How HFZ became the face of Manhattan’s condo woes

One of New York's most prominent developers is battling on several fronts

New York Archive Issue /
Dec.December 17, 2020 09:07 AM

Ziel Feldman (right), Nir Meir and the XI (Illustration by Zach Meyer)

“What’s the latest?” read the text that popped up on Nir Meir’s phone one Thursday afternoon in July. “Running out of time.”

The message to the HFZ Capital Group managing principal was from Adam Gibbons, an executive at CIM Group. The lender was awaiting an overdue payment on $90 million of mezzanine debt it holds on four prewar Manhattan apartment buildings HFZ is converting to condominiums. 

“On it,” Meir wrote back. “2 min.”

Four hours later, a reference number popped up on Gibbons’ phone. It seemed the $2.3 million HFZ owed had been wired.

But there was one issue: The reference number, according to CIM, was fake.

The lender informed HFZ it was in default.

“Just saw the notices … not good,” Meir replied minutes later. “Please call me. Please call me.”

The texts are now evidence in a legal battle as HFZ — the prolific developer Meir launched 15 years ago with co-founder and chair Ziel Feldman — fights CIM’s efforts to foreclose on the debt. A source close to Meir, who abruptly left HFZ in December, dismissed the allegation about the reference number as “frivolous and fake.”

That dispute is just part of the reckoning that HFZ is facing across its multibillion-dollar portfolio after making a series of big bets right before the market turned.

Many developers saddled with unsold units in a sluggish market are in a tight spot. HFZ, however, may be the first big Manhattan developer in the Covid era at risk of losing it all. Its investors and lenders have sued to collect more than $300 million, liens from contractors and vendors are piling up, and at the firm’s flagship project — the Bjarke Ingels–designed XI condo and hotel spanning a full city block along the High Line — sales are slow and construction has stalled. Feldman and his wife, Helene, are personally on the hook for many of the loans tied to these projects. 

A spokesperson for HFZ acknowledged the developer was facing challenges, adding, “It is how a company reacts and rebounds from adversity that defines its reputation.” As Feldman runs the company day to day in light of Meir’s exit, HFZ has hired outside advisers to help restructure its debt, the spokesperson added.

To its defenders, HFZ is simply a victim of forces outside its control. And there’s a line of reasoning that with builders everywhere in the same boat, one of the market’s biggest players going under would be to no one’s benefit.

“I’m not sure it’s great for anybody to have a big flameout like that, including the lenders,” said Thomas Kearns, a lawyer with Olshan Frome Wolosky. “I think there’s a lot of other distress going on that people are working on quietly, behind the scenes.”

The eleventh hour

Construction should be buzzing at the XI, the pair of dancing towers in West Chelsea where HFZ hopes to sell more than $2 billion worth of condos.

But by early December, work at the development site was suspended. The fate of one of the city’s most anticipated and scrutinized projects now hangs in the balance.

HFZ paid Edison Properties about $870 million for the West Chelsea parcel at 518 West 18th Street in 2014. Back then, the luxury condo market was on fire, with projects like Macklowe Properties and CIM Group’s 432 Park Avenue and Rudin Management’s Greenwich Lane scoring big-ticket deals with foreign and domestic buyers. Still, HFZ’s acquisition, for an astonishing $1,100 per square foot, immediately drew skeptics.

Feldman dismissed them. “What we believe we got is something that’s extraordinarily well priced for the total package,” he said in an interview with The Real Deal in 2015.

Two years later, HFZ scored a $1.25 billion condo construction loan from the Children’s Investment Fund, a U.K.–based hedge fund with a reputation for high-interest financing. It was the one of the largest debt packages of the cycle.

But now, with the principal on the loan coming due in a year and signs pointing to HFZ not being able to pay it, Children’s is looking for a developer to replace HFZ on the project, according to two people familiar with the matter. The lender has already held talks with at least one prominent New York developer about getting the project over the line, the people added. (The lender would need to file a foreclosure action or get HFZ to agree to work with another developer, according to a lawyer with experience in this area.) Children’s declined to comment.

“The project currently has a number of challenges and needs to be recapitalized and restructured,” an HFZ spokesperson said. “Those efforts are ongoing.”

Children’s could have plenty of reasons for wanting another developer.

Filings with the state attorney general’s office show that as of April, just 38 units, or about 16 percent of the 236 condos, were in contract. Douglas Elliman, which handles sales at the project, has tried, unsuccessfully, to sell units in bulk at a discount. (Elliman is a subsidiary of Howard Lorber’s Vector Group, which through its investment arm New Valley has a stake in the XI.)

The project was recently embroiled in a mob scandal in which members of the Gambino crime family allegedly bought off an HFZ executive so they could skim hundreds of thousands of dollars from it and other Manhattan projects. (Neither Feldman nor Meir was implicated; the executive pleaded not guilty, and the case is ongoing.)

HFZ has also been accused of intermingling funds at the XI.

In October, USIS, a technology systems installer, sued HFZ and the project’s general contractor, Omnibuild, claiming that it was owed $1.7 million on an $8 million bill for electrical work at the XI.

According to USIS, Feldman and Meir intermingled the XI’s funds with their own in order to “hide behind [the] owner and manipulate its assets and liabilities to avoid responsibility” for paying the subcontractor. The project’s status as a limited liability company, USIS alleged, is a “fiction.” (The company dropped the suit two days later.)

HFZ’s spokesperson said the firm would “address legal challenges in court filings through its able legal counsel, not in the press.”

With Meir out, it will likely be Feldman leading the discussions with contractors and lenders. HFZ and Meir appear to have differing accounts of the breakup. A spokesperson for Meir put the exit down to “differences of opinion about the future direction of the business,” adding that Meir “remains committed to helping the company resolve outstanding issues surrounding its current projects.”

A spokesperson for HFZ, meanwhile, said only that Meir “is no longer with HFZ nor authorized to act on its behalf in any capacity.”

Yin and yang

Before HFZ — an acronym for Helene, Feldman and Ziel — there was PMG.

Three of the most prolific condo developers in New York got their start together at Property Markets Group, which Feldman, a Queens-born former real estate lawyer, co-founded with banker Kevin Maloney in 1991. (Gary Barnett, an ex-diamond trader, joined a few years later.)

From left: Craig Cogut, Helene Feldman, Zeil Feldman, Alicia Goldstein, Es Devlin, Nir Meir and Bjarke Ingels attend the opening of the XI Gallery in April 2018.

“We had a little tiny office with no heat and Home Depot card tables for desks,” Maloney has said of that period. “We were just guys cobbling deals together, begging and borrowing to try to get deals closed.”

The partners started with a pair of rental buildings on 64th Street near Central Park and spent the next decade-plus buying multifamily buildings.

Meir, a former intern at now-defunct residential brokerage Prudential/MLBKaye, worked with them at PMG. After Barnett split from the group to focus on his own firm, Extell Development, and Maloney started to shift his attention to South Florida, Feldman and Meir broke off to launch HFZ in 2005.

When HFZ bought the Belnord from Barnett in 2015 for $575 million, it was Feldman’s second bite into the fabled Upper West Side luxury rental building. He had been part of an investment group that had paid just $15 million for the property in 1994.

This time around, Feldman hoped to convert the units into condos designed by Robert A.M. Stern and to sell them for $1.35 billion. HFZ scored a redevelopment loan from Westbrook Partners. In 2018, Westbrook converted that debt position into equity. By then, 95 of the 215 units were being converted to condos. Soon after, the partners landed a $300 million refinancing from Wells Fargo.

At HFZ, Feldman and Meir had a good cop/bad cop dynamic, according to multiple people who know them. Feldman is soft-spoken and measured, and practices transcendental meditation. Meir has been described as aggressive — even by New York developer standards.

Their roles played to those traits. Feldman spent more of his time on high-level talks and deals and was removed from the nitty-gritty aspects of development. According to an affidavit from HFZ’s lawsuit against CIM, Feldman said it was Meir who kept him informed about loan modification talks with CIM. He added that he “instructed Meir” to try to achieve a reasonable result.

Sharks circling

In November, HFZ sued CIM in a bid to stop foreclosure proceedings on the portfolio where CIM had provided about $90 million in mezzanine debt.

HFZ had purchased the four-building parcel, totaling nearly 750 rental units, from Westbrook Partners in 2013 for $610 million. The plan was to convert the buildings — 88-90 Lexington, the Astor at 235 West 75th Street and 301 West 53rd Street — to condos. In December, a judge halted the foreclosure sale. CIM, which did not respond to a request for comment, can still go forward with another foreclosure sale if it meets certain conditions.   

HFZ is also sparring with Barry Sternlicht’s Starwood Capital Group, which in October claimed in a lawsuit that the firm owes $157 million on loan payments tied to its Chatsworth project. HFZ is converting the century-old rental building at 344 West 72nd Street into family-sized luxury co-op units.

Just as CIM alleged that Meir lied about sending payments, Starwood alleges the HFZ principal claimed to have sent two separate wire transfers to fund overdue payments that never materialized. HFZ declined to comment on those allegations. Starwood also declined to comment.

Even in a hot sector, HFZ’s luck has gone cold.

This month, HFZ lost a portfolio of 12 last-mile warehouse properties in a UCC foreclosure auction. HFZ’s lender, Chicago-based Monroe Capital, took control of HFZ’s stake in the portfolio, which spans more than 10 million square feet nationwide.

Paradoxically, distress in the condo market could work in HFZ’s favor.

Andy Gerringer, who runs new business development at the Marketing Directors, said lenders are not enthusiastic about having hulking, empty condos on their books, and many are actively working with distressed developers to find solutions. The pandemic has become a convenient excuse, he added, which is “keeping everybody in a standoff right now.”

Road to redemption

All New York developers worth their salt have at least one comeback in them. Depending on how you count, Harry Macklowe and Ian Bruce Eichner are on their third or fourth. And then there’s Donald Trump.

Last downturn, it was HFZ that was swooping in to rescue troubled projects.

In 2012, the company teamed with Related Companies and CIM to take control of One Madison Park, a 600-foot-tall, 53-unit condo project in the Flatiron District.  The original developers, Marc Jacobs and Ira Shapiro, were buried by debt and lawsuits, and HFZ and its partners inherited a nearly complete but stalled tower. The deal paid off handsomely: In 2014, News Corporation chair Rupert Murdoch paid a whopping $57 million for a triplex penthouse. Feldman once bragged to TRD that he had the fortitude to move forward at a time of immense uncertainty.

“I was one of the only ones buying in 2009 … when nobody else was buying and they were hunkering under their pillows wondering when the world was going to end,” he said, referring to an acquisition spree in the thick of the Great Recession.

Now, it is HFZ in the crosshairs. The company has limited options for restructuring. A corporate bankruptcy would force it to open its books and disclose all of its business dealings and creditors.

“You are subjecting your financial life to the scrutiny of all sorts of different things,” said Andrew Ittleman, an attorney at the Miami-based law firm Fuerst Ittleman David & Joseph who focuses on white-collar crime and money laundering, commenting generally and not about HFZ.

With allegations of intermingling of funds, HFZ might be reluctant to declare bankruptcy. Moreover, the Brazilian mining giant Vale alleges that Israeli diamond magnate Beny Steinmetz illegally stashed money in 13 HFZ projects. (HFZ has maintained it has “no involvement” with Steinmetz or his companies.)

Bankruptcy could also force Feldman to relinquish control of the company.

“If your principal lenders have lost confidence or trust in current management, it is not a place where current management wants to take the company and still try to retain control,” said Tom Lehman, an attorney with Miami-based LKLSG, speaking broadly about bankruptcy proceedings.

HFZ has tried to keep a lid on certain information getting out. In two court cases, the company persuaded judges to seal documents, claiming they contained sensitive business information.

At the XI, HFZ was mostly silent on sales activity, a common tactic among developers as they are not legally required to publish contract information. Still, word spread that deals were slow. And with construction stalled, it’s unclear when buyers will be able to move in.

Ian Schrager, who partnered with HFZ on his Public Hotel and condo project on the Lower East Side at 215 Chrystie Street, said Feldman and Meir are just victims of the market and the pandemic.

“Anybody who’s in the middle of developing something — particularly condominiums, which is a timing business in the best of circumstances — is just caught in that,” he said. “It’s just unfortunate that [Feldman] got caught in this perfect storm of the pandemic and being very long on condominium development.”

“I wouldn’t bet against Ziel,” Schrager added. “He’s a smart guy.”

Some still think the XI could come out the other side with no serious wounds.

“I think people have short memories on this stuff,” said Kearns. “Particularly if it’s a spectacular location.”

There appear to be two possible outcomes for Feldman: Suffer huge losses and take the reputational hit for biting off more than he could chew, or turn things around and emerge as one of real estate’s great survival stories.

As it scrambles to stabilize its business, HFZ is desperately trying to stem expenses and cut deals with lenders. Last month, the company did a round of layoffs, with many of the cuts happening on the construction team and in the corporate office. 

And HFZ’s proverbial chickens may be coming home to roost.

In October, Feldman sold his 22-room, chateau-style mansion in Englewood, New Jersey, after nine years on the market. The $7 million sale price was a far cry from the $20 million the 18,500-square-foot mansion was asking at one point, and didn’t even cover the $13 million Feldman reportedly spent to buy and overhaul the property.

Last month, Feldman listed his personal triplex penthouse at the Marquand, an HFZ project on the Upper East Side, for $39 million. He also owns a palatial waterfront home in the Hamptons on Dune Road.

Meir’s own Hamptons mansion is just five miles down the beach.


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