After an 18-month court battle, a New York judge has given an investor group the green light to move forward with foreclosure on two boutique-style Manhattan hotels with more than $300 million in unpaid debt and fees.
The move, one of the largest Manhattan foreclosure rulings in years, is a sign that real-estate battles that started during the depths of the downturn now are moving into their end games.
New York State Supreme Court Judge Joan Madden earlier this month ruled that a venture that bought the debt at a discount—which includes Rockpoint Group, Atlas Capital Group and Procaccianti Group—may foreclose on the Flatotel and Alex Hotel. The two modern hotels are located in Midtown and have 272 and 203 rooms, respectively.
The ruling marks the latest setback for the hotels’ owners, Simon Elias and Izak Senbahar of Alexico Group, who were rising stars in the New York property world during the previous decade’s boom. They also have struggled with co-op apartment sales at the Mark Hotel, their prize conversion project on Manhattan’s Upper East Side.
Messrs. Elias and Senbahar and their attorney didn’t respond to requests for comment. They also owe the creditor group more than $25 million in personal guarantees, according to court documents.
Unless the Alexico principals appeal the decision and find a judge to halt the foreclosure proceedings, they are expected to lose the Alex and Flatotel before the end of the year, say people familiar with the matter.
Messrs. Elias and Senbahar have developed luxury-condo buildings and lavish hotels that attracted an upscale, international crowd. They have worked with renown designers like David Rockwell, famous architects like Herzog & de Meuron and popular restaurateurs like Jean-Georges Vongerichten.
The primary lender on their New York properties was Anglo Irish Bank, which was nationalized in 2009 after posting large losses. Since then, the Irish bank has dumped many of its troubled U.S. assets, enabling the investor group to swoop in and buy the debt on Flatotel and Alex Hotel at a discount.
Alexico defaulted on the hotels in 2009, when New York was struggling to emerge from the downturn. But, like many other commercial-property owners in similar situations, they were able to delay their creditors in court.
Judge Madden in 2011 turned over control of the hotels to a receiver after she ruled that the developers failed to pay the hotels’ mortgage payments or real-estate taxes for about two years. The hotel owners had transferred $3.4 million from hotel funds to affiliated properties and to themselves in management fees, according to last year’s ruling.
The ruling stated that Messrs. Elias and Senbahar didn’t deny that they defaulted under written agreements, but they argued that an oral agreement with the original creditor, Anglo Irish Bank, allowed them to transfer money to the Mark Hotel and other Alexico properties. In an affidavit, an Anglo Irish official denied this was true, and the judge rejected the hotel owners’ argument.
It wasn’t clear whether the investor group would sell or manage the hotels if it takes control in a foreclosure action. The market for hotels has been hot lately. Last year, there was a record $3.5 billion in Manhattan lodging deals, according to Jones Lang LaSalle.
Alexico acquired the Mark Hotel a few years ago and spent $200 million renovating and converting many of the rooms to co-ops. The developer initially planned to sell 42 units as co-ops but reduced the number to 10 after sluggish demand. Only two units have sold, property records show.
Dune Real Estate Partners last year acquired the debt for the Mark and now has a preferred equity position in the property, according to a person familiar with the matter.
By CRAIG KARMIN [VIA WSJ]