UPDATED, Nov. 12, 2020, 2:28 p.m.: HFZ Capital Group is making a last-ditch attempt to stop its lender from auctioning off loans tied to four of the firm’s Manhattan condo projects.
The prolific developer filed a lawsuit seeking a preliminary injunction against CIM Group to prevent the lender from proceeding with an auction planned for Thursday at noon. On Wednesday, a judge temporarily put a halt on the auction. HFZ’s attorney, David Scharf of Morrison Cohen, said a judge may rule next week on whether to permanently stop the sale.
HFZ, led by Ziel Feldman and Nir Meir, alleges that CIM’s planned auction is a “predatory attempt to capitalize on the Covid-19 pandemic by conducting a rushed, commercially unreasonable sale,” which would pave the way for CIM to take over four properties: 88-90 Lexington Avenue, The Astor at 235 West 75th Street, and Fifty Third and Eighth at 301 West 53rd Street. CIM holds four junior mezzanine loans with a balance of $89.5 million.
Mezzanine loans are subordinate to senior loans in the capital stack, and usually carry higher interest rates. JPMorgan and Oaktree Capital led a $500 million refinancing of HFZ’s four properties in 2016.
CIM, led by Shaul Kuba, Avi Shemesh and Richard Ressler, is an active developer and lender in several major U.S. markets
HFZ did not return a request for comment. CIM Group did not return a request for comment, nor did its attorney Gary Mennitt of Dechert.
The two parties were negotiating a modification to the loans over the summer, until CIM changed its tune and sent HFZ four letters of dissolution, according to the complaint. In October, the lender allegedly demanded that HFZ cough up $8 million but refused to commit to modifying the loans or canceling the auction.
HFZ claims that CIM had no intention of restructuring the loans. Instead, HFZ alleges CIM plans to make a “credit bid” at the auction, which would allow the lender to take control of the collateral of the properties. (The credit bid would allow CIM to make a bid with the debt that HFZ owes.)
The suit also cites the Uniform Commercial Code and New York law, which requires that UCC foreclosures be conducted on “commercially reasonable terms.” The two-month notice of the auction and conducting such a sale during the height of the pandemic is indefensible, HFZ alleges.
The dispute with CIM is the latest financial and legal issue for HFZ. The development firm faces a number of lawsuits from lenders and subcontractors over unpaid bills and loan payments.
Chicago-based credit investor Monroe Capital recently moved to foreclose on a roughly $126 million loan. HFZ owes on a 13-property industrial portfolio. Barry Sternlicht’s Starwood Capital is also suing HFZ, claiming the developer failed to abide by a forbearance agreement on a Chatsworth co-op conversion at 344 West 72nd Street.
And on the Upper East Side, HFZ owes more than $18 million in defaulted loans on a planned development project at 1135 Lexington Avenue, according to a lawsuit filed last week. Feldman and Meir are listed as personal guarantors on the debt.
UPDATE: After publication, a judge temporarily halted the auction that was scheduled for Thursday.