Jack Terzi’s “jewel box” in Soho could be headed to foreclosure.
Wells Fargo, acting as a trustee for commercial mortgage bondholders, is seeking to foreclose on Terzi’s property at 63 Spring Street, alleging Terzi has been in default on an $18.5 million CMBS loan since April 2020.
Terzi, of the real estate developer and brokerage JTRE, purchased the retail property at 63 Spring Street for $15 million in 2014. Terzi referred to the overlooked site on the corner of Lafayette Avenue, then home to a smoke shop, as a “jewel box” within the posh neighborhood.
Terzi brought in new retail tenants, including cupcake shop Baked by Melissa, and landed an anchor in the cosmetics retailer L’Occitane in 2017. The repositioning allowed him to score an $18.5 million refinancing on the property from MUFG Union Bank, over $3 million above his initial purchase price.
By 2019, he told Crain’s that the property was worth “somewhere around $30 million.”
“To me, this is the perfect test case of what you can still do with retail today,” he said at the time.
Then came the pandemic. Soho retailers closed their doors in droves and foot traffic came to a halt. Things got worse when L’Occitane filed for bankruptcy in January 2021, closing 23 stores, including its Soho outpost.
“Any issues at the property were the direct result of the tenant L’Occitane’s January 2021 bankruptcy filing, in which it blamed the Covid-19 pandemic’s effects on the retail sector for its inability to meet its financial obligations to the owner,” said Christopher Milito, who is representing Terzi along with Y. David Scharf of Morrison Cohen.
“Our client is committed to working with its lender in good faith to resolve any issues that arose as a result,” Milito added.
But by the time of L’Occitane’s bankruptcy filing, according to the foreclosure suit, Terzi had already fallen behind on his loan, which was securitized and sold off to bondholders. A notice of default was given in July 2020. The lender sent a notice of acceleration a month later.
The lender alleges it is owed $25.4 million, an amount which includes default interest along with special servicing fees.
Since the onset of the pandemic, borrowers have faced difficulties with CMBS loans. Unlike a traditional mortgage, CMBS loans are often bundled together and sold to bondholders. When things go south, they are put into the hands of a third-party known as a special servicer. Borrowers claim to have a harder time working with a special servicer than a conventional bank.
Terzi, who began his real estate career as a commercial broker, is no stranger to legal disputes. He remains ensnared in litigation surrounding his lease with China Sonangol at 23 Wall Street, the Gilded Age office building across from the New York Stock Exchange that was originally the headquarters of JPMorgan.
A Terzi-affiliated entity said that the building’s owner, China Sonangol, sent a notice of default for unpaid rent due in June and told him to cough up the money by August. But Terzi claims China Sonangol miscalculated the rent.
A native of Gravesend, Brooklyn, Terzi founded JTRE Holdings in 2008.