Hidrock Properties isn’t done fighting for its Midtown hotel project, which its mezzanine lender was approved to foreclose on in May.
In a new lawsuit filed Monday, the developer alleges that real estate investment firm 54 Madison Partners’ foreclosure auction, which took place in June, was a “sham.” Hidrock is seeking a judgment to undo the sale and at least $40 million in damages.
“In this supposedly ‘public’ auction there were no third-party bidders because only Defendant, its affiliates, or affiliates of the Senior Lender were Qualified Transferees, which necessarily precluded all third-party bidders from participating,” the filing states.
Hidrock also claims that 54 Madison prevented it from “raising the amount of its bid and participating in the auction, despite having satisfied all the requirements under the terms of sale.”
Hidrock did not respond a request for comment. 54 Madison declined to comment.
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The legal saga surrounding the 161-key project at 12 East 48th Street, which is to become a Hilton Grand Vacation Club, began in April when Hidrock filed a lawsuit against 54 Madison accusing the lender of an “improper and shameless attempt to capitalize on the Covid-19 pandemic.”
Among other things, the developer claimed 54 Madison sought to hold an auction at its attorneys’ law office in Manhattan despite the ban on non-essential gatherings. The lender shot back, accusing Hidrock of using the pandemic to deflect attention from the fact that it had “mismanaged this project for years.”
The judge issued a temporary restraining order at first to prevent the auction from moving forward, but reversed his position in mid-May after finding that the state’s foreclosure ban does not apply to mezzanine loans. He also noted that any possible monetary damages could be remediated after the fact if necessary. Hidrock has appealed that decision as well.
While the ruling opened the door for mezzanine foreclosures to proceed amid the pandemic in general, auctions are still required to be conducted in a “commercially reasonable” manner. Last month, a judge temporarily blocked the mezzanine auction of Alexico Group’s Mark Hotel on those grounds, and directed lender Ohana Real Estate Investors to spend another month marketing the property to a wider pool of bidders.
Contact Kevin Sun at ks@therealdeal.com