Jeff Sutton Seeks Sanctions Against Lender

Jeff Sutton is going for the jugular in his fight against his lender on a struggling Herald Square property.

The retail titan and head of Wharton Properties fired back against the German bank Helaba after the lender initiated a foreclosure on his property at 27-29 West 34th Street earlier this year.

Sutton’s lawyers, Darren and Terrence Oved of Oved & Oved, are now seeking sanctions and attorney fees from the lender Landesbank Hessen-Thüringen, also known as Helaba, claiming the lender’s move to pursue Sutton was a “transparent, orchestrated attempt to tarnish” his reputation.

Helaba initially provided a $50 million loan in 2018 for the three-story building.

But the lender filed a lawsuit in New York Supreme Court in September, alleging the building owner defaulted and failed to pay over $12 million in real estate taxes to New York City. Sutton was also named as a defendant in the lawsuit because he signed a limited guarantee.

Since then, a New York State Supreme Court judge appointed a temporary receiver for the property.

But Sutton’s lawyers have filed a motion to dismiss and are now leveling allegations against the lender itself. At the crux of Sutton’s new legal filings is his limited personal guarantee, which would only make him liable in instances of fraud or other intentional misrepresentations.

The lender claimed Sutton’s unpaid tax bill put him in default. But by Sutton’s account, the property’s value was decimated by Covid. The property’s valuation, along with others on 34th Street, was slashed. Two of the property’s prior tenants Geox and Aldo entered bankruptcy, further cutting into rental revenue.

Sutton’s legal filings also take aim at the City’s Department of Finance for assessing real estate taxes on the property as though it were bringing in $6.6 million in gross rental income. In actuality, he claims, the rent was about 10 percent of the city’s total, at $680,000.

The property has not received rents anywhere close to the City’s number over the last six years, according to Sutton’s filings.

Sutton claims he eventually entered into an agreement with the city to reduce the amount of taxes owed by millions of dollars.

According to Sutton, the borrower had an “unbroken record of timely principal and interest payments.”

But in April, the lender sent over a notice of default, citing the $12 million unpaid real estate taxes.

Sutton’s filing claims the lender was repeatedly made aware of the outstanding tax liability. That liability was also listed on the Department of Finance’s website for years.

The lender initiated an event of default anyway, according to Sutton, despite the fact that the tax issues were still being adjudicated with the city.

By September, the German lender initiated a foreclosure and named Sutton as a defendant over a limited personal guarantee he signed.

Sutton’s lawyers at Oved & Oved, who have notably gone up and won against sharp-elbowed lenders such as Maverick Real Estate Partners and Rialto Capital, argue that Sutton’s guarantee only applies if the borrower committed fraud or made intentional misrepresentations. They claim Sutton did neither. And all rents from the property have been turned over to the receiver.

“Our motion to fully dismiss plaintiff’s baseless claims and for sanctions for its utter frivolousness puts plaintiff on notice that its misguided actions have caused our clients significant harm — harm we are determined to significantly remedy,” said Terrence and Darren Oved.

Sutton initially acquired the buildings through a joint venture with SL Green in 2006. The $30 million deal included a third adjacent building.

Helaba’s attorney did not return a request for comment.