The Riese Organization, a retail-focused firm that specializes in budget restaurants, signed a contract this month to pay $17.5 million for a low-rise building on a bustling block of West 34th Street, the company’s owner, Dennis Riese, told The Real Deal.
But the sale is already the subject of a lawsuit from the Adjmi family, who are partners in the ownership of the building, as well as investors in a group that was competing with Riese Organization to buy the building. The family claims their partners improperly selected a lower bid from Riese Organization to purchase the building, down the block from Macy’s.
Riese Organization signed the contract earlier this month for 211 West 34th Street, a 15,000-square-foot building between Seventh and Eighth avenues, paying the equivalent of about $1,166 per square foot.
While some insiders thought the price was too high for the block, Riese said his company would figure out how to profit. The firm, a major franchise operator of restaurant chains such as T.G.I. Friday’s, often gains efficiencies by renting to tenants the company controls, Riese said.
“We come in to deals that have issues, and we overcome them,” he said. “In this case, the only issue is we might be paying a little too much.”
A possible tenant is Tequilaville, a restaurant which currently has one Manhattan location, at 12 Vanderbilt Avenue, across from Grand Central Terminal. Riese Organization is also offering the building for a net lease for about $1.3 million per year.
Adelaide Polsinelli, a senior director at investment sales firm Eastern Consolidated, who was not involved in the deal, explained the high price in part because, “[Riese] appreciates the strength of this location and its outstanding pedestrian and vehicular traffic.”
However, not all the players involved consider the price high enough. While the transaction is expected to close before the end of the year, the Adjmi group is hoping to break it up. The family, which has deep roots in both retail real estate and apparel, is seeking $30 million in alleged damages over the expected sale to Riese Organization.
The Adjmis — Harry, Amin, Marcus and Jack — allege that their current partners, Lester Shapero and Herbert Kadison, who controlled the sale of the building, conspired to select Riese Organization as the buyer, despite its lower bid, according to a summons with notice filed Tuesday in the New York State Supreme Court in Manhattan.
Harry is the brother of well-known investor Alex Adjmi, while the other three plaintiffs are Alex’s sons.
The Adjmis claim the defendants “embarked on a pattern of deception, fraud and intentional misconduct in an effort to award the sale of the property to a prospective purchaser for less money than offered by affiliates of the plaintiffs,” the summons said. The Adjmis not only allegedly suffered material losses, but claim their reputation and business relationships have also suffered.
Kadison declined to discuss the particulars of the lawsuit, but said the Adjmis had plenty of time to put their deal together, but inexplicably waited until after the Riese offer was in.
“They had months to come with their offer and they did not do it,” he said.
One retail insider familiar with the Adjmis’ thinking said they were surprised that Kadison and Shapero would not choose their own partners, particularly if their deal would have netted them more money.
Riese was not familiar with the lawsuit, but speculated that Shapero and Kadison may have believed his company was a surer bet to close the deal. (Neither Riese nor his company were named as defendants.) In fact, the company had some money available to invest. Last year it sold the small retail building 1552 Broadway in Times Square to a partnership of Jeff Sutton and SL Green Realty for $136.6 million.
The retail property is currently shuttered but was formerly the location of a leather goods shop. Rents on the block range between $200 per foot and $250 per foot on the ground floor, insiders said.
In October, the owners sold the building’s development rights, which have been locked up in a contract since 2011 to a neighboring development, public records show.
Harry and Alex Adjmi and Shapero did not respond to requests for comment.