Are developers playing "chicken" with the market?

David Goldsmith

All Powerful Moderator
Staff member
Bjarke Ingels’ The XI Temporarily On Hold In Chelsea

YIMBY’s Turkey Week update of stalled projects continues with The XI, a twisting pair of 26- and 36-story residential structures at 76 Eleventh Avenue in Chelsea. Designed by Danish architect Bjarke Ingels of Bjarke Ingels Group and developed by HFZ Capital Group, façade installation work appears to be on hold for the moment at the site, which is located on the western side of the High Line. Among the tallest buildings to rise along the Hudson River, the 908,250-square-foot two-tower design will yield 236 condominiums and a 137-room Six Senses Hotel Resort Spa, the brand’s first location in the United States. YIMBY last reported that Omnibuild is in charge of the construction and Douglas Elliman is handling sales and marketing.
The XI’s leaning, twisting profiles make a profound impact on the waterfront skyline. Though not nearly as tall as the structures in Related Companies’ multi-acre Hudson Yards complex, the development still carves out a distinctive presence among a neighborhood full of projects from high-profile architects including Norman Foster, Zaha Hadid, Frank Gehry, and Jean Nouvel. The following photograph best illustrates this comparison.

Work on the exterior of the taller of the two superstructures has progressed the furthest, with most of the envelope facing the Hudson River and toward Lower Manhattan complete.

The development will yield 236 homes, with 87 units designed by Gilles & Boissier and 149 residences fitted with interiors by Gabellini Sheppard. Prices range between $2,575,000 to $14,500,000.
No revised construction timetable or completion date has been announced.

David Goldsmith

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Aby Rosen accuses Chinese partner of “power grab” after condo loan default
China Vanke acquired interest in $360M loan in backdoor deal, lawsuit alleges

First came the condo market slowdown. Then came the pandemic. And now, Aby Rosen’s luxury development at 100 East 53rd Street is in crisis because of an improper “backdoor deal.”
The partner, Vanke US, “orchestrated an irreconcilable and grossly improper conflict of interest” that put it “on both sides of the borrower-lender relationship without RFR’s consent,” Rosen’s firm alleges in a lawsuit filed last Friday in New York County Supreme Court, Crain’s reported.

Vanke now has a $115 million interest in a defaulted $360 million loan on the project, which the Industrial and Commercial Bank of China originally provided in 2015. The Chinese developer now has the right to foreclose or make other decisions about the fate of the property while also having insider access to RFR’s plans — making it “a mole for the lenders,” the lawsuit claims.

Dan Perry of Milbank, the law firm representing Vanke US in the suit, said in a statement that his client believes “the lawsuit is without merit.”
“Vanke believes the facts will show that it has consistently taken action to protect the value of the project, whereas RFR has elected to put its own interests ahead of the partnership’s interests,” the statement continues. “Purchasing a subordinate position in the debt was an option of last resort that it believed was necessary to protect its significant equity interest in the project, eliminate the risk of a near-term foreclosure and stabilize the partnership.”

Perry added that Vanke had given RFR the opportunity to purchase a proportionate interest in the debt as well.

RFR had selected Vanke to partner with it on the 63-story, 94-unit development in 2014, “in large part” due to the company’s “sales and marketing channels overseas” which would help attract buyers from China, the lawsuit states.

The group’s high hopes for tapping the Chinese market did not pan out, as capital controls soon put a damper on demand for luxury properties. The loan went into default upon maturity this May.
A few months before the default, according to the suit, Vanke offered to buy 25 of the least expensive condo units for about $75 million, to help pay down the loan and make it possible to get an extension. RFR rejected this as a “self-serving” move that made “no economic sense,” as it would be “saddled with only the most expensive and hardest-to-sell units” in the midst of the pandemic.

RFR notes in the suit that as China’s largest bank and one of its largest residential property developers, respectively, ICBC and Vanke had a longstanding relationship that enabled them to execute this “power grab” — in violation of contractual terms that gave RFR the exclusive right to deal with the lender.
According to prior reports, RFR’s other partners on the development include Hines and China Cinda Asset Management. Those partners are not mentioned in the present lawsuit, and their involvement is unclear.

David Goldsmith

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HFZ loses stake in national warehouse portfolio
Lender Monroe Capital foreclosed on developer’s equity stake in 12M sf of buildings

Ziel Feldman’s HFZ Capital Group relinquished its interest in more than 10 million square feet of warehouse space across the country — the first major loss for the company as it struggles with a number of troubled investments.
The Manhattan-based development firm lost its equity stake in a portfolio of 12 last-mile distribution centers it co-owned with Westchester investor Reich Brothers in a UCC foreclosure auction on Wednesday.

HFZ’s lender, Monroe Capital in Chicago, credit bid the amount it was owed on the $126 million loan to take control of HFZ’s equity interest.
A representative for Monroe Capital confirmed the results of the UCC auction and declined to comment further. A spokesperson for HFZ declined to comment.
Cushman & Wakefield handled marketing for the auction.

HFZ had teamed up with Reich Brothers in 2018 to form a joint-venture partnership that has since invested in 11.7 million square feet of warehouse space in Upstate New York, Illinois, Florida, Wisconsin, Ohio, Oregon, Tennessee, Oklahoma and Arizona.
Over the summer, though, HFZ ran into trouble when it failed to make debt-service and quarterly amortization payments totaling about $25 million. Monroe Capital sued in August to collect the loan, which Feldman and his wife had personally guaranteed, but then decided to move forward with the foreclosure action.

It’s the first major loss for HFZ, which is also fending off a similar UCC foreclosure on a portfolio of pre-war Manhattan buildings the company is converting to condominiums. CIM Group earlier this year scheduled a UCC auction for HFZ’s stake in four properties the Los Angeles-based firm holds junior mezzanine loans with a balance of $89.5 million: 88-90 Lexington Avenue, The Astor at 235 West 75th Street, and Fifty Third and Eighth at 301 West 53rd Street.

HFZ sued last month to halt the auction, and the judge in the case granted a temporary injunction.
The company recently laid off a large number of employees in its construction management division. And Feldman last month put his personal home on the Upper East Side up for sale with an asking price of $39 million.

David Goldsmith

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Macklowe taps Compass to sell 1 Wall Street
Condo conversion has a $1.7B projected sellout

Developer Harry Macklowe is shaking up the sales team at 1 Wall Street ahead of the condo project’s official sales launch.
Macklowe Properties has tapped Compass to replace Core Real Estate to sell units at the Financial District tower, according to sources.

As one of the largest office-to-residential conversions in New York history, 1 Wall Street is slated to have 566 units with a projected sellout of $1.7 billion, according to an offering plan approved in 2018.
Core, which is part-owned by the Related Companies and Midtown Equities, did not immediately comment. The boutique firm, run by Shaun Osher, had been involved in planning at 1 Wall Street since the pre-development phase.
In a statement, Macklowe thanked Osher and Core for being “tireless advocates” of 1 Wall Street.

“Over five years ago, we engaged Core to undertake the pre-development phase of this project and they were instrumental in helping us craft” the building’s amenities, floor plans, pricing, marketing and design, the developer said in a statement. The work “was validated by our very successful global outreach to pre-sell the building.”

Sources said Core sold about 10 percent of the building to Asian buyers, but selected a larger firm to sell the rest of the project. Harry Macklowe and Elizabeth “Libba” Stribing, who sold her eponymous firm to Compass in 2019, have a relationship dating back decades.

Macklowe Properties purchased the 51-story Art Deco tower for $585 million in 2014. After a series of delays, the developer nabbed a $750 million construction loan in 2018 from Deutsche Bank to convert the building to condos with retail at the base. Macklowe’s partner is Qatari billionaire and former prime minister Sheikh Hamad Bin Jassim Bin Jaber al-Thani (HBJ).

While low inventory and demand for suburban living has bolstered the national housing market, the opposite is true in New York City. Manhattan new development sales plunged nearly 40 percent during the third quarter, according to Miller Samuel, while supply surged 73.8 percent. The average marketing time — 267 days — is now at its highest point in more than eight years.

Developers have rejiggered marketing strategies accordingly, with broker swaps and discounts.
Unlike Macklowe’s 432 Park Avenue, 1 Wall is billed as more affordable luxury, with prices around $2,500 to $3,000 per square foot. There is a 13,000-square-foot penthouse, however, which has not yet been priced. The building is currently under construction.

David Goldsmith

All Powerful Moderator
Staff member

All Year faces foreclosure on part of Bushwick apartment complex​

An affiliate of Mack Real Estate plans to sell off the interests of the collateral of a $65M mezzanine loan

Brooklyn developer Yoel Goldman can’t seem to catch a break.
In the past two weeks, Israeli authorities imposed a fine on Goldman’s company All Year Management for providing misleading financial information, and the firm paused its payments to bondholders.

Now, a lender is seeking to foreclose on part of All Year’s trophy asset: The Denizen, a luxury rental complex in Bushwick. An affiliate of Mack Real Estate plans to sell the interests of the collateral of a $65 million mezzanine loan. The collateral consists of the second phase of the 900-unit apartment complex, according to marketing materials reviewed by The Real Deal.

Mack Real Estate Group is planning to sell the interests through a UCC foreclosure sale, set to take place on Feb. 5. The lender tapped JLL to lead marketing.
If the sale goes through, Mack Real Estate or a new investor would take control of the second phase of the residential project. The new owner would still be on the hook for the senior loan payments.

Neither All Year Management nor Mack Real Estate immediately returned requests for comment.
In recent years, All Year has become one of the more prominent landlords in gentrifying Brooklyn neighborhoods by taking advantage of cheap financing on the Israeli bond market. Its portfolio includes 1,198 multifamily units and 184,179 square feet of commercial space, with properties in Bushwick, Williamsburg and Bedford-Stuyvesant.

Denizen is the company’s largest asset. All Year purchased the two sites that make up the complex — 54 Noll Street and 123 Melrose Street — in 2015 and 2016 for $68.5 million and $72.2 million, respectively. The first phase, at Noll Street, opened earlier this year.
In June 2019, the firm scored $235 million in financing from JPMorgan and Mack Real Estate Group for the second phase of the project.

The company was previously in talks to secure $652 million from Citi Real Estate Group and Goldman Sachs that would largely be used to refinance the Bushwick apartment complex. That deal has not yet closed.
Goldman’s firm has struggled during the pandemic. All Year announced in November that it would be “temporarily halting” payments to bondholders for 30 days, and would be delaying the release of its third-quarter financials.

The company also recently disclosed that it had missed payments on two loans since this summer. This included a $35 million preferred equity investment for a Gowanus development site on Smith Street, and the $65 million mezzanine loan for Denizen.

David Goldsmith

All Powerful Moderator
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Big spike in New Delopment contracts signed this week.

This week's New Development Report from Sotheby's Kevin Brown Team.


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David Goldsmith

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Rising UCC foreclosures are “the tip of the iceberg”​

Mezz lenders are gunning for distressed developments as defaults increase

Churchill Real Estate’s Justin Ehrlich has seen a lot during his time as a developer and lender in New York. He witnessed the collapse of the real estate market during the 2008 financial crisis, followed by the mad rush to build luxury condo towers in some of Manhattan’s swankiest neighborhoods.
But nothing compares to the past nine months, he said. “It’s not normal,” Ehrlich noted. “It’s the worst I’ve ever seen.”

He pointed to an unusual rise in Uniform Commercial Code foreclosures by mezzanine lenders, which he sees as a canary in the coal mine for a mound of distress expected to hit the market in the next year. While judicial foreclosures are still banned under an emergency order by New York Gov. Andrew Cuomo, UCC foreclosures on some high-stakes projects have been moving ahead in recent months since they can bypass state courts.
With one of the roughest years on record coming to a close, many have been waiting for their moment to jump on distressed properties. Now, mezz lenders — which provide junior debt on real estate projects — are increasingly initiating UCC foreclosures on some major developments in need of “rescue funding.”
In August, for example, SL Green Realty filed a UCC foreclosure tied to a high-end retail property on Fifth Avenue owned by Joe Sitt’s Thor Equities. And most recently, CIM Group has been battling it out in court with Ziel Feldman’s HFZ Capital Group to auction off loans tied to several of the developer’s Manhattan condo projects.
Matthew Mannion, who specializes in UCC foreclosures, has conducted at least eight auctions tied to mezz loans or so-called membership interests since March, according to an affidavit filed last month. And Mannion told The Real Deal that more are on the way.
“This is the tip of the iceberg,” he noted.
The uptick in cases presents an opportunity for deep-pocketed lenders like SL Green and CIM that may soon be able to expand their portfolios by taking over projects on the cheap.
Representatives for SL Green and CIM declined to comment.
“Many of the players in the mezz space are not afraid to own the asset,” said Janice Mac Avoy, co-head of Fried Frank’s real estate litigation practice.
Mezzing around
After the last recession, banks pumped the brakes on highly leveraged real estate deals, forcing many developers to look elsewhere for funding. Mezz debt became one of the go-to financing sources to help fill the gaps.
It also has its drawbacks.
Mezz lenders are often among the last to get paid back on a project. So when things go south, their positions can easily get wiped out.
But mezz lenders have a trump card in UCC foreclosures. They are often processed within two to three months, much quicker than traditional foreclosures, which can carry on for years.
By initiating a UCC foreclosure, a mezz lender has a chance to take over a struggling project or sell its stake in the property. In such cases, the junior lender has a huge advantage. It can place a “credit bid” on the property using the existing debt it is owed from the borrower. This allows mezz lenders to acquire assets at a lower cost than if they bought the property outright.
“Mezz lenders are much more aggressive because they are in a riskier position,” said Neil Shapiro, a partner at the law firm Herrick, Feinstein.
Yet UCC mezzanine foreclosures can be trickier than traditional mortgage foreclosures. Rather than being secured by the property, a mezz loan is converted to an equity interest in the business. So if the junior lender succeeds in a foreclose, it becomes the property’s primary owner and must make payments on the senior debt.
But Mac Avoy said banks and other senior lenders are often more apt to work with subordinate lenders — which usually have no prior history of default — than troubled borrowers. “Lenders aren’t thrilled doing business with someone who isn’t able to pay them back,” she noted.
When considering a foreclosure, mezz lenders have to decide if the project is worth more than its debt. If not, the mezz lender can try to sell its loan or work with the borrower on restructuring the loan terms.
“I am seeing the beginning of a lot of lenders saying, ‘We can’t do nothing,’” said Jay Neveloff, a commercial real estate lawyer and partner at New York-based Kramer Levin Naftalis & Frankel.
Lenders are getting especially antsy with borrowers who have been behind on payments for some time.
Such is the case with Mack Real Estate Group, which is seeking to foreclose on the second phase of the Denizen — All Year Management’s luxury apartment complex in Bushwick. Yoel Goldman’s Brooklyn-based firm was unable to close on a $652 million refinancing for the 900-unit rental complex and has halted payments to its bond investors in Israel.
Representatives for All Year and Mack did not respond to requests for comment.
Courtroom drama
In New York’s high-flying real estate market, nothing comes easy.
So as more lenders seek to foreclose on assets, more borrowers are filing lawsuits to stop them.
In one of the most high-profile cases so far, Los Angeles-based developer and lender CIM sought to foreclose on mezz positions on four of HFZ’s Manhattan condo projects.
The day before the planned auction last month, HFZ filed a lawsuit seeking to stop the sale, arguing that it was “commercially unreasonable.” The developer claimed that CIM’s two-month auction notice was indefensible and called the foreclosure effort a “predatory attempt to capitalize on the Covid-19 pandemic.” The judge ruled in HFZ’s favor and halted the auction for the time being.
Wonder Works Construction made similar claims in a lawsuit against New York-based mezz lender Nahla Capital. The lender sought to foreclose Wonder Works’ Upper East Side condo development Vitre, noted for its shiny glass façade. Nahla hired a team of JLL brokers to market the loan back in October.
But a judge denied Wonder Works’ lawsuit, noting that the firm had been in default on its loan payments since January. The auction went ahead this month, and Nahla won a credit bid on the property to essentially become the owner.
Representatives for Wonder Works did not respond to a request for comment.
Generally speaking, Neveloff said, borrowers usually file lawsuits to “buy time” to negotiate on payments. In at least one case, this has proved to be a successful strategy.
In May, Beverly Hills-based Ohana Real Estate Investors sought to foreclose on the five-star Mark Hotel on the Upper East Side and sell the hotel through auction. Alexico Group, the hotel’s owner, filed a lawsuit, which led to a judge delaying the sale for 30 days. That bought Alexico time, and the two parties were eventually able to reach a settlement, which increased the principal and interest rate on the mezz debt, Bloomberg reported.
Ohana and Alexico declined to comment.
The lawsuits can delay a sale, but ultimately a developer has to find money to pay its lenders. If not, Mac Avoy said, it will be similar to what occurred in the last crisis.
“It’s the musical chairs … of different ownership,” she noted

David Goldsmith

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Contract volume dropped almost 50% since last week.

This week's New Development Report from Sotheby's Kevin Brown Team.


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David Goldsmith

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How HFZ became the face of Manhattan’s condo woes​

One of New York's most prominent developers is battling on several fronts

“What’s the latest?” read the text that popped up on Nir Meir’s phone one Thursday afternoon in July. “Running out of time.”
The message to the HFZ Capital Group managing principal was from Adam Gibbons, an executive at CIM Group. The lender was awaiting an overdue payment on $90 million of mezzanine debt it holds on four prewar Manhattan apartment buildings HFZ is converting to condominiums.

“On it,” Meir wrote back. “2 min.”

Four hours later, a reference number popped up on Gibbons’ phone. It seemed the $2.3 million HFZ owed had been wired.
But there was one issue: The reference number, according to CIM, was fake.
The lender informed HFZ it was in default.
“Just saw the notices … not good,” Meir replied minutes later. “Please call me. Please call me.”

The texts are now evidence in a legal battle as HFZ — the prolific developer Meir launched 15 years ago with co-founder and chair Ziel Feldman — fights CIM’s efforts to foreclose on the debt. A source close to Meir, who abruptly left HFZ in December, dismissed the allegation about the reference number as “frivolous and fake.”

That dispute is just part of the reckoning that HFZ is facing across its multibillion-dollar portfolio after making a series of big bets right before the market turned.
Many developers saddled with unsold units in a sluggish market are in a tight spot. HFZ, however, may be the first big Manhattan developer in the Covid era at risk of losing it all. Its investors and lenders have sued to collect more than $300 million, liens from contractors and vendors are piling up, and at the firm’s flagship project — the Bjarke Ingels–designed XI condo and hotel spanning a full city block along the High Line — sales are slow and construction has stalled. Feldman and his wife, Helene, are personally on the hook for many of the loans tied to these projects.

A spokesperson for HFZ acknowledged the developer was facing challenges, adding, “It is how a company reacts and rebounds from adversity that defines its reputation.” As Feldman runs the company day to day in light of Meir’s exit, HFZ has hired outside advisers to help restructure its debt, the spokesperson added.

To its defenders, HFZ is simply a victim of forces outside its control. And there’s a line of reasoning that with builders everywhere in the same boat, one of the market’s biggest players going under would be to no one’s benefit.
“I’m not sure it’s great for anybody to have a big flameout like that, including the lenders,” said Thomas Kearns, a lawyer with Olshan Frome Wolosky. “I think there’s a lot of other distress going on that people are working on quietly, behind the scenes.”

The eleventh hour
Construction should be buzzing at the XI, the pair of dancing towers in West Chelsea where HFZ hopes to sell more than $2 billion worth of condos.
But by early December, work at the development site was suspended. The fate of one of the city’s most anticipated and scrutinized projects now hangs in the balance.

HFZ paid Edison Properties about $870 million for the West Chelsea parcel at 518 West 18th Street in 2014. Back then, the luxury condo market was on fire, with projects like Macklowe Properties and CIM Group’s 432 Park Avenue and Rudin Management’s Greenwich Lane scoring big-ticket deals with foreign and domestic buyers. Still, HFZ’s acquisition, for an astonishing $1,100 per square foot, immediately drew skeptics.

Feldman dismissed them. “What we believe we got is something that’s extraordinarily well priced for the total package,” he said in an interview with The Real Deal in 2015.
Two years later, HFZ scored a $1.25 billion condo construction loan from the Children’s Investment Fund, a U.K.–based hedge fund with a reputation for high-interest financing. It was the one of the largest debt packages of the cycle.

But now, with the principal on the loan coming due in a year and signs pointing to HFZ not being able to pay it, Children’s is looking for a developer to replace HFZ on the project, according to two people familiar with the matter. The lender has already held talks with at least one prominent New York developer about getting the project over the line, the people added. (The lender would need to file a foreclosure action or get HFZ to agree to work with another developer, according to a lawyer with experience in this area.) Children’s declined to comment.

“The project currently has a number of challenges and needs to be recapitalized and restructured,” an HFZ spokesperson said. “Those efforts are ongoing.”
Children’s could have plenty of reasons for wanting another developer.
Filings with the state attorney general’s office show that as of April, just 38 units, or about 16 percent of the 236 condos, were in contract. Douglas Elliman, which handles sales at the project, has tried, unsuccessfully, to sell units in bulk at a discount. (Elliman is a subsidiary of Howard Lorber’s Vector Group, which through its investment arm New Valley has a stake in the XI.)

The project was recently embroiled in a mob scandal in which members of the Gambino crime family allegedly bought off an HFZ executive so they could skim hundreds of thousands of dollars from it and other Manhattan projects. (Neither Feldman nor Meir was implicated; the executive pleaded not guilty, and the case is ongoing.)

HFZ has also been accused of intermingling funds at the XI.
In October, USIS, a technology systems installer, sued HFZ and the project’s general contractor, Omnibuild, claiming that it was owed $1.7 million on an $8 million bill for electrical work at the XI.
According to USIS, Feldman and Meir intermingled the XI’s funds with their own in order to “hide behind [the] owner and manipulate its assets and liabilities to avoid responsibility” for paying the subcontractor. The project’s status as a limited liability company, USIS alleged, is a “fiction.” (The company dropped the suit two days later.)

HFZ’s spokesperson said the firm would “address legal challenges in court filings through its able legal counsel, not in the press.”
With Meir out, it will likely be Feldman leading the discussions with contractors and lenders. HFZ and Meir appear to have differing accounts of the breakup. A spokesperson for Meir put the exit down to “differences of opinion about the future direction of the business,” adding that Meir “remains committed to helping the company resolve outstanding issues surrounding its current projects.”

A spokesperson for HFZ, meanwhile, said only that Meir “is no longer with HFZ nor authorized to act on its behalf in any capacity.”
Yin and yang
Before HFZ — an acronym for Helene, Feldman and Ziel — there was PMG.
Three of the most prolific condo developers in New York got their start together at Property Markets Group, which Feldman, a Queens-born former real estate lawyer, co-founded with banker Kevin Maloney in 1991. (Gary Barnett, an ex-diamond trader, joined a few years later.)

“We had a little tiny office with no heat and Home Depot card tables for desks,” Maloney has said of that period. “We were just guys cobbling deals together, begging and borrowing to try to get deals closed.”

The partners started with a pair of rental buildings on 64th Street near Central Park and spent the next decade-plus buying multifamily buildings.
Meir, a former intern at now-defunct residential brokerage Prudential/MLBKaye, worked with them at PMG. After Barnett split from the group to focus on his own firm, Extell Development, and Maloney started to shift his attention to South Florida, Feldman and Meir broke off to launch HFZ in 2005.

When HFZ bought the Belnord from Barnett in 2015 for $575 million, it was Feldman’s second bite into the fabled Upper West Side luxury rental building. He had been part of an investment group that had paid just $15 million for the property in 1994.
This time around, Feldman hoped to convert the units into condos designed by Robert A.M. Stern and to sell them for $1.35 billion. HFZ scored a redevelopment loan from Westbrook Partners. In 2018, Westbrook converted that debt position into equity. By then, 95 of the 215 units were being converted to condos. Soon after, the partners landed a $300 million refinancing from Wells Fargo.

At HFZ, Feldman and Meir had a good cop/bad cop dynamic, according to multiple people who know them. Feldman is soft-spoken and measured, and practices transcendental meditation. Meir has been described as aggressive — even by New York developer standards.
Their roles played to those traits. Feldman spent more of his time on high-level talks and deals and was removed from the nitty-gritty aspects of development. According to an affidavit from HFZ’s lawsuit against CIM, Feldman said it was Meir who kept him informed about loan modification talks with CIM. He added that he “instructed Meir” to try to achieve a reasonable result.

Sharks circling
In November, HFZ sued CIM in a bid to stop foreclosure proceedings on the portfolio where CIM had provided about $90 million in mezzanine debt.
HFZ had purchased the four-building parcel, totaling nearly 750 rental units, from Westbrook Partners in 2013 for $610 million. The plan was to convert the buildings — 88-90 Lexington, the Astor at 235 West 75th Street and 301 West 53rd Street — to condos. In December, a judge halted the foreclosure sale. CIM, which did not respond to a request for comment, can still go forward with another foreclosure sale if it meets certain conditions.

HFZ is also sparring with Barry Sternlicht’s Starwood Capital Group, which in October claimed in a lawsuit that the firm owes $157 million on loan payments tied to its Chatsworth project. HFZ is converting the century-old rental building at 344 West 72nd Street into family-sized luxury co-op units.
Just as CIM alleged that Meir lied about sending payments, Starwood alleges the HFZ principal claimed to have sent two separate wire transfers to fund overdue payments that never materialized. HFZ declined to comment on those allegations. Starwood also declined to comment.
Even in a hot sector, HFZ’s luck has gone cold.

This month, HFZ lost a portfolio of 12 last-mile warehouse properties in a UCC foreclosure auction. HFZ’s lender, Chicago-based Monroe Capital, took control of HFZ’s stake in the portfolio, which spans more than 10 million square feet nationwide.
Paradoxically, distress in the condo market could work in HFZ’s favor.
Andy Gerringer, who runs new business development at the Marketing Directors, said lenders are not enthusiastic about having hulking, empty condos on their books, and many are actively working with distressed developers to find solutions. The pandemic has become a convenient excuse, he added, which is “keeping everybody in a standoff right now.”
Road to redemption
All New York developers worth their salt have at least one comeback in them. Depending on how you count, Harry Macklowe and Ian Bruce Eichner are on their third or fourth. And then there’s Donald Trump.
Last downturn, it was HFZ that was swooping in to rescue troubled projects.
In 2012, the company teamed with Related Companies and CIM to take control of One Madison Park, a 600-foot-tall, 53-unit condo project in the Flatiron District. The original developers, Marc Jacobs and Ira Shapiro, were buried by debt and lawsuits, and HFZ and its partners inherited a nearly complete but stalled tower. The deal paid off handsomely: In 2014, News Corporation chair Rupert Murdoch paid a whopping $57 million for a triplex penthouse. Feldman once bragged to TRD that he had the fortitude to move forward at a time of immense uncertainty.
“I was one of the only ones buying in 2009 … when nobody else was buying and they were hunkering under their pillows wondering when the world was going to end,” he said, referring to an acquisition spree in the thick of the Great Recession.
Now, it is HFZ in the crosshairs. The company has limited options for restructuring. A corporate bankruptcy would force it to open its books and disclose all of its business dealings and creditors.
“You are subjecting your financial life to the scrutiny of all sorts of different things,” said Andrew Ittleman, an attorney at the Miami-based law firm Fuerst Ittleman David & Joseph who focuses on white-collar crime and money laundering, commenting generally and not about HFZ.
With allegations of intermingling of funds, HFZ might be reluctant to declare bankruptcy. Moreover, the Brazilian mining giant Vale alleges that Israeli diamond magnate Beny Steinmetz illegally stashed money in 13 HFZ projects. (HFZ has maintained it has “no involvement” with Steinmetz or his companies.)
Bankruptcy could also force Feldman to relinquish control of the company.
“If your principal lenders have lost confidence or trust in current management, it is not a place where current management wants to take the company and still try to retain control,” said Tom Lehman, an attorney with Miami-based LKLSG, speaking broadly about bankruptcy proceedings.
HFZ has tried to keep a lid on certain information getting out. In two court cases, the company persuaded judges to seal documents, claiming they contained sensitive business information.
At the XI, HFZ was mostly silent on sales activity, a common tactic among developers as they are not legally required to publish contract information. Still, word spread that deals were slow. And with construction stalled, it’s unclear when buyers will be able to move in.
Ian Schrager, who partnered with HFZ on his Public Hotel and condo project on the Lower East Side at 215 Chrystie Street, said Feldman and Meir are just victims of the market and the pandemic.
“Anybody who’s in the middle of developing something — particularly condominiums, which is a timing business in the best of circumstances — is just caught in that,” he said. “It’s just unfortunate that [Feldman] got caught in this perfect storm of the pandemic and being very long on condominium development.”
“I wouldn’t bet against Ziel,” Schrager added. “He’s a smart guy.”
Some still think the XI could come out the other side with no serious wounds.
“I think people have short memories on this stuff,” said Kearns. “Particularly if it’s a spectacular location.”
There appear to be two possible outcomes for Feldman: Suffer huge losses and take the reputational hit for biting off more than he could chew, or turn things around and emerge as one of real estate’s great survival stories.
As it scrambles to stabilize its business, HFZ is desperately trying to stem expenses and cut deals with lenders. Last month, the company did a round of layoffs, with many of the cuts happening on the construction team and in the corporate office.
And HFZ’s proverbial chickens may be coming home to roost.
In October, Feldman sold his 22-room, chateau-style mansion in Englewood, New Jersey, after nine years on the market. The $7 million sale price was a far cry from the $20 million the 18,500-square-foot mansion was asking at one point, and didn’t even cover the $13 million Feldman reportedly spent to buy and overhaul the property.
Last month, Feldman listed his personal triplex penthouse at the Marquand, an HFZ project on the Upper East Side, for $39 million. He also owns a palatial waterfront home in the Hamptons on Dune Road.
Meir’s own Hamptons mansion is just five miles down the beach.

David Goldsmith

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“Leaning” Seaport condo facing foreclosure on $120M loan​

Bank Leumi USA was unable to sell loans privately

The lender behind a troubled condominium building in the South Street Seaport is seeking to foreclose on more than $100 million worth of loans tied to the property and strip the developer of ownership.
Bank Leumi USA wants to foreclose on $120 million in loans it issued to developer Fortis Property Group to construct a 60-story luxury residence at 161 Maiden Lane.

The bank first tried selling the debt in October, claiming Fortis defaulted on its loan payments in June. But without a buyer, Leumi wants the government to sell the building, “so as to obtain the greatest return of the sale, whether sold jointly as a single parcel or sold separately as two or more parcels,” the lender said in a complaint filed last week in New York State Supreme Court.

Leumi claims that $99.9 million of its $120 million credit line has been extended through mortgages, notes, credit agreements and loan agreements. The residential tower remains unfinished, and the lender argued that because Fortis could not get a temporary certificate of occupancy, it has been unable to sell the remaining apartments.
Fortis sued its lenders in October, alleging that the construction loan fell $30 million short of its full amount, and that the group of lenders, led by Bank Leumi USA, had not funded the loan since March 2019. The developer also said the lenders were required to provide funding in the event of budgetary issues or construction delays.

Representatives for Fortis and Bank Leumi USA did not immediately return a request for comment.
A potential sale of the property would strip Fortis of its ownership of the building, and could mark the final chapter in the property’s long and troubled history.
A construction worker fell to his death while working on the project in 2017, for which a subcontractor pleaded guilty to manslaughter. After a crane operator sent a concrete bucket smashing into the 34th floor the following year, concrete poured onto the street below.

And in 2019, Fortis and contractor Pizzarotti traded suits over the building’s misalignment three inches to the north, which caused it to lean.

David Goldsmith

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Lender schedules foreclosure auction at HFZ’s Nomad site​

Ziel Feldman's firm is facing trouble across its portfolio

HFZ Capital Group is in danger of losing another project in its embattled development portfolio.
Ziel Feldman’s firm is facing foreclosure on the mezzanine position at a NoMad development site where it plans to build a 600,000-square-foot office tower, according to a notice scheduling the UCC auction reviewed by The Real Deal.

The mezzanine lender on the site, the Vanbarton Group, has scheduled a UCC foreclosure auction for late March.
Representatives for HFZ and Vanbarton Group did not immediately respond to requests for comment. Eastdil Secured, which is handling marketing for the auction, did not immediately respond to a request for comment.

Vanbarton made a $90.9 million mezzanine loan to HFZ for the property, according to the auction’s offering memo.
HFZ’s site consists of eight parcels on the block between Fifth Avenue and Broadway between 29th and 30th Street, with another under contract. With additional air rights and a bonus for a public plaza, the assemblage has a total of 617,167 square feet of development rights.

HFZ enlisted architect Bjarke Ingels to design a modern office skyscraper for the site, but the company is facing significant financial troubles as it tries to hold on to other properties.
Earlier this month, the company got a last-minute reprieve when a Manhattan judge called off a similar UCC foreclosure auction on HFZ’s stake in a portfolio of four prewar apartment buildings it is converting into residential condominiums. The mezzanine lender there, CIM Group, still has the option of scheduling a new auction, provided it meets certain conditions.

Also in December, HFZ lost its stake in a 12 million-square-foot portfolio of national warehouse properties to foreclosure.
And the company’s marquee project, the XI development on the High Line in West Chelsea, has dealt with slow sales, a construction stoppage and a mob scandal. Neither Feldman nor HFZ’s former managing principal, Nir Meir, were indicted in the scandal.

Meir recently left the firm, and Feldman took over day-to-day responsibilities.

David Goldsmith

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Listings like this one:

David Goldsmith

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HFZ is behind on $160M in payments at the XI: lender​

Lawsuit could be a precursor to more aggressive action by TCI

In the ever-escalating drama engulfing one of New York’s most prominent condo developers, HFZ Capital Group is now facing a lawsuit from the lender on its biggest project.
The Children’s Investment Fund, a hedge fund that provided a $1.25 billion loan for the XI hotel and condo development at 518 West 18th Street in 2017, filed a motion in New York’s state Supreme Court Tuesday seeking a summary judgment and payment of $160 million.

According to the lawsuit, HFZ and its chairman, Ziel Feldman, guaranteed two mezzanine loans of $655 million and $100 million on the Chelsea development but failed to pay the required monthly interest payments between April and November last year, which TCI said triggered a default.
The lender claims HFZ and Feldman are now on the hook for the outstanding interest payments — about $160 million — along with other costs. TCI said in the suit that it does not expect HFZ and Feldman to meet their monthly interest obligations.

A spokesperson for HFZ said in a statement that the firm was “aware of the recent filing and takes Talos’s concerns seriously,” referring to a subsidiary of TCI, Talos Capital.
HFZ recently hired William Henrich, a turnaround specialist from Getzler Henrich, to restructure the company’s debts . Henrich, who is co-chair of Getzler Henrich, is now serving as HFZ’s interim chief operating officer, the HFZ spokesperson said. A representative for Henrich declined to comment on the XI loan.
The lawsuit could be a precursor to more aggressive action on TCI’s part. As a mezzanine lender, it could initiate a UCC foreclosure action if HFZ is in default, which would allow it to take over HFZ’s ownership stake in the $2 billion development.

In December, HFZ lost its equity stake in an industrial portfolio through a UCC foreclosure auction. That same month, it successfully stopped a UCC foreclosure sale on four mezzanine positions tied to its condo projects in Manhattan.
The company has been hit with a number of lawsuits from contractors and lenders over nonpayment this year. In October, Starwood Property Trust filed a lawsuit claiming HFZ owed the company $157 million on past-due loans.

HFZ is dealing with internal tumult as well. Nir Meir, a managing principal of the firm, left the company in December, prompting Feldman to take over day-to-day operations. The month prior, HFZ laid off and furloughed a number of staff, mainly from the construction side of its business.

John Walkup

Talking Manhattan on
How much of this is symptomatic of the current new dev space in general? Or is it just an HFZ thing?

John Walkup

Talking Manhattan on
New dev seems to be doing ok. Nowhere near peak levels, but demand is well above the minimal levels seen last year. Have to think the recent equity market moves will pique interest in diverting some cash to real assets, especially if it's 'house money'.

David Goldsmith

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Letter shows Zeckendorf eyeing takeover of HFZ’s High Line project
Developer is reportedly putting together an analysis on completing the XI

The Zeckendorf brothers are mulling a takeover of HFZ Capital Group’s struggling $2 billion XI development in West Chelsea.
HFZ said in a December letter to subcontractors that it was in the process of working with Zeckendorf Development and Suffolk Construction on a “a detailed analysis of what work is left to finish for this project,” Crain’s reported.
“You are hereby directed by ownership to fully cooperate and provide any documentation and information to Zeckendorf Development and Suffolk Construction and any of their consultants to achieve this goal,” read the letter, “as well as make yourself available for any meetings as may be required.”

A representative for HFZ, however, denied it was in talks with Zeckendorf.
“There are no such ongoing conversations with HFZ,” Interim Chief Operating Officer William Henrich told Crain’s.

The Bjarke Ingels-designed project is the largest for Ziel Feldman’s HFZ, which is struggling to maintain control of its portfolio as lenders move to foreclose on various properties. Its lender on the XI, the Children’s Investment Fund, this week filed a complaint alleging HFZ was behind on $160 million in payments. The hedge fund provided the developer with a $1.25 billion loan for the project — a 236-unit condo and 137-key hotel — in 2017.

The stress has taken its toll on the firm. HFZ last year laid off about 30 employees and managing partner Nir Meir recently abruptly left the company.
Feldman recently sold his Hamptons home for $50 million, and is looking to sell his Upper East Side penthouse.