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Hidrock: Lender Attempted to Exploit Pandemic by Rigging Foreclosure on Midtown Hotel Project

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In a new lawsuit filed last Thursday in the New York City real estate world, Hidrock Properties (owned by Abraham Hidary) has leveled accusations of exploiting social distancing rules that were implemented to curb the spread of the Coronavirus pandemic against Henry Silverman’s 54 Madison Partners.

The wording of the complaint says that 54 Madison which is a mezzanine lender on a Midtown hotel development, according to a Real Deal report was directly involved in an “improper and  shameless attempt to capitalize on the Covid-19 pandemic.” The suit went on to say that the company’s objective was to take over the project at 12 East 48th Street, which is the site where the future Hilton Grand Vacation Club will be erected.

In spite of the fact that all public gatherings had been banned in New York City because of the dangers of the COVID-19 deadly infection, the suit alleges that 54 Madison announced a public auction of the company that operates the property at the MetLife Building on Friday, May 1. The auction was not conducted through Zoom or any kind of video conferencing but rather required in-person attendance.

The complaint states: “In its transparent effort to deter public interest” in the entity, 1248 Mezz LLC, 54 Madison “has told all potential buyers that the only way to bid … is either to risk their own well-being and flout the legal restrictions … or at most try to use an electronic system that provides no real substitute.”

According to the Real Deal report, a court order has stopped the sale, at least on a temporary basis.

In 2016, Hidrock Properties garnered construction financing for the hotel in the amount of $100.5 million from Midland National Life Insurance. It also acquired from 54 Madison $23.2 million in mezzanine debt, as was reported by the Real Deal. The lawsuit also alleges that in April of 2019, 54 Madison came up with $7 million more in junior mezzanine debt.

The Real Deal reported that the new debt mandated that the hotel project be “substantially” completed by the end of 2019. Hidrock Properties concedes that the project was 80 percent built by December 31, however the parties involved in the project faced disagreements on whether 80 percent was sufficient according to the original agreement.

The Real Deal reports that in the first months of 2020, negotiations on the furtherance of the hotel project took place between Hidrock and Apollo Commercial Real Estate to refinance the property. The report indicates that  54 Madison were an active participant in these negotiation talks. The lawsuit then alleges that because of the cessation of regular business dealings due to the emergence of the sweeping pandemic, on March 17th Apollo Real Estate postponed negotiations.

Towards the end of March, it was reported that the developer learned that 54 Madison was planning to sell the site that the hotel was to be built on, as was reported by the Real Deal An advertisement pertaining to the sale that appeared on April 17th did not make note of an option to participate in the auction remotely, however, a remote option was included in the “terms of the sale.”

Hidrock Properties has also alleged that 54 Madison is creating a  “farce that it is conducting a public sale while intentionally closing off public access,” as was reported by the Real Deal. The suit argues that the pandemic would add undue complications concerning due diligence and financing, even if it were possible that someone could show up in person to the auction. It added that  the right to reject any auction bids was within the purview of 54 Madison.

The suit also alleges, according to the Real Deal that an employee of 54 Madison told the contractor of the project that payments would continue to be made to complete the construction of the hotel after “we take control of the asset.”

54 Madison has been asked to give plausible reasons why it should be allowed to move forward with the sale during the state of emergency that has been imposed in New York City. This inquiry to Silverman’s firm was done via Skype.

One restrictions on construction are lifted, Hidrock Properties has offered a  time estimate of how long it will be before the hotel project is finished. The developer says it would need approximately six months and less than $12 million.

 

 

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