Developer of trendy Ace, NoMad hotels sues partner

GFI Capital's Allen Gross claims Andrew Zobler undermined his interests in response suit

Longtime New York City real estate investor Allen Gross, president and CEO of GFI Capital Resources, is battling his partner over management of high-profile New York City and California developments such as the Ace Hotel and the NoMad Hotel, through a pair of bitter, tit-for-tat lawsuits.

Gross claims hotel expert Andrew Zobler, CEO of the Sydell Group, joined him six years ago as a “sweat equity” partner but in recent years has “not performed his duties” and has even sought to undermine Gross’ interests in their joint ventures, a lawsuit filed in New York State Supreme Court this past Friday says.

For his part, Zobler, a former CIO for Andre Balazs Properties, claims that Gross was cutting him out of deals, according to a suit he filed in The Same Court, Feb. 24.

Gross is an active hotel developer in the city, who recently partnered to buy 5 Beekman Street in the Financial District to develop a Thompson Hotel. Real estate partnership disputes heated up in general in the downturn,as investors fought over declining assets.

Gross’ suit provides an inside view into some of the challenges the partners have faced at their high-profile projects. For example, at the Ace Hotel, at 20 West 29th Street, city fees, penalties and remediation costs resulting from the Environmental Control Board and Department of Buildings violations have cost it about $600,000. In addition, the hotel has not obtained a permanent certificate of occupancy, making it difficult to refinance even as rates are historically low. In another project, at 144 North 8th Street in Williamsburg, the construction budget ballooned by about $10 million to $49 million, allegedly because of Zobler’s disregard of his duties.

Other projects the men partnered on were the just-opened NoMad Hotel at 1170 Broadway; the office building 470 Vanderbilt Avenue in Fort Greene (where the city inked the largest outer-borough lease deal last year); and the Ace Hotel & Swim Club in Palm Springs, Calif.

The Gross suit also claims that Zobler approached Dune Capital Management, one of GFI’s partners at the Ace Hotel, in December 2011, to buy it, which sources said could create confusion in the marketplace about the financial or management health of the hotel.

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“Zobler has abdicated his management responsibilities to Gross and their companies while pursuing other real estate development opportunities for his own benefit with money and resources belonging to Gross and the companies,” the Gross suit claims.

Zobler, in his suit, blamed troubles on Gross excluding him. “[Gross and his companies] have acted unilaterally to exclude [Zobler] from administering the affairs of the defendant companies,” Zobler’s suit says.

Some real estate professionals, not involved in the litigation, said such a dispute might have been kept private if the economy were in better shape.

“It is a bitter dispute between former partners who had a long-term relationship, and something has gone very sour,” said Stephen Ellman, a partner with the law firm Zeichner Ellman & Krause, who was not involved with the litigation and reviewed the case at the request of The Real Deal. “[The dispute] is potentially more a matter of interpersonal relationships than the market, but the tensions might be disguised if business were great.”

Marc Kasowitz, a partner at law firm Kasowitz Benson Torres & Friedman representing Gross, said “Gross kept up his end of the bargain by putting up the equity. Unfortunately, as the complaint alleges, Mr. Zobler breached his obligations.”

Zobler, his attorney and Dune Capital did not respond to requests for comment.

Gross, in his 35-page complaint, is seeking the dissolution of the six partnerships, as well as a court order blocking Zobler from making decisions as a member of the partnerships. Gross filed on behalf of himself and several of his investment entities against Zobler, his Sydell Group affiliates, and three individual associates. The suit does not lay out a specific amount of damages being sought, but identifies millions of dollars of potential money Zobler owes Gross, including $2.26 million allegedly lend to Zobler between 2006 and 2011 that the suit says has not been paid back.

In 2006, Gross and Zobler set up GFI Development and subsequently five additional companies with Gross providing equity and Zobler providing his expertise and management. To support his claim that he has held up his end of the agreement as the cash investor, Gross says in his complaint that he has put in $38 million in equity and has personal guarantees on $100 million in loans.