Apthorp vote relieves building sponsors of some financial obligations

Legal sources raise concerns about rights of unit owners

From left: Area Property Partners' Richard Mack, the Apthorp and Izzy Cohen of AFI
From left: Area Property Partners' Richard Mack, the Apthorp and Izzy Cohen of AFI

Unit owners at the Apthorp condominium on Manhattan’s Upper West Side voted to approve changes to the building’s bylaws that would relieve the property’s new sponsors of financial obligations, but could strip the condo of some financial protections, sources with knowledge of the property told The Real Deal.

The condo, which was taken over by Area Property Partners in August, approved plans to waive the requirement that lenders assume any “unpaid common charges or special assessments.” The plan is an attempt to help relieve the building’s lenders of the crushing debt incurred by Africa Israel USA.

Area Property Partners, a mezzanine lender at the building, took control over the project after Irish Bank Resolution Corp., the successor to Dublin-based Anglo Irish Bank, sold the senior debt to Australia’s Macquarie Bank Ltd.

The building’s new sponsors, led by Area chairman Richard Mack and Brad Wildauer, head of U.S. Debt Funds, outlined plans to revive the struggling property last Thursday, during a meeting with unit owners at the property, sources told The Real Deal. The meeting was originally scheduled for Oct. 9, when several unit owners arrived to find out that the vote had been delayed.

Unit owners were largely pleased with the plans by the new sponsors, which included completion of a multi-million dollar renovation and a renewed effort to sell units at the building through Corcoran Sunshine Marketing Group.

According to documents obtained by The Real Deal, Macquarie Bank holds a $125 million first mortgage, secured by the unsold units at the building. An affiliate of Area holds a new $60 million senior mezzanine loan. The senior mezzanine debt is now $99.7 million, due in 2016, while the junior mezzanine debt is $62 million, due in 2017.

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Sponsors are required by state law to pay the common charges on unsold units, and the documents show only 50 of the building’s 163 units were sold as of August 10, the date of the 20th amendment of the Apthorp offering plan. According to the amendment, the common charges on unsold units are $247,000 a month, however it remains unclear how much of the common charges were unpaid. The condo collected $1.26 million in common charges from the building sponsor in 2010, but 2011 numbers were not listed in the amendment.

The entire condo board, including Africa Israel USA chairman Tamir Kazaz, AFI president Izzy Cohen and Andrew Ratner, executive vice president of Broadwall Management, a management firm and minority holder at the building, were forced to resign, from the building’s board as part of the restructuring. AFI continued to hold an equity stake in the building, but sources say the AFI stake was deeply subordinated to the debt and that AFI was forced to give up major decision¬–making authority.

The Apthorp, first acquired for $426 million by developer Maurice Mann and Africa Israel in 2007, had a senior mortgage of $385 million, marking one of the most expensive residential deals in U.S. history.

Anglo Irish Bank sold off the majority of its U.S. loan portfolio after the troubled lender was taken over by the Irish government. The Apthorp was considered one the lenders most troubled loans and was the subject of a high profile court battle in 2011, when Africa Israel sued the lender to block the loan sale.

Funds from new condo sales will be applied to the senior loan, followed by the mezzanine loans, which are not backed by the unsold units. While many units owners are pleased that by the efforts of the new lenders, there are concerns that the financial restructuring, which places a strong emphasis on paying off the debt holders, could ultimately shortchange the amount of funds going directly to the condo.

“The Fourth Amendment appears to be an attempt by both the lender of sponsor and current sponsor to give themselves certain additional rights that were not provided for under the original offering plan, including the forgiving of common charges and assessments that may be owed to the condominium,” said an attorney who asked not to be named.

Area officials declined comment, while Africa Israel officials did not return repeated phone calls. Andrew Ratner, executive vice president at Broadwall Management, did not return calls.

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