Chetrit Org. paid HPS $35M as part of 850 Third deed-in-lieu transfer: suit

Jacob Chetrit of the Chetrit Organization paid $35.4 million in late payments, fees, taxes and other costs to its former lender, HPS Investment Partners, as part of the process of handing over the 617,000-square-foot office building at 850 Third Avenue in Midtown Manhattan in February 2023 to its former lender.

Chetrit disclosed the payment in a lawsuit he filed yesterday in New York State Supreme Court. In the complaint, Chetrit alleges HPS Investment Partners did not record the deed-in-lieu transfer at the agreed-on value of $320 million, but instead used a lower figure, $265.93 million. The reduced transfer value also reduced the amount due in city and state transfer taxes from $10.48 million to $8.71 million.

Since Chetrit’s $35.4 million payment allegedly included $10.48 million specifically allocated to pay the taxes based on the $320 million figure, but only $8.71 million was paid, Chetrit claims HPS wrongfully kept the difference, at the same time potentially exposing Chetrit to additional tax liability.

Court filings represent the position of one party and are not necessarily accurate or complete. HPS has not yet responded in court filings. Sources familiar with transfer tax filings say this could be essentially a dispute over the most tax-advantageous way to account for a deed-in-lieu transfer.

According to the complaint, “By retroactively recalculating and reducing the aggregate agreed-upon $320,000,000 outstanding principal balance of the mortgage and mezzanine loans to $265,934,184 effective as of the Tender Date, HPS defrauded Chetrit out of millions of dollars of taxes, interest and fees.

“HPS potentially exposed Chetrit to liability for a tax deficiency, interest and penalties in the event the City audits and rejects HPS’ retroactive reduction of the consideration for the assignment-in-lieu Transaction,” the complaint says.

The payment underscores the decline in value in office buildings, which in this case required the former owner to pay additional monies to close the transaction.

The Chetrit Organization bought the property on January 8, 2019, for $422 million. Then in September 2021, Chetrit refinanced a $177 million loan that had been sent to special servicing with $320 million in debt from HPS Investment Partners, as The Real Deal reported at the time. The debt was composed of a $220 million senior loan, and a $100 million mezzanine loan.

Direct link to the property’s ACRIS page and link to DOB NOW portal.