Equity Partner Sues Developers of 20 Henry Street

Things have been mighty quiet at 20 Henry Street in Brooklyn Heights since the 38-unit conversion and new construction project was pulled (temporarily, it was reported at the time) off the market. Things behind the scenes have not been as quiet, though. In fact, AIG, which put almost $10 million in equity into the deal, has sued the developers Shelly Listokin, Stan Listokin and David Tropper (all of whom are principals in Urban Realty Partners and developers of The Arches in Cobble Hill) for “breach of their contractual obligations…under agreements relating to the acquisition, construction and development of residential condominiums at 20 Henry Street.” According to the suit filed in New York State Supreme Court on March 19, the developers were contractually obligated to fund any cost overruns beyond the projected construction budget of $12.7 million; when the budget ballooned to over $20 million as the project progressed, the developers failed to make up the difference. Under the terms of their agreement, AIG can, and has, demanded to take over the project and requested that the developers come up with more than $20 million (a number that includes estimates of soft costs and legal costs in addition to hard construction costs) to enable them to do so.

In the suit, AIG also requests that the defendants “take all steps necessary to secure and protect the Property to prevent further deterioration of the Project” and notes that “there is a substantial risk that the improvements to this unique landmark property will physically deteriorate beyond salvage before final judgment is entrested” and that “there is an equal risk that the Project will not be able to be completed in time to qualify for tax exemptions and abatements under New York City’s J-51 tax incentive program, the loss of which jeopardizes the long-term economic viability of the Project.” The developers issued this statement to us through a representative: “We are working to resolve things quickly with AIG, so that we can proceed and see the project completed. It’s a very difficult environment for real estate development all over New York right now.” While a deal’s a deal, both AIG and the lender, Bank of New York, bear some responsibility for the current situation: The two financial institutions allowed the three developers to get away with contributing a mere $1.7 million of equity—or about 4 percent of the deal. It’s not surprising that they don’t feel it’s in their interest to pony up multiples of that amount in a sinking market. The people with money in the deal aren’t the only potential losers in all this: Brooklyn Heights neighbors are the ones who will have to live with a half-finished site for years if the project cannot be salvaged. Disclosure: 20 Henry Street is a former advertiser on Brownstoner.
Update on 20 Henry [Brownstoner] GMAP
Condos in Contract at 20 Henry Street [Brownstoner]
First Pricing Clues at 20 Henry [Brownstoner] DOB
20 Henry Swings Back Into Action [Brownstoner]
From Mints to Condos at 20 Henry Street [Brownstoner]

10 Comment

  • Brooklyn Heights. Land of broken buildings.

  • One of the biggest story today and one comment! I think the retards are in denial.

    The What

    Someday this war is gonna end…

  • I love this building and I loved the look of this development, but they spent too much. And now they’re screwed. I think 20 Henry will work out fine, but I wouldn’t be surprised to see its planned modern, sister building abandoned. I’m sure they got the digger in there to dig up a basement before 12-31-08 to qualify for the J-51 and had no real interest in moving on from there anytime soon. Another empty pit in NYC.

  • Once you’ve commented What, the retards are fully represented.

  • I know nothing of the legal wrangling and other problems with this conversion, but that is an incredible building, one of those ones just screaming out for conversion for reuse. I hope that this can be worked out so the neighborhood does not suffer from the blight of a half finished project in such a key spot.

  • They better hurry up and settle out of court. The market shot clock is winding down.

    ***Bid half off peak comps***

  • One of the most intriguing aspects of this story for me is the construction budget number – $12million. That works out to about $200 psf in aggregate for rehabing the existing bldg (46,000 sf) and constructing the new bldg (14,000 sf). That is so far from a realistic number. Why would an experienced developer use that number and why would AIG and BNY go along with it? Even if the market had continued to move up with end-user pricing covering the additional hard costs required to complete the project why start out at such a low number? What was the developers strategy here – to have the quity partner fill in the blanks? You can’t even build rental product for $200 psf. To think that $200 psf would get you a high-end condo finish is not rational.

    Am I wrong to assume this was not possible from the get go? Anyone out there build high-end condo product as a rehab/new construction for $200 psf?

    The most likely way for this project, like the many others that are in a similar state throughout NYC, to ever be completed is for some other entity to finish the job by first buying out the equity participants at a significant discount. Once completed, this property will most likely have to be placed into service as a rental property until such time the market allows for selling the units as condos or co-ops. Unfortunately for the adjacent neighbors, this could take quite some time to play out. I don’t see developer putting in more cash in this market and I am pretty sure AIG is all out of house money to play with.

  • I can’t believe they evicted me and all the other tenants 6 years ago and the building is still sitting there unoccupied.

  • What until the crackheads and the squatters find out about this place!

  • I wonder if they will still get the price of 4 million for the Penthouse, once they straighten out this miss. I wonder what will happen next? It sounds like the developers need money bad and in this market. they better have cold cash, otherwise AIG will probably take over. All those developers who cannot get additional cash and have already put out cash are screw, maybe renting may work. Anyway that’s my feelngs.