421a Lawsuits Kick Off With Crown Heights Rental Project

A lawsuit in Brooklyn might be the first triggered by the expiration of 421a. It surely won’t be the last.

Three Midwesterners allege developers Joseph Rubin and Samuel Haikins lured them into investing in a Crown Heights apartment project that hinged on the tax break but failed to beat the deadline to get it.

Bernard Maines, Fred Schwartz and Susan Hoffman, managing members of Ohio-based Five Star Equity Investments, claimed that the development site at 419-21 Lincoln Place and 478-80 Saint Johns Place in Crown Heights was never approved for the abatement and was inaccurately appraised for $17 million.

The expiration of 421a presented a challenging timeline for the 64-unit, two-building project, for which Ahron Gluck filed plans in March 2022. To get the 35-year property tax break, developers had to get a foundation in the ground by June 15, 2022, and must finish construction by June 2026.

Five Star investors say they relied on the appraisal report provided by Rubin and Haikins, which promised the tax exemption would raise the value by $5 million.

According to the complaint, Rubin and Haikins first told Five Star in the spring of 2022 that they were looking for investors to develop the property into 80 to 100 apartments renting for upwards of $3,000, with the building to eventually be sold “at a huge profit.”

The investment firm agreed to put up $8 million for a 75 percent share of the development, which was purchased by Rubin and Haikins from SJ Washington LLC for $17 million in May 2022. Mendel Kaff signed for the seller, and an LLC connected to Rubin took out a $10.7 million loan against the property from Israel-based Golden Bridge Funding in June, The Real Deal reported.

The complaint also alleges that the duo lied that footers — which would secure the structure and the tax break — were already in place at the site. Industry leaders say typical rental projects cannot get financing without 421a, which state legislators have shown little interest in restoring.

“Both the representation as to the footers and the 421a exemption being secured were completely false, and defendants Rubin and Haikins knew it to be false at the time they made these representations,” the lawsuit asserts, citing a visual inspection of the site and a search of city records.

Lining up a contractor to put footings in the ground on short notice would have been difficult in June 2022, when developers across the city were scrambling to do so before 421 died.

Rubin is a partner and Haikins is managing partner at New Jersey-based Blue Diamond Equities LLC, which owns or manages over $100 million in multifamily assets, according to an interview with Haikins in 2021, when he was 27 years old. Rubin is also a partner at Blue Care Homes, which bid for a string of troubled nursing homes in Iowa last year, according to his LinkedIn profile.

Neither man could be reached for comment.

Their vacant, Crown Heights parcels back up against each other, stretching from Lincoln to St Johns in a gentrified section of Brooklyn, across Eastern Parkway from the Brooklyn Museum. Kaff acquired a 48,000-square-foot, 63-unit apartment building on the same block at 781 Washington Avenue for $22 million in 2021, The Real Deal reported.

This isn’t Five Star’s first deal with Haikins: He is a managing member of BD Absecon Holdings LLC, a minority owner of a Days Inn in New Jersey of which Five Star is the majority owner. According to the lawsuit, to secure $3 million of the $8 million that Five Star was aiming to raise, Haikins entered into a mortgage for the hotel without consulting the Ohioans.

Haikins and Rubin also promised to raise money and pay interest on a $2 million loan to help Five Star meet its $8 million funding goal for the Crown Heights site, according to the complaint. However, when the loan matured in January 2023, Haikins and Rubin were allegedly unable to pay it off, so Five Star took out another loan to front the cost.

In a meeting that same month, Haikins reportedly told Five Star that he used the Crown Heights project funds to invest in nursing homes and could not pay the mortgage on the development site, according to the complaint. (Blue Care Homes reportedly bid to purchase the Iowa nursing homes for $12 million at an auction in 2022, but later lowered its offer to $4.5 million, Iowa Capital Dispatch reported.)

Since before 421a lapsed, there has been “zero development, movement or progress of any kind at the subject premises,” the complaint alleges (although a Google photo in June 2022 shows a man in a hard hat, a sidewalk shed and a “work in progress: full demolition” sign at 478 St. Johns Place).

The lawsuit adds that Five Star has put up over $8 millions in loans and cash without a return. Except for $90,000, which allegedly went to pay interest, $8 million is unaccounted for, it says.

The investment firm is seeking $8 million in damages and rights to the property.