Cooperative says HFZ looted reserves
Ziel Feldman’s HFZ Capital group bought the Chatsworth to restore the once coveted Golden Age building to its “original glory” by converting its rentals into co-ops.
But a decade later, Chatsworth’s board of directors alleges that Feldman and HFZ left the Upper West Side apartment building in “dire financial straits” and used the co-op as their “personal piggy bank.”
The board accuses HFZ of tapping into board reserves to upgrade their personal units, illegally lending money to other projects and falsifying Chatsworth’s tax forms. The board said it was forced to hit shareholders at 340-344 West 72nd Street with a valuation of $ 10 million, according to a lawsuit filed with the New York Supreme Court in December.
The complaint also names Feldman, former HFZ director Nir Meir and former HFZ investment director John Shannon.
“The allegations in this trial are the result of acts committed by Nir Meir,” an HFZ spokesperson said in a statement. “These and other acts are reflected in the lawsuit brought by HFZ against Meir.” This lawsuit blames Meir for many of the condo developer’s problems and alleges that Meir billed HFZ for personal expenses, including weekly $ 10,000 sushi dinners.
Meir’s attorney, Larry Hutcher of Davidoff Hutcher & Citron, replied: “This is only the most recent desperate act of Mr. Feldman, who refuses to take responsibility for his actions even though the documents and the facts show the opposite. “
He added: “Continuing to blame Mr. Meir is simply an unsuccessful and ineffective strategy.”
Shannon’s attorney could not be reached for comment.
HFZ has been besieged by privileges, foreclosures, allegations of fraud, internal strife and ties to Israeli diamond tycoon Beny Steinmetz. Now the boards of co-ops say they have to deal with the fallout.
The lawsuit alleges that HFZ was able to plunder the board’s reserves because it had control of the cooperative’s board until May 2021.
The board of directors discovered the extent of the building’s problems after a due diligence report revealed that the building’s construction was incomplete. It required repairs to the building system, work in common areas, facade work, gas installation in apartments and permit closures. The report estimated material costs at more than $ 3.7 million and ancillary costs at around $ 400,000, according to the lawsuit.
The report also uncovered a “troubling fact” – that HFZ and its executives allegedly owed more than $ 2.7 million to contractors and consultants for work already completed, according to the complaint.
With maintenance issues unresolved, the individual owners have reportedly entered into “side deals” with Meir to waive the payment of co-op dues until Jan. 1, 2021, according to the complaint. The board alleges that Meir was not entitled to complete the transactions and that now these shareholders are in arrears totaling $ 1 million.
The “most egregious action”, according to the lawsuit, was the defendants’ “sham recognition agreement” with lender Starwood Property Mortgage signed by Feldman in 2017. The deal allegedly violated the offer plan, which stated that HFZ’s obligations to the cooperative would come before what it owed to the lenders. Instead, the deal got Starwood paid first. Starwood is not a defendant in the lawsuit nor charged with wrongdoing.
The board alleges that HFZ’s actions cost it at least $ 10 million and that HFZ violated RICO civil law.
Chatsworth’s board attorney Ethan Kobre of Schwartz Sladkus declined to comment.
HFZ’s issues at Chatsworth first became known in October 2020 when a Starwood entity sued the company for $ 157 million. The lender alleged that HFZ, Feldman and his wife, Helene, defaulted on the senior and mezzanine loans, an unsecured loan and an inventory loan for the century-old building. HFZ attorneys have denied Starwood’s claims. The trial is still active.
In May 2021, HFZ transferred 21 co-ops from Chatsworth to a Starwood entity.
HFZ bought the Chatsworth in 2013 for $ 150 million and quickly sought to convert the 147-unit Beaux-Arts rental property into co-ops. At the time, Feldman told the Wall Street Journal that his company planned to “bring it back to its original glory.” One of the challenges was that about half of the building’s units were rent-stabilized, according to the Journal.
In 2017, HFZ sold 46 of the building’s stabilized rental units for $ 38 million to an entity related to the Safra family.
Chatsworth has about 150 outstanding violations with the city’s Department of Housing Preservation and Development, according to PropertyShark, a commercial real estate data provider.
Douglas Elliman is in charge of building sales. The units available range between $ 2 million and $ 9.8 million, according to the Chatsworth website.