A troubled Midtown development site is seeing even more trouble thanks to a lawsuit between Madison Equities and Mack Real Estate Credit Strategies.
Madison has sued Mack over 520 Fifth Avenue, where it claims the company has backed out of an agreement that would have ultimately given the development firm control of the property and allowed it to build on the site. Ceruzzi Properties and SMI initially bought the land from Thor Equities in 2015 for $275 million, but work on it has largely stalled since.
Mack had issued $200 million worth of loans to 520 Fifth Avenue in 2017 and started to foreclose on them, according to the lawsuit. Madison offered to buy the loans from Mack for $215 million earlier in June with the goal of finishing the foreclosure process, acquiring the owner’s equity interest and buying and developing the property outright, the suit says. Both parties eventually agreed that Madison would buy the loans for $220 million, and Mack would give them $170 million in financing, according to court documents.
However, on Wednesday, Mack allegedly told Madison that they were backing out of the agreement to instead close with a group of investors that included Mickey Rabina of Rabina Properties, who Ceruzzi and SMI had brought on as a development partner in late May to stave off foreclosure. This decision cost Madison millions of dollars and the opportunity to develop a Fifth Avenue project, the suit says.
Madison is asking for at least $100 million in damages and wants the court to force Mack to sell their loans to Madison.
“Why they would breach a contract to do a deal for the same price with an insider is sort of mind boggling because there’s no benefit to them in doing it,” said Anthony Labozzetta, president of Madison Equities, “and, obviously, they put themselves in a position to be sued.”
Ceruzzi and SMI had been planning to co-develop a 76-story mixed-use project on the site, which several industry sources now believe is worth less than the debt on it from Mack. Madison Equities’ owner Robert Gladstone had spent the end of 2018 negotiating to come on as a new partner, but those talks fell through.
Madison has a reputation for being litigious. The company sued the now-defunct Town Residential in 2017 over the marketing of their 212 Fifth Avenue condo project, and Gladstone sued Town’s former CEO Andrew Heiberger for libel as well.
Madison had sued Kevin Maloney’s Property Markets Group in 2017 after the two had a falling out over the project. Maloney at the time told The Real Deal that he couldn’t think of a Gladstone project “that didn’t include litigation or a bankruptcy.” Earlier this month, a state appeals court judge ordered Madison to pay roughly $275,000 in legal fees to PMG — Madison’s partner on the 10 Sullivan Street condo development.
Ceruzzi Properties has shifted its focus away from Manhattan projects like 520 Fifth and toward more cautious suburban investments following the sudden death of founder Lou Ceruzzi in August 2017.
Representatives for Ceruzzi, SMI and Rabina did not respond to requests for comment.
A spokesman for Mack said that Madison’s claims are “wholly without merit,” and the company plans to aggressively fight the lawsuit.