, a luxury rental building, into condos. In addition, he has at least two other major deals in the works, a 95-story new construction condo at 432 Park Avenue, slated to be the city’s tallest residential tower, and a 34-unit rental at 150 East 72nd Street, which he’s converting to condos.

Even with Macklowe staging a comeback, it’s not surprising that there’s still bad blood.

Swig’s brother-in-law, Billy, told TRD in March that he never had a relationship with Swig, adding, “Do you know the difference between in-laws and outlaws? Outlaws are wanted.”

In his October counterclaim against Macklowe, Swig alleged that the Macklowes hired his law firm, Morrison Cohen, to represent his wife in their contentious divorce case, knowing that the law firm was representing Swig in negotiations with various creditors. He also said Macklowe is trying to conspire with other creditors to put Swig into involuntary bankruptcy, which requires three unrelated creditors to join together.

Swig also noted that Macklowe’s attorney, Stephen Meister — a partner at Meister, Seelig and Fein — is representing his Sheffield partners, Levy and Hoyda, who have accused him of embezzling millions of dollars at the building.

In addition, he alleged in court papers that the

Macklowes understood that he was negotiating a deal to restructure his finances, and agreed they would not use the loan to force a bankruptcy filing.

Meister did not return calls for comment, but said in court papers that Swig never told Macklowe about any bankruptcy risk, nor did he ever make such a filing.

“There is no statement by Mr. Swig that at any time in the two years since the demand was served did he say to Mr. or Mrs. Macklowe, ‘you know, I’m going to have to file for bankruptcy, this will throw me over the edge,’ or words to that effect,” Meister told Justice Ellen Coin in a September court hearing.

Y. David Scharf, a partner at Morrison Cohen, declined comment.

But one of Swig’s investment partners, who asked not to be identified, predicted that Swig will be able to weather this storm and pay back the money he owes to creditors.

“He reminds me of Bill Clinton,” said the investor. “He’s able to compartmentalize all the real crap going on around him.”