Cornell Realty Management’s Isaac Hager is back in bankruptcy court — this time over his minority stake in a Midtown building that has been trying to keep out of foreclosure.
An entity through which Hager owns a 15 percent stake in Churchill Real Estate’s Penn Plaza building at 257-263 West 34th Street filed for Chapter 11 bankruptcy in Brooklyn on Wednesday. PincusCo first reported the filing.
FIA Capital Partners’ David Goldwasser, a bankruptcy specialist who has earned a reputation for steering New York City developers to a Westchester County bankruptcy court, is listed as the chief restructuring officer. Goldwasser had the same role when Hager put Downtown Brooklyn’s Tillary Hotel into bankruptcy two years ago.
Hager has put about $7.5 million into the Churchill project, according to the bankruptcy filing, which states that the building is empty because of Covid but “has a potential value equal to or in excess of mortgage debt of approximately $52 million.”
None of the other investors in the property is filing for bankruptcy, Churchill’s attorney Robert Tolchin told The Real Deal.
Churchill has had difficulty securing tenants for the building, in part because of the pandemic and crime in the surrounding area. Both 7-Eleven and Merck backed out of potential lease following muggings and stabbings nearby. Workers for one of the two companies that did rent space, Kolb Radiology, were attacked outside the property while making a delivery. (Bloomberg reported last week that perception of crime in the city has raced ahead of reality.)
Churchill says it has spent about $90 million on the office and retail building since 2016. However, after Churchill received a temporary certificate of occupancy in 2019 and with the project nearing completion, the pandemic walloped office and retail leasing in New York.
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Churchill tapped Avison Young in 2020 to help find potential occupants for the building. The firm filled 40 percent of its assigned square footage, but it wasn’t enough for Churchill to make its monthly payments.
After Churchill missed its monthly payment in April 2021, the building’s senior lender declared its loan in default and began charging default interest two months later. Marathon Asset Management provided Churchill with $52 million across three loans in 2019 to refinance debt on the project and finish construction.
Marathon filed to foreclose on the debt in state court last September. Churchill argued at the time that Marathon could not sue for foreclosure because the Cayman Islands shell company it used to hold the debt was not registered to do business in New York.
We all lived through hell, but we can come back.
In response, Marathon said the entity only held loans on this project and didn’t meet the state’s registration requirement. Still, it transferred the loans to a Delaware-based entity in November.
In January a state judge appointed a receiver to take over the property, forcing Churchill to hand over the books, keys and bank accounts attached to it. Marathon’s motions for foreclosure on the loans haven’t been settled and were moved to federal court in March.
Marathon has previously maintained that Churchill owes it almost $56 million, which includes $4.6 million in interest.
Tolchin described Marathon as “vultures” and said that the loan should have been restructured, given the pandemic.
“We all lived through hell, but we can all come back,” the attorney for Churchill said. “We didn’t mismanage the building.”
Hager and his lawyers did not comment before publication.
Hager, a dealmaker who survived lawsuits and foreclosures after the Great Recession to become one of the most active developers in Brooklyn and Queens, is not unfamiliar with bankruptcy and foreclosure.
Hager has been fighting to keep the Tillary Hotel out of lenders’ hands for the better part of two years. He most recently asked a judge to prevent the senior lender, Ohana Real Estate, from moving forward with a bankruptcy sale this month.
Hager partnered with his friend Lipa Rubin in 2019 to purchase the Tillary, a 174-room hotel and 64-unit apartment building at 85 Flatbush Avenue Extension. The hotel was converted into a shelter for homeless men when the pandemic hit.
Hager put the hotel, as well as a 26-story hotel and residential tower at 159 Broadway in Williamsburg, into bankruptcy in 2020 to halt a foreclosure by its mezzanine lender, Eli Tabak’s Bluestone Group. Tabak, who held a $6 million mezzanine loan on the Downtown Brooklyn property, filed a UCC foreclosure in August 2020.
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.