Developer Yitzchak Tessler made a rare public appearance in court on Wednesday to issue a desperate plea — he couldn’t pay his bills.
“I cannot even pay my credit card,” he said.
Tessler suffered another blow in court this week over a bankruptcy case stemming from his languishing luxury condominium project. A motion by the developer, seen puffing on a cigarette during a Zoom hearing, was denied by a bankruptcy court judge, leaving his accounts frozen.
It is not that Tessler, the developer behind the 72-unit luxury condominium at 172 Madison Avenue, doesn’t have the money — he testified he has roughly $6 to $7 million across his accounts.
But at the moment, he does not have access to that money after his bank accounts were frozen earlier this month. The developer and his wife, Tamar, were served with restraining notices from an entity overseen by Jack Terzi of the real estate developer and brokerage JTRE, to which he owes over $3.7 million.
Intertwined cases
The account freeze has added an unexpected twist to the bankruptcy proceedings for the unsold units at 172 Madison.
While the bankruptcy has plodded along in federal court, Tessler has faced a separate lawsuit in state court filed by an entity tied to Terzi, who had planned to purchase some of Tessler’s debt on the property from Deutsche Bank several years ago. Tessler asked for Terzi to hold off on buying the debt and agreed to reimburse Terzi the $3.5 million deposit he had made with Deutsche Bank.
A state court judge entered a judgement in Terzi’s favor last year and he has since ratcheted up his repayment efforts — which Tessler’s lawyer in the bankruptcy case argued is in violation of the stay provided by bankruptcy court and puts at risk the reorganization efforts of Madison 33 Owner, the entity that owns the unsold units.
During the hearing on Wednesday, Tessler made the argument himself that he was invaluable to the project. “To get in my office, it takes a key,” he said. “To get into my head, it takes two years.”
Tessler’s personal lawyer, Eric Stern, also claimed that Tessler was facing “irreparable harm” in a filing in state court, writing that the account freeze prevented Tessler “from meeting essential financial obligations such as mortgage payments, utilities, and daily living expenses.”
However, the bankruptcy court judge, Phillip Bentley, did not buy those arguments, noting that Tessler’s “grasp of specifics was quite limited” when under cross-examination about details on the development project.
“Mr. Tessler made a number of claims about his importance that frankly struck me as bordering on the grandiose,” he said. “His inability to answer questions on cross-examination on facts that anybody who’s running the bankruptcy or who’s acting as the point person for the debtor in the bankruptcy was striking.”
He also said that Tessler gave no evidence that the $6 million to $7 million in his accounts are encumbered in any way.
It initially appeared that Bentley would not have the chance to rule when the two parties announced a settlement agreement at the start of the hearing. But a dispute over the proposed pay schedule of the settlement money, which only arose when Horn read the proposed payment dates aloud, scuttled the deal after off-camera negotiations ended in an impasse.
“We literally reached a settlement a minute before we got on this hearing,” Horn told the judge. “Trying to get all these things together in a minute is challenging.”
Following the ruling, Tessler’s bankruptcy lawyer, Jonathan Pasternak, told The Real Deal that he expects “to consummate a settlement shortly.”
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The larger picture
The quibbling over almost $4 million pales in comparison to the larger bankruptcy proceedings, which are currently in mediation.
The bankruptcy was initiated after distressed debt investor ArcPe began foreclosure proceedings to try and recoup nearly $63 million in debt from a mortgage it purchased in January from Deutsche Bank.
Tessler has valued the unsold units — consisting of five finished units, five unfinished penthouse units and two commercial units — at over $100 million. In February, he filed a motion to obtain debtor-in-possession financing of $22 million, which he claimed would allow for the completion of the penthouse units and the marketing of the remaining unsold units.
A hearing will be held in April on that motion.
In the hearing Wednesday, Tessler expressed his desire to resume sales at the building. “I am ready to go,” he said.