Mezz lenders Arden, Corten sue Margaritaville Times Square investors for $85M

Mezzanine debt holders Arden Group and Corten Real Estate Partners sued three alleged note guarantors in Soho Properties’ Margaritaville Resort Times Square at 560 Seventh Avenue in the Garment District in Manhattan. The filing in Manhattan State Supreme Court comes a day after the lenders’ effort to wipe out Soho Properties’ equity in the project was frustrated by the developer placing the project into bankruptcy, as PincusCo first reported.

The lenders allege the total amount due is $85 million. LINK

Court filings represent the position on one party and are not necessarily accurate or complete.

To develop the 234-key hotel, Soho Properties, led by Sharif El-Gamal, borrowed $167 million in a senior mortgage, $57 million in mezzanine loan and $85 in a junior mezzanine loan, totaling $309 million. On July 22, 2022, Arden sold a 50 percent stake in the $57 million mezzanine loan to Corten, according the complaint. The loans are all in default.

Soho Properties says the project is worth between $266 million and $350 million, and filed the bankruptcy because it alleged the auction was “commercially unreasonable.”

The mezzanine lenders Arden Group and Corten announced on April 10, 2023 that it would hold a UCC foreclosure auction on July 10. That auction would wipe out Soho Properties, Andrew Weiss and Stephen Weiss’s stakes in the hotel and retail project.

To block that sale, Soho Properties first sued Arden Group on June 28, but on Friday July 7, the judge rejected a request to halt the auction. Two days later, on Sunday July 9, Soho Properties put the project into bankruptcy, thus halting the sale. Lenders often add a clause that borrowers become personally liable for particularly egregious acts, including filing for bankruptcy, because it can add to the time and expense required to recover the asset.

Now, Arden Group and Corten have sued the individual guarantors personally, seeking the full $85 million the lender alleges they guaranteed.

According to the complaint, “The Guaranty makes clear that Guarantors are personally, and jointly and severally, liable for the entire amount owed on the Loan in the event (among other things) that Borrower or Mortgage Borrower files for bankruptcy. The total amount now due exceeds $85 million. Lenders bring this action to obtain a judgment for the full amount due on the Loan against the three Guarantors, plus their attorneys’ fees and costs in enforcing their rights under the Guaranty.”

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