HSBC Capital to go head-to-head with developer over Bronx condo project

HSBC Capital will face off with developer Michael Waldman this morning, after he filed a $40 million lawsuit to block the sale of a defaulted mezzanine loan at his Bronx condominium project.

Waldman, a boutique developer behind Harlem’s Walden, alleges that HSBC cut off funding for his project at 3210 Riverdale Avenue in the Bronx, and that he has spent more than $7 million of his own funds to nearly complete the property.

Attorney Steven Herzberg, who represents Waldman, said there was a lot of “fraud” and “predatory lending” involved and that the bank dragged its feet on approving construction funds.

“If the purpose of the mezzanine loan was to fund the construction, that’s what our expectation was,” Herzberg told The Real Deal.

According to the March 15 lawsuit, Waldman originally bought the property, which has an alternate address as 3217 Irwin Avenue, for $1.85 million from Outlook Realty in 2005. That same day he got a $1.7 million mortgage from a firm called Rosenthal & Rosenthal.

By January 2007, he refinanced the loan through a CEMA transaction and got a new loan for $3.7 million, then received a $4 million loan in April 2007 from HSBC Real Estate Mezzanine Partners. He paid off his loan with Rosenthal & Rosenthal and got a new loan from Commerce Bank for $11.2 million, and later that month got a $3.7 million in additional funding with an extension of the new loan.

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In November 2007, Waldman got a $5 million extension on the mezzanine loan from HSBC, bringing the loan total to $9 million. He personally guaranteed the loan and pledged his ownership interest in nine other limited liability companies as collateral.

In November 2008, TD Bank, which took over the Commerce Bank loan, granted an extension on that loan, bringing the loan total to $17.9 million. By November 2009, Waldman says in the complaint, HSBC gave him an extension to pay off mechanics liens that were filed by contractors, but they never forwarded the money to him. He claims that HSBC never explained why the funds were not granted, and that the developer defaulted on his senior mortgage as a result.

HSBC, in court filings, said the allegations are “concocted” and not supported by documentation, that the loan was fully funded and that Waldman has been in default for two years, noting that the senior lender has taken control of the property. HSBC added that it allowed Waldman to sell two of his properties, at 370 and 372 West 11th Street and those proceeds were used help pay off his debts, and Waldman was allowed to keep a small amount. The bank says that it gave Waldman a double credit for the sale of 370 West 11th Street, therefore they gave him a $4.3 million credit for a $2.15 million sale.

The bank declined to comment beyond the court filings, through a spokesperson.

“HSBC declines to comment on this active legal matter,” spokesperson Rob Sherman said in a statement.

Unless a temporary restraining order is issued, an auction is scheduled for tomorrow at 11 a.m. at the offices of Riemer & Braunstein, at 7 Times Square in Manhattan.