EB-5 fund sues Vanbarton for second time over UCC sale of stalled HFZ project

U.S. Immigration Fund filed its second lawsuit this year against the Vanbarton Group related to the stalled HFZ Capital Group project at 3 West 29th Street at the corner of Fifth Avenue. In the first lawsuit filed in April, the U.S. Immigration Fund sought to block the UCC sale, but that effort failed and the sale proceeded, wiping out $60 million in equity, the suit contends. The Real Deal covered the prior suit here.

This latest action claims Vanbarton and the Marble Collegiate Church, discouraged bids. Vanbarton and the church have not yet responded in court papers. The court filings are the positions of one party and are not necessarily accurate or complete.

Ziel Feldman’s HFZ sought to build a 34-story office tower on the church property. Architect Bjarke Ingels designed the building plans.

According to the complaint, “If the UCC sale had been conducted in a commercially reasonable manner, then, following that sale, a surplus of approximately a hundred million dollars would have been payable to Mezzanine Borrower and ultimately distributed to its sole member, Holding Company, and Preferred Members – who hold all of the preferred equity interests in Holding Company – would have received repayment of their entire $60 million capital contribution by virtue of their preferred equity interests in Holding Company, along with other amounts due to them on their preferred equity interests in Holding Company. Those payments would have been made ahead of the Church’s only interest in the Project, which it holds through its subsidiary, Church Subsidiary, which in turn holds 50% of the “Class A Membership Interests” in the LLC that owns the common membership interests in Holding Company.” However, the UCC sale was not conducted in a commercially reasonable manner because Mezzanine Lender and the Church Defendants sabotaged the process and acted in a manner that knowingly and/or intentionally deterred potential bidders from making bids.” The defendants’ motivation was clear – the Church Defendants wanted to prevent any other entity besides Mezzanine Lender from bidding or acquiring the property at foreclosure; and Mezzanine Lender wanted to obtain the valuable assets without having to pay even one more dollar, which would have been required in any fair auction.” Upon receiving that letter, Mezzanine Lender took advantage of the opportunity presented to it and placed that Letter in the Data Room in order to deter bidders from making bids. The letter had exactly that effect. Although ninety potential bidders signed a confidentiality agreement granting them access to the Data Room in their due diligence on Mezzanine Borrower’s interest in Owner, not a single outside bidder submitted a bid at the UCC sale. That enabled Mezzanine Lender to obtain all of the LLC interests in an entity owning property worth at least $350 million, for a bargain basement price by credit-bidding the $84.8 million amount outstanding on its “mezzanine loan” – a windfall of $100 million, even after subtracting all of Owner’s debts.”  Lawsuit LINK.

Direct link to Acris document. link