A Russian developer is accusing the powerful California real estate investment firm CIM Group of breaking a verbal agreement to work together to build on a vacant site at 33rd Street and Madison Avenue, and instead swooping in to buy the $29 million mortgage and foreclose on it, a new lawsuit filed yesterday in New York State Supreme Court says.
NMP-Group, controlled by Russian developer Natalia Pirogova, says in the suit that CIM Group used privileged information to snap up the note in August from lender Garrison Investment Group despite making promises in March 2011 to work with NMP in a joint venture to build a mixed-use tower at the site, at 172-176 Madison Avenue.
CIM Group, founded in 1994 and based in Los Angeles, has taken a prominent role in Manhattan over the past two years, including buying the stalled Drake hotel site at 440 Park Avenue and partnering with Harry Macklowe to convert the luxury rental building 737 Park Avenue to condominiums. CIM Group “promised and assured NMP that CIM would use the information for the exclusive purpose of partnering with NMP to acquire the loan,” the complaint says, and the parties allegedly made a verbal confidentiality agreement to that effect.
But, according to the filing charges, CIM went around NMP and on Aug. 17 bought the note from Garrison. CIM paid more than the $29 million face value, a source told The Real Deal, but it was not clear how much more. The total amount due is far more because of penalties and interest.
The suit, filed in New York State Supreme Court, accuses the California firm of fraudulent misrepresentation, breach of contract and other alleged wrongdoing, and is seeking a court order blocking the foreclosure process, as well as unspecified compensatory and punitive damages.
A spokesperson for Natalia Pirogova and NMP-Group, attorney Edward Mermelstein, was traveling and not immediately available for comment.
CIM said in a statement that the filing was without merit.
“The lawsuit is baseless and the facts will show that,” a spokesperson for the company said.
The Midtown South area has become more popular over the past year as hotels have moved in and the office leasing market has stuck out as the tightest in the country. NMP had hoped to build a hotel-condo with 100 hotel rooms and 69 condo units that would sell for about $2,000 per square foot when it bought the three properties comprising the site in 2007 for $32.9 million. However the plans faltered, the developer claims in court papers, because UBS failed to make development payments.
A source close to NMP said the most recent plan was to construct a 250-unit hotel, but all plans are on hold now, as CIM Group, which owns the defaulted mortgage, is vying to wrest control of the property through foreclosure.
In November 2007, UBS Real Estate Securities lent NMP-Group $29 million following NMP’s acquisition of the parcels, city property records show. UBS transferred the note to another entity, which filed to foreclose in February 2010 on the defaulted note. Garrison Investment bought the note April 8, 2010, and stepped in to continue the foreclosure action.
In an effort to stay in the deal, NMP was seeking replacement financing, joint venture partners or a restructuring of the loan, the complaint says. To that end, after real estate brokerage Platinum Properties introduced NMP to CIM in March 2011, NMP began talking about forming a joint venture with the California firm, the papers say. The Russian developer provided the California firm with proprietary appraisals, market studies and other analysis garnered over the past two years valued at $1 million, to help it decide to invest. Garrison Investment and Platinum were not accused of any wrongdoing, and each declined to comment.
The complaint says that later that month, CIM stated it was willing to form a joint venture with NMP. But instead of working together, CIM went alone and bought the note, and continued to foreclose. In fact, last month, CIM won an interim decision allowing the foreclosure process to move forward.