New York’s Arel Capital not making any friends in Houston
Two lawsuits allege developer cut corners, neglected properties
New York-based Arel Capital is taking heat over allegations of shoddy renovations, neglect and cockroach infestations at two of its Houston properties.
Arel is no stranger to the courts in New York but the company is also embroiled in litigation in the Bayou City.
Arel mostly buys midsized multifamily properties in the United States’ top 20 real estate markets in the $20 million to $150 million range and then renovates and repositions them, but it also invests in other developers’ projects. It’s a co-developer of the Robert M. Stern-designed condo development at 1228 Madison Avenue on Manhattan’s Upper East Side, and took minority stakes in several New York City projects helmed by troubled developer HFZ Capital, which led to a lawsuit when the latter imploded last year.
But Arel has come under fire from condo buyers and apartment tenants in at least two of the company’s Houston properties —The River Oaks at 3433 Westheimer and Heights 2121 at 2100 Tannehill Drive. Two lawsuits from residents outline complaints ranging from negligence to fraudulent trade practices. Arel didn’t return calls for comment.
In one suit, filed on May 26 this year by The River Oaks Condominium Association, owners at the 16-story, 80-unit building claimed Arel falsely marketed it as a “luxury condominium community,” when its renovation was allegedly shoddy.
The association claims that Arel and its contractor G.T. Leach Constructors, who the association is also suing, cut corners during its remodel of the 1960s-era building and its three-story parking garage.
The allegations of shoddy work gain credibility from a legal dispute between Arel and the contractor from 2018, when The River Oaks was near completion.
G.T. Leach sued Arel in Harris County Court for breach of contract claiming it was stiffed on at least $5.1 million from the $60.2 million price agreed on to remodel The River Oaks, according to the Houston Business Journal.
Arel countersued G.T. Leach in federal court, claiming that the $60.2 million figure was the maximum amount it agreed to pay to the contractor and that, in fact, G.T. Leach actually owed Arel $2 million for missing deadlines — a figure that would further increase if G.T. Leach did not finish the work.
G.T. Leach then filed a lien against The River Oaks for $3.4 million because Arel had made some payments for work completed since its initial suit was filed.
Arel managing partner Richard Leibovitch said the cost to renovate The River Oaks exceeded $120 million, according to the Business Journal.
During the renovation, condo owners expressed their concerns to Arel about the quality of the work, and in 2019, when control of the building’s condo association was transferred from Arel to the owners, it hired Nelson Forensics, a third-party engineering consultancy, to review the construction issues.
Nelson Forensics found that units had significant development, construction, and design errors related to their balconies and hot water systems along with the building’s south terrace and parking garage. G.T. Leach did not return calls for comment.
The condo association is requesting a jury trial and damages resulting from the shoddy work, as well as punitive damages from Arel for its allegedly fraudulent marketing.
At Heights 2121, an apartment complex seven miles north of The River Oaks, the financial stakes for Arel are much lower, but the company nonetheless refuses to settle with a tenant there who is suing in small claims court.
“A contractor told me Arel would rather spend $5,000 than settle for $200,” said Tonya Grubbs, who is taking Arel to court for not adequately handling a cockroach infestation in her apartment.
Soon after moving into a one-bedroom apartment at Heights 2121 in September 2021, Grubbs said she noticed a cockroach infestation that eventually got so bad that she had to eat meals in her car and could no longer work at home.
She showed The Real Deal photos and videos of roaches crawling throughout her apartment, and also of areas in the complex where garbage was left strewn about.
Grubbs said she reached out to Eric Lagdameo, Arel’s head of Sun Belt acquisitions, who told her that RPM Living, the property manager at Heights 2121, would look into it. Grubbs claims she pleaded with RPM Living to deal with the roaches and the company hired exterminators, but the infestation remained.
Another Heights 2121 tenant whom TRD spoke with — and who also has a roach problem — corroborated Grubbs’s assessment of Arel and RPM Living but declined to be identified for fear of reprisal from both companies.
“When you go to the building’s management office to complain about anything – if they are even there or bother to answer the phone – they tell you there are more important issues to deal with and that you will have to wait,” the tenant said.
Grubbs eventually left her Heights 2121 apartment and is now seeking $20,000 from Arel, the maximum she can get in small claims court in Harris County. Arel’s Houston-based attorney Bob Bone declined to comment.
“It’s kind of funny that they (Arel) bought the apartments (Heights 2121) for the same amount that Richard (Leibovitch) sold his condo for,” Grubbs said, referring to the Arel co-founder’s $33 million sale of his unit at 220 Central Park South on Manhattan’s Billionaires’ Row. “But that’s NYC real estate.”