Karten claims Silverback blocking $17M Bronx refi, as default looms

By Adam Pincus

The Karten Organization claims Joshua Schuster of Silverback Development is impeding a $17 million refinancing of a 197-unit South Bronx residential project unless he is given nearly $1 million to pay bills, investors and expenses, according to a lawsuit filed in Manhattan State Supreme Court yesterday.

Karten, a joint venture partner on the project at 580 Gerard Avenue in Longwood Melrose, says in the filing that it removed Schuster as manager of the project on September 10, but that Schuster claims his consent is required for the $17 million loan that will refinance a $12.9 million loan that must be paid by November 1, 2021.

Schuster is the founder of the development firm Silverback and had a rapid rise during the last real estate boom, partnering with and launching construction of hundreds of millions of dollars worth of projects, including the Hero at 24-16 Queens Plaza South, 67 Livingston Street in Brooklyn, and 131 East 47th Street in Manhattan.

Court filings represent the position of certain parties and are not necessarily accurate or complete. Schuster has not responded to this filing.

In documents submitted by Karten, Schuster says he wants to be given a fair deal.

“Even though the terms of the separation will be devastating to me on many levels, I am willing to step aside so that you and the project can find success and you can profit from your investment notwithstanding that I will in no way be fairly compensated for the time and energy I have expended to source, acquire and capitalize a terrific piece of real estate,” Schuster allegedly said in an email entered as part of the lawsuit.

Several of his project are now subject to lawsuits, and Schuster himself has been personally named as owing millions in judgments. The Real Deal reported on Schuster’s struggles with partners and projects in an article in July 2021.

For example, in late July, an Argentinian partner on a Silverback project in Gramercy at 359 Second Avenue sued Schuster alleged mismanagement at the project.

Schuster bought 580 Gerard Avenue in September 2020 for $16.9 million from Emmes Asset Management, which provided a purchase money loan of $12.9 million. Following a deferment, that loan matures on November 1, 2021.

Outwardly, the project remains on track. The developers obtained a forbearance from Emmes to extend the maturity to November 1, then on September 15, Silverback filed plans for a 197-unit residential building at the site.

And with a loan commitment from the entity Access Road RE LLC for $17 million, the project seemed to be in the clear. But in the background, management was shifting. Karten claims on September 10, that it formally replaced Schuster as manager. Other investors in the deal are Alcova Capital Management, have joined with Karten on the suit.

Schuster himself proposed “stepping aside,” in an October 5 email,  but that was conditioned on the nearly $1 million in payments and a loan forgiveness. Karten in the filing says, “Plaintiffs do not owe Schuster any of the funds he is demanding in the October 5, 2021 email.”

Then on October 20, Schuster allegedly told a representative at First American Title that his consent was required to close the new loan. That threw a wrench in the financing, as the title company indicated it would not be able to provide title insurance with the dispute over consent unresolved.

Karten is seeking a judgment that identifying Karten as the manager and that Schuster’s consent is not needed to refinance.

Direct link to Acris document. link