Investor sues Kushner over $36.5M Brooklyn Heights deal from 2014

An investor that claims to have provided more than $10 million in equity to a Kushner Companies 2014 multifamily and townhouse redevelopment project in Brooklyn Heights alleges the deal has failed because of Kushner Companies’ poor project management. The investor, BLS Holdco LLC, made the allegations in a lawsuit it filed yesterday in State Supreme Court in Manhattan. LINK

The complaint implies the investor made the investment in Kushner’s $36.5 million purchase of the former Brooklyn Law School properties through Stonehage Fleming, an asset management firm for ultra-high-net-worth individuals.

According to the complaint, “In October 2013, Kushner began discussions with Stonehage Property Partners about a potential joint venture acquisition of the BLS Portfolio.” The complaint never explicitly says a family that invests through Stonehage made the investment nor does it mention the firm again, or any executives of the firm in the 23-page complaint.
Stonehage does appear as one of the dozens of partners Kushner Companies has worked with on the Kushner website.

The complaint alleges the townhouse sales have been far less profitable than expected and the multifamily buildings have “zero equity.” The Real Deal reported on the allegedly lackluster returns on the Brooklyn Law School deal in a 2021 article.

Court filings represent the position of one party and are not necessarily accurate or complete. Kushner Companies is a large multifamily landlord in the city, and also has substantial holdings throughout the country.

According to the complaint, “Under Kushner’s business plan, three of the buildings—27 Monroe Place, 38 Monroe Place and 100 Pierrepont Street—were vacant and were to be converted into single-family townhouses, for sale shortly thereafter. The three remaining buildings— multifamily buildings located at 89 Hicks Street, 18 Sidney Place and 144 Willow Street — were to be renovated immediately and then rented at market rates,”

According to the complaint, much of the problem has to do with an alleged underrepresentation of how many units should be rent regulated.
According to the complaint, Kushner representatives, “Repeatedly and expressly represent[ed] in materials presented to potential investors, including offering documents, in emails and in oral statements by senior individuals at Kushner, that only seven of the 77 units in the Multifamily Properties were rent-stabilized—those units still being occupied by tenants of the prior owner—and that the remaining 70 units could be rented at market rates… In reality, and in direct opposition to Kushner’s written and oral representations, every unit in the Multifamily Properties was subject to rent stabilization once the units came back online for rental. At no time and in no manner, not even in investor disclosures of potential “deal risks,” did Kushner raise the possibility that the remaining 70 units could be subject to rent stabilization.

‘Several years later, when confronted with its false statements regarding the issue of rent stabilization for the Multifamily Properties, Kushner would blame a third-party consultant for providing Kushner incorrect advice on the issue of rent stabilization. The consultant, Simon Moule of STM Associates…case evidence from litigation since the inception of the deal suggests that Kushner indeed was aware that the exposure of the Multifamily Properties to a rent stabilization case…

“On April 4, 2014, in reliance on Kushner’s representations, BLS Holdco entered into the BLS Portfolio deal. Specifically, BLS Holdco participated in forming BLS Associates, BLS Holdco’s initial investment in the deal was approximately $9.3 million. [Total initial debt was $36 million, total initial equity was $12.6 million including BLS Holdco’s $9.3 million.]

“On August 15, 2017, the tenants of 89 Hicks Street filed a putative class action in Supreme Court, Kings County, alleging that Kushner improperly deregulated their units… second putative class action against Kushner was filed by the tenants of 18 Sidney Place…Indeed, the current net asset value of the Multifamily Properties is close to zero…BLS Holdco met capital calls in April and August of 2019 in a combined amount of $593,000 and met a September 2020 capital call of $372,000.”

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