Bank Hapoalim is folding on its plans to foreclose on a former Ace Hotel in the Lower East Side.
The firm is selling its $77 million loan secured by 225 Bowery, a one-time Salvation Army flophouse turned niche hotel, to an unknown lender, according to court filings. Hapoalim has been seeking to foreclose on the troubled property since April, claiming the owner defaulted on its mortgage.
Now a new lender can jump into the mess and foreclose on the hotel.
David Paz’s Omnia Group bought the 10-story tenement building between Stanton and Rivington streets for $30.5 million in 2014. Omnia partnered with the boutique hospitality chain Ace Hotel to convert the property into a 200-room micro-hotel. Things were looking promising when Omnia nabbed an $80 million loan from Bank Hapoalim in March 2019 and the hotel, known as the Sister City hotel, opened that month.
But then came the pandemic and the hotel was forced to close its doors.
With no tourists, Paz turned the hotel into a homeless shelter as the city sought to find temporary housing solutions during the height of the pandemic.
The property remained a homeless shelter for about a year until Omnia rebranded the hotel and listed rooms individually through Airbnb. Ace cried foul, claiming the use of Airbnb was in violation of their management agreement with Omnia. Bank Hapoalim had its own gripes, claiming that Omnia couldn’t meet its mortgage payments and initiated a foreclosure.
Ace further alleged that it was never consulted about the decision to turn the hotel into a homeless shelter, arguing it hurt the hotel’s brand reputation. The dispute went to arbitration and in September, arbitrators awarded Ace a $10.4 million judgment and ordered the hotel owners to stop using trademarks associated with their brand. Ace filed a lawsuit in October to enforce the arbitration.
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The drama did not end there. Omnia’s partner, Northwind Group, a New York City lender, also filed a lawsuit in May, alleging that Paz and his company “improperly extracted preferred equity distributions from the asset, starving it of the cash required to pay its debt service.” Northwind sought to appoint a temporary receiver for the hotel.
“We will review the numbers BUT we can’t accept any distributions to pref/equity when the bank isn’t being paid,” Northwind founder Ran Eliasaf said according to court filings.
Paz argued that Northwind and Eliasaf sabotaged the project by instigating the bank to foreclose on the property.
“My alliance with Northwind was a colossal mistake, the size and scope of which I am only now unraveling,” said Paz.
A judge ruled against a temporary receiver. The foreclosure action is still pending.
Attorneys for Omnia Group, Bank Hapoalim, Ace Hotel and Northwind did not return a request to comment.