Tower of Legal Troubles

Tower of Legal Troubles

By JOSH BARBANEL for the Wall St Journal

Ian Bruce Eichner, a developer who has lived through the ups and downs of the real-estate market several times over, bought a dream apartment at a huge discount a few months ago. But now he faces a court battle to keep it.

In January, Mr. Eichner closed on the apartment—a four-bedroom condo with spectacular views that fills the entire 52nd floor of One Madison Park, a glass-walled condominium on East 22nd Street. The price was $5 million, less than half the asking price a few years ago.

But a few weeks later, the building’s developers were hit with a foreclosure suit from their lenders. In an unusual twist, the lenders’ suit also named Mr. Eichner as a defendant in the suit, along with other would-be buyers with contracts to purchase at least 10 other apartments at deep discounts.

The struggle over Mr. Eichner’s apartment shows the opportunities and perils in a turbulent period during the downturn in the real-estate market.

The apartment is high enough in the 697-foot tower to have those king-of-the-universe views that many New Yorkers only fantasize about. But Mr. Eichner closed on the apartment before it was finished and before it received a certificate of occupancy. His detailed plans for customized finishes and redesigned kitchen now gather dust.

Now the fate of the apartment is before Justice James A. Yates in State Supreme Court in Manhattan. The case dockets list more than 80 defendants—from the architect and a crane company to apartment buyers with purchase contracts—and thousands of pages of filings, and could take many months to be resolved.

“I guess we will find out how smart or not smart I was later in the process,” Mr. Eichner said.

Mr. Eichner is a veteran of many real-estate deals, some more successful than others. In the downturn in the early 1990s he lost control of an office building at 1540 Broadway and CitySpire, one of the city’s tallest residential towers.

He successfully sold out most of a large condominium development in Miami Beach before the downturn there. But in 2008, facing cost overruns, Mr. Eichner gave up control of a large Las Vegas hotel and casino he was developing, now known as the Cosmopolitan of Las Vegas. Mr. Eichner said he then moved back to New York.

Mr. Eichner’s court papers, filed in the One Madison Park foreclosure case, tell the story of his ill-fated apartment. He said he was approached to buy the apartment in the spring of 2009 by Ira Shapiro, one of the developers of One Madison Park, a slender tower with 69 apartments overlooking Madison Square Park.

At the time, Mr. Shapiro and his partner Marc Jacobs were struggling to find cash to finish the project, according to people familiar with the matter.

Mr. Eichner negotiated a deal to buy the apartment, when finished, for $5 million, on the condition that he loan the developers $4.5 million when the contract was signed.

A few years earlier, when the condominium market was roaring, the same apartment had been listed for as much as $11.75 million and another buyer had signed a contract to pay $10 million for the 3,310-square-foot 52nd floor. But when the recession hit, that buyer walked away and gave up a $1 million deposit, according to court papers filed by Mr. Eichner.

After signing the contract, Mr. Eichner spent an additional $140,000, according to his court papers, to prepare new plans for the interior and for putting deposits on the purchase of customized fixtures. He wanted the open kitchen island in the living room ripped out and a separate, free-standing kitchen installed in what had been a bedroom. The master bedroom was to be enlarged and closet space added, and the tub was to be replaced with a custom shower.

When the developers didn’t repay the loan on time or finish the apartment, Mr. Eichner received a signed deed as security. When they missed a second deadline, he filed the deed with the city, his court papers said.

The purchase price works out to about $1,500 a square foot, less than half the price of recent sales at successful new condominium towers like One Beacon Court on East 58th Street. In comparison, Peter Buffett, a musician who is a son of investor Warren Buffett, paid $3.5 million for a smaller three-bedroom apartment on the 18th floor of One Madison Park, a unit with more limited views. Mr. Buffett’s purchase wasn’t challenged in the foreclosure.

The building’s lender, iStar Financial Inc., said it was never told anything about the discounted deals, or the loans made by Mr. Eichner or other would-be buyers to the lenders.

Matthew D. Parrott, an iStar lawyer, said the deals resulted from “gross misconduct” under the lending agreement, and said the proceeds of the “undisclosed loans” were “unaccounted for.”

The agreement between iStar and the developers set minimum sale prices for each unit, a common practice in new developments. The minimum price on Mr. Eichner’s apartment was $9.5 million, of which $8.7 million was supposed to go to paying off the loan, according to mortgage documents.

Steven Wagner, Mr. Eichner’s attorney, argued in court that under recent New York state law, the first buyer of a new condominium is required to get the apartment free and clear of any building mortgages and liens against it.

Last week, Justice Yates refused to dismiss the suit against Mr. Eichner, saying there were concerns about “whether the alleged condominium owners are bone-fide purchasers.”

In the broader foreclosure suit, iStar said the developers, led by Messrs. Shapiro and Jacobs, failed to pay five months’ interest and had violated other terms of the mortgage agreement.

Burton Dorfman, an attorney representing the developers, said iStar acted in “extraordinary bad faith” in filing an “improper foreclosure.”

He said iStar failed to apply the proceeds of the building’s sales to cover the interest payment, and failed to properly file mortgage documents. Istar didn’t come to court with “clean hands,” he said.

The developers didn’t directly address Mr. Eichner’s claims, but Mr. Shapiro provided a statement saying the proceeds of the $4.5 million loan were used to pay bills from contractors.

Mr. Eichner declined to discuss the details of the case. “All I can say is that I am involved because I bought an apartment for my own use,” Mr. Eichner said. “I am one of the dumb buyers stuck in the case.”


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