Retail lease dispute at $61M former HFZ dev site in Lenox Hill moves to federal court

The Federal Deposit Insurance Corporation, as receiver for First Republic Bank, won court approval to move its effort to hold on to two retail leases in Lenox Hill that are part of a development site Ziel Feldman’s HFZ Capital Group assembled and then lost in February 2023 through a foreclosure sale to lender W Financial. The total debt at the time including the original $43.6 million loan and interest was $61 million. W Financial sought to extinguish the bank’s leases that include several five-year extension options, but a judge allowed the bank to pursue its claim to be excluded from the foreclosure and remain in the location.
First Republic was pursuing the case in state court 850128/2021 as an extension of the original foreclosure case, but on May 10, 2023 petitioned to move the case to the Southern District of New York. 1:23-cv-03942-JGK
First Republic Bank signed a lease at 1135 Lexington Avenue in 2005 and at 150 East 79th Street in 2011. In the state court decision allowing the bank to pursue its claim of superiority over the mortgage, the judge noted a foreclosure is intended to clear liens that encumber property after the loan, which in this case was given in February 2020, many years after the leases were signed.

W Financial through the entity W 79th Street Owner LLC took title from HFZ Capital Group for the three-unit mixed-use building (K4) at 154 East 79th Street, two-unit mixed-use building (K4) at 152 East 79th Street, the two-unit mixed-use building (K4) at 150 East 79th Street and two other properties in Lenox Hill, Manhattan.

The foreclosure sale was February 1, but the deed transfer was dated February 28, 2023 and was recorded on March 7, 2023. The five properties have 16,014 square feet of built space and 43,555 square feet of additional air rights for a total buildable of 59,560 square feet according to a PincusCo analysis of city data.
The signatory for HFZ Capital Group was the court-appointed referee Haley Greenberg. The signatory for W Financial was Adam Windwer.

Because multiple properties have been transacted, some of the following sections will follow the property with the largest assessed value, which in this case, is the property on 1135 Lexington Avenue.

Prior sales and revenue

Prior to this transaction, PincusCo has no record that the buyer W Financial had purchased any other properties and sold one property in one transactions for a total of $6.4 million over the past 24 months.
The seller HFZ Capital Group had not purchased any other properties and sold or lost 10 properties in two transactions for a total of $371.2 million over the same time period. Out of the five properties, four with a total of 16,014 square feet of built space generated revenue of $2.2 million per year.

The property

The retail building in Lenox Hill has 16,014 square feet of built space and 43,555 square feet of additional air rights for a total buildable of 59,560 square feet according to a PincusCo analysis of city data. The parcel has frontage of 68 feet and is 18 feet deep with a total lot size of 1,224 square feet. The zoning is R10A which allows for up to 10 times floor area ratio (FAR) for residential with inclusionary housing. The city-designated market value for the property in 2022 is $8.5 million. The most recent loan totaled $43.6 million and was provided by W Financial on February 28, 2020.

Development

For the tax lot buildings, one out of the five buildings received a initial certificate of occupancy in the last ten years. There are no active new building construction projects or major alteration projects with initial costs more than $1 million on this tax lot.

The neighborhood

In Lenox Hill, The bulk, or 35 percent of the 52 million square feet of commercial built space are elevator buildings, with specialty buildings next occupying 28 percent of the space. In sales, Lenox Hill has the highest sale turnover among other neighborhoods in the city with $4.5 billion in sales volume in the last two years. For development, Lenox Hill has 3 times the average amount of major developments relative to other neighborhoods and is the 9th highest in Manhattan. It had 3 million square feet of commercial and multi-family construction under development in the last two years, which represents 6 percent of the neighborhood’s built space.

The block

On the tax block of 1135 Lexington Avenue, PincusCo has identified the owners of six of the 15 commercial properties representing 19,514 square feet of the 116,461 square feet. The two identified owners are Lacinyc Corp. and Hfz Capital Group.
There are no active new building construction projects on this tax block.

The majority, or 44 percent of the 116,461 square feet of built space are mixed-use buildings, with walkup buildings next occupying 37 percent of the space.

The seller

The PincusCo database currently indicates that Hfz Capital Group owned at least five commercial properties with seven residential units in New York City with 16,014 square feet and a city-determined market value of $15.9 million. (Market value is typically about 50% of actual value.) Within the portfolio, the bulk, or 85 percent of the 16,014 square feet of built space are mixed-use properties, with retail properties next occupying 15 percent of the space. They are all located in Manhattan.

Direct link to Acris document. link