When the Chetrit Group was hit with a foreclosure filing on its Jamaica, Queens, project, its lender painted a less than sympathetic picture of the borrower.
Chetrit had racked up eight counts of default, according to the suit, and after months of discussions with its lender, failed to come to new terms to right the matured $225 million loan.
This week, principal Joe Chetrit laid out his side of the story, filing counterclaims alleging the lender “sabotaged” the Parkhill City project. Coupled with the foreclosure suit, Chetrit’s filing offers a window into the workout process.
The scene: Chetrit relied on a verbal contract that its loan servicer refused to honor, according to the counterclaims.
In June 2021, Chetrit tapped Starwood Mortgage Capital and the Bank of Montreal for a $225 million loan. The developer put up two completed multifamily buildings — 152-13 89th Avenue and 152-09 88th Avenue — as collateral. A development site at 88-20 153rd Street was also tied to the debt, according to loan documents.
The loan was later securitized. Midland Loan Services assumed the role of servicer, Chetrit claims, and the bondholders became the lender that would eventually foreclose through special servicer CWCapital Asset Management.
Under the loan terms, Chetrit had to build a 421-a eligible project. The 88th Avenue building had already nabbed a 15-year version of the tax abatement, but Chetrit had to lock down a 35-year abatement for the 89th Avenue building, completed in 2019, and eventually, the 153rd Street project.
The mortgage also allowed Chetrit to convert 89th Avenue and 153rd Street to condominiums that would be eligible for the 2016 version of 421a, Affordable New York.
The conditions were a win for Chetrit. The tax abatement would slash expenses at 153rd Street by $2 million each year and retroactively save it $8 million in taxes, according to the counterclaims.
The 153rd Street site had a lien on the mortgage, one the lender would release if Chetrit met a number of conditions, one of them being the condo conversion. So long as the lien sat on the site, Chetrit could not begin construction on 153rd Street, according to the suit filed by CWCapital.
Chetrit had to get the condo project approved to release the lien to start building.
In June 2021, a year before that version of 421a would expire, Chetrit entered talks with its then-lender Starwood and claims two of the firm’s executives made a “clear and unambiguous promise” Chetrit was “permitted to commence construction on the 153rd Street property.”
That is, before it had nabbed the condo approval or had the lien released.
Chetrit took the executives at their word. It nabbed a $40 million loan from GW Capital Partners the same month and pulled $8 million from its own pocket to excavate and build a foundation by December 2021, the counterclaims detail.
The work should have made it a shoo-in for 421a. To meet the deadline, developers only had to sink foundation footings into the ground before June 15, 2022. Chetrit claims it completed the required condominium conversion in time, and the other conditions needed to release the property’s lien.
The next month Midland took over as master servicer and tacked on new conditions for the developer to meet before releasing the lien, Chetrit claims. The developer alleged those additions were made in “bad faith to ensure the release of the 153rd Street property would be impossible and create irreparable damage to the project.”
While Chetrit claims it met those requirements by September, Midland in October said some boxes had not been checked.
Meanwhile, CWCapital, which would ultimately take over servicing, claims Chetrit had already defaulted on the loan twice by September: It had completed the condo conversion without meeting associated requirements in the loan and it had started construction before the lien was released.
The lender sent a notice of default in late September 2022, CWCapital’s suit claims.
By Chetrit’s telling, its servicer never objected to it starting construction.
The developer would quit paying debt service in January 2023, its loan would transfer to special servicer CWCapital the next month, and it would ultimately fail to pay off the loan when it matured in September of that year, racking up additional defaults, according to the foreclosure suit.
In October 2023, the parties came to the table to discuss a modification of the floating-rate loan, according to Chetrit. Chetrit alleges Midland agreed to release the lien on 153rd Street and waive the conditions it claimed Chetrit had not met.
The catch, Chetrit claims: It wanted an additional $7 million in capital.
The special servicer, in its foreclosure suit, mentions none of the above. It does claim that Chetrit defaulted on the loan eight times over and in late May 2024, two days before filing to foreclose, it sent one last letter, demanding the developer pay up.
Chetrit alleges Midland’s refusal to release the lien destroyed its right to develop 153rd Street or lock down 421a and cost it $60 million in invested capital.
Read more
Commercial
New York
Meyer Chetrit’s lender files $225M foreclosure on Queens apartment complex
Commercial
New York
Chetrit digs 65 Broadway debt out of default
Commercial
National
Chetrits’ struggles with $481M loan was “unmitigated disaster” for tenants: lawsuit
If the developer had been able to wrap the project by the end of 2022, it would have pulled $13 million to $14 million in profits, Chetrit claims.
Chetrit is now asking the court to award it $250 million in damages to make Midland pay for its game of “gotcha.”
Foreclosure, meanwhile, is still on the table.