Both an arbitrator and a judge have handed Yitzchak Tessler losses in a lawsuit brought by investors in one of his projects, but the developer isn’t giving up that easily.
After first contesting an arbitrator’s decision that his firm owes $8.4 million to EB-5 investors who lent money to his pharmaceutical manufacturing center in the Bronx but say they were never paid back, Tessler is now appealing a New York Supreme Court judge’s ruling upholding the arbitrator’s position.
The misadventure began in 2012, when the diamond wholesaler turned developer sought investors for a 10,000-square-foot facility at 390 Concord Avenue in the borough’s Mott Haven neighborhood that would be used for “advanced PET radio-pharmaceutical manufacturing and distribution networks.”
The investors provided two loans to a Tessler entity, one for $2 million and another for $4 million. Under the loan documents, Tessler was supposed to pay back the principal within five years, along with interest, according to the lawsuit.
But the investors say they never received a dime.
The dispute is the latest in a long list of real estate lawsuits related to the EB-5 program, which allows investors to put in $500,000 into an American business in exchange for a green card. The program, while used heavily by New York City real estate developers after the recession, became a magnet for fraud and abuse.
In this instance, the foreign investors in the Bronx project sued Tessler and the case headed to arbitration. In April, an arbitrator ruled in favor of the investors, finding Tessler Developments liable because it guaranteed the loans.
Tessler’s firm contested the ruling and claimed it was deprived of a full hearing to show its side, including whether the interest rates on the loans should be 1.5 percent or 4.5 percent.
“We believe that the arbitrator was incorrect and his steadfast refusal to hold an evidentiary hearing warrants both reversal of the arbitrator’s award and interim stay of enforcement of the judgment,” said David Ross of Morrison Cohen, who represented Tessler, in a statement to The Real Deal.
Ross added that he is engaged in settlement discussions and “hopes those lead to a resolution of the matter.”
One June 3, a New York Supreme Court judge sided with the arbitrator’s position and ruled in favor of the investors, awarding them $8.4 million. The judge said “ordinarily, it is preferable to conduct a hearing and hear from witnesses in an arbitration,” but added that “the failure to do so here is not a violation of defendants’ due process rights.”
Tessler’s lawyer filed an appeal of the judge’s ruling on Friday, claiming in a court document that enforcing the judgment would run “the risk of the appellants facing bankruptcy.”
The assertion that an $8.4 million judgment could somehow bankrupt an entity tied to one of the city’s most prolific luxury condo developers appeared remarkable, but it may have been a mistake.
On Monday, Christoph Heisenberg of Hinckley & Heisenberg, the law firm representing the EB-5 investors, filed a motion opposing Ross’ request for a stay on the enforcement of the money judgment, citing a 2018 analysis by The Real Deal that valued Tessler’s real estate portfolio at $945 million.
Hours later, Ross filed a motion asking the court to withdraw the earlier claim that the judgment could lead to the risk of a bankruptcy filing.
Tessler made his fortune in the diamond business before moving to real estate. His firm made its name in the late 1990s with condo conversions, including at 66 Leonard Street in Tribeca and later 150 Nassau Street in the Financial District. In 2015, his firm built a 33-story luxury condo at 172 Madison Avenue in Midtown.