Isaac Hager’s Cornell Realty is desperately seeking to keep the Tillary Hotel out of its lenders’ hands.
Hager put the Downtown Brooklyn hotel along with a Williamsburg hotel site into bankruptcy in 2020 to halt a foreclosure by its mezzanine lender, Eli Tabak’s Bluestone Group. But now it’s worried about its senior lender, Ohana Real Estate, which entered the fray in January by buying debt on the hotel from Madison Realty Capital.
Cornell is asking a judge to bar Ohana from an August bankruptcy sale. Bidding for the Tillary, which is operating as a homeless shelter, starts at $94 million.
Hager accuses Ohana of employing a loan-to-own strategy to seize control of the hotel through a credit bid, which uses existing debt on the property in place of cash. Ohana’s chief investment officer, Franco Famularo, said there was “nothing nefarious” about its loan purchase.
Tabak’s group is also fighting to disqualify Ohana. It filed its own case against the lender, claiming Ohana violated an agreement between the senior lender and the mezzanine lender.
The case is among dozens that Brooklyn property entities steered into federal bankruptcy judge Robert Drain’s White Plains courthouse. Drain was thought to be debtor-friendly, but he retired Thursday and assigned the case to Judge Sean Lane.
The Tillary Hotel litigation sheds light on the distress facing Hager, a Brooklyn dealmaker who survived lawsuits and foreclosures after the Great Recession to become one of the most active developers in Brooklyn and Queens. He could now lose two key pieces of his real estate portfolio.
Hager partnered with his friend Lipa Rubin, who made his money as a fishmonger, in September 2019 to purchase the Tillary, a 174-room hotel and 64-unit apartment building at 85 Flatbush Avenue Extension. The next year, the pandemic hit and the hotel was converted into a shelter for homeless men, whose lack of Covid precautions triggered complaints from residents of the apartments above.
“I had no idea what I was getting myself into,” Rubin told The New York Post.
Read more
Commercial
New York
Isaac Hager’s Downtown Brooklyn hotel heads to foreclosure
In August 2020, Tabak, who held a $6 million mezzanine loan on the property, filed a UCC foreclosure. Prior to the planned October auction, Hager put the hotel into bankruptcy. His wrath is now mostly focused on Ohana.
Hager alleges that last year Ohana indicated a desire to become a partner in the property with DivcoWest. He even gave Ohana’s Famularo a tour of the hotel and additional information about the site. Hager now alleges Famularo’s interest was a ruse to stop a pending sale of the property and take it over.
But Famularo has a different recollection. He said he toured the hotel and apartment building, but Hager did not appear to know anything about it or its finances.
“Mr. Hager’s lack of knowledge of the property and his inability to answer basic questions was highly concerning,” Famularo said. “It caused an immediate loss of confidence.”
The Ohana partner came away with the impression that Hager was more concerned with protecting his own interests than those of his creditors.
Famularo also disputed an appraisal presented by Hager’s legal team. The appraisal, by BBG Real Estate Services, valued the property at $72 million, much lower than Ohana’s planned credit bid.
“I find it very confusing that the appraiser claims the highest and best use for the 9-year-old property is a homeless shelter, only to then say that such a plan would cause 24 additional months of operating at 100 percent vacancy and would result in $48 million of lost value,” Famularo said.
Tabak, for his part, alleges Ohana’s bid should be thrown out because it violated a so-called intercreditor agreement that governs the relationship between a senior and mezzanine lender. Ohana disputes that.
The firm, which claims $3.8 billion in hotel and resort investments, is asking the bankruptcy court to allow its credit bid at the auction, which would position it to take control of the property. If Ohana’s request is denied, Hager would have a better chance of keeping it.
Hager has submitted his own plan to the bankruptcy court. It says Daryl Hagler of Centers Health Care would inject $96.8 million to fund Hager’s plan and pay off all the debt. Ohana calls that a fiction.
“The idea there is another competing plan is fanciful,” Ohana’s lawyers wrote in a court filing.
Hager is also facing a bankruptcy sale on a 26-story hotel and residential tower site at 159 Broadway in Williamsburg. Bids on the site, marketed by Rosewood Realty Group, start at $28 million.
Hager is the grandson of the late Rabbi Mordechai Hager, the longtime leader of the Viznitz Hasidic sect. Isaac, also known as “Itzy,” started the real estate firm North Development Group in the mid 2000s and began partnering with Chaim Lax, the founder of diamond trading and real estate company Dynamic Diamonds.
Hager, Tabak and Ohana did not return requests for comment.