Breakup: Kuafu Properties looks to dissolve partnership at Hudson Yards project
Petition describes “deadlock” with partners Siras Development and Sean Ludwick, with “many millions” at stake
A partnership between three upcoming developers looking to build a glitzy 47-story hotel and condominium in the Hudson Yards area is now in dire straits. Kuafu Properties, a New York-based Chinese development firm, is looking to cut ties with Sean Ludwick’s Blackhouse Development and Siras Development, a firm founded by Ludwick’s former partners Saif Sumaida and Ashwin Verma.
Kuafu filed a petition Friday to dissolve the partnership in New York State Supreme Court, saying the 380,000-square-foot project, known as Hudson Rise, stands to lose “many millions of dollars,” and that the continued partnership would “cripple” further development. The petition cites Ludwick’s track record of negative publicity and questionable financial judgment, and alleges Siras breached the trio’s partnership agreement by giving an exclusive sales agreement to the brokerage Compass. The result of both, the petition says, is that the partners are trapped in an absolute “deadlock,” with “no hope of reconciliation.”
According to the petition, the developers formed a partnership called Reedrock Kuafu Development Company LLC in November 2013, in order to buy a $115 million development site at the corner of 38th Street and Eleventh Avenue. (Kuafu held a 50 percent stake in the partnership, and Siras and Ludiwck shared the other 50 percent, according to the petition.) According to the petition, they planned to build a new high-rise that would include retail, a luxury hotel and luxury condos with a total sellout of $600 million.
Kuafu CEO Shang Dai said Kuafu would provide “most of the equity” for the project, around $135 million, during an interview with The Real Deal at Kuafu’s office in mid-February.
According to the petition, Reedrock is the site’s developer, although the title is held by an entity dubbed Bifrost Land LLC. In June 2014, Bifrost entered a loan agreement with UBS Real Estate Securities to borrow about $60.9 million — including $44 million that would be drawn at closing — to purchase the property.
The petition states, however, that problems with Ludwick emerged as the developers started raising money for the project.
To date, Bifrost raised more than $96 million for the project, of which Siras and Ludwick contributed only $7.5 million, according to the petition. On top of the low contribution, Kuafu subsequently learned that Ludwick – on behalf of Bifrost – had agreed to pay an “unreasonable and excessive” loan brokerage fee on a potential $20 million loan, the petition states.
Meanwhile, Ludwick’s reputation had become an issue. Last year, he was accused of entering his ex-girlfriend’s apartment and creating lewd drawings on murals he had painted. He pleaded guilty to second-degree harassment, according to the Manhattan district attorney’s office.”
Citing “problematic behavior” by Ludwick, the petition says that terms of the UBS loan prohibit Ludwick from using the name Blackhouse Development in connection with the Hudson Yards project. But, the petition says, Ludwick violated that restriction in press releases.
Finally, in January, Kuafu says it discovered that Siras went behind its back to ink an exclusive sales agreement with Compass, then known as Urban Compass, to sell the hotel and residential condos.
In the petition, Kuafu claims neither Bifrost nor Reedrock approved the agreement. Worse, the agreement with Compass upended the developers’ plan to sell the residential units to investors in China. The proposed tower, according to previous reports, would include 450 hotel rooms, 50 condo units and a membership-only dining club called the Shanghai Club. Condos would be priced between $6 million and $8 million.
“At the very least,” Kuafu argues in the petition, “these issues had to be discussed at any meeting of the company’s managers.”
According to the petition, Kuafu said as much in a Feb. 3 letter sent to Verma. “Unauthorized third-party agreements may cause extensive irreparable harm to Reedrock involving many millions of dollars, and may otherwise cripple the company’s development,” the petition said.
Neither Sumaida, Verma nor Ludwick immediately responded to requests for comment. Sumaida is also a partner at Sumaida + Khurana, the development firm behind the Tadao Ando-designed 152 Elizabeth Street and the new buyer of Gristedes’ corporate headquarters at 823 Eleventh Avenue.
The petition is not the first time the partners sought to distance themselves from Ludwick. In July, Kuafu and Siras issued a press release announcing the acquisition of the Hudson Yards development site, comprising five adjacent parcels at the corner of 38th Street and 11th Avenue.
At the time, a spokesperson for Siras told TRD, “Sean Ludwick is no longer a development partner in the Hudson Yards site. He has no management rights and is not involved in any day-to-day operations of the project.”
Ludwick, who formerly partnered with Sumaida and Verma on the Soori High Line development, was also no longer affiliated with that project, the spokesperson added. He has, however, been active, going into a $40 million contract in September to buy 550-552 West 38th Street, a two-story gentleman’s club adjacent to the Reedrock development site with plans to build a 46-story condo-hotel on the property.
True to the sentiments expressed back then, the petition filed Friday states that the sides “are so divided that it is impossible to obtain the votes required for approval of action by the board of managers.” In fact, it adds, “Reedrock is unable to take necessary action for development of the Property and any other purposes for which the Company was formed.”