When South Korea’s Meritz Securities put together a $350 million inventory loan for a Ceruzzi Properties condo tower last February, it seemed the company’s appetite for risk was growing.
The pandemic, which hit New York City a few weeks later, has certainly put risk appetites to the test. For the loan on the Centrale, in Midtown East, caution might have been warranted: A lawsuit alleges the $110 million mezzanine portion is in default.
The state-owned Industrial Bank of Korea, acting as trustee for the investment trust backing the debt, is seeking $40 million in damages.
According to a suit filed in Manhattan Supreme Court, Ceruzzi missed a $2.35 million interest payment in November. Following an acceleration and with default interest, IBK says the total amount owed is now more than $86 million, of which up to $40 million is subject to a payment guarantee.
“To date, no payment has been received and the full balance remains outstanding,” IBK’s lawyers wrote when the suit was filed in late January.
The guarantors of the debt, including executors of Lou Ceruzzi’s estate, downplayed the suit, issuing a statement calling it “a technical matter filed by the lender to preserve its rights as sales were slowed during 2020 due to the pandemic”. The property owner is not involved in the litigation, they noted.
“Recently, we have seen strong demand at the property, improved pricing and many units going under contract and closing,” the statement continued. “The company expects the suit will be resolved in the near future and for project sales to continue to rebound.”
IBK’s motion for summary judgment is set to be heard on April 9. Counsel for the lender did not respond to a request for comment.
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The 72-story, 124-unit luxury condo tower, at 138 East 50th Street between Lexington and Third avenues, was completed in 2019 with a $300 million construction loan from Madison Realty Capital. A duplex penthouse at the property hit the market with an asking price of $40 million that April.
When Ceruzzi closed on the inventory loan last year, it had “put 20 units into hard contract already,” according to a press release.
According to property records, 22 sales totaling $47.5 million have been recorded: six for $17.7 million in May, 11 for $18.6 million over the remainder of 2020, and five for $11.2 million this year.
The projected sellout for the tower is $525 million, an average of $4.2 million per unit, suggesting that the vast majority of sales so far have been for lower-priced units.