Developer Levi Balkany has pulled out all the stops, including two bankruptcy filings, in a scheme to outrun a defaulted loan, fraud allegations and, most recently, jail time.
Caught in the middle are 35 formerly homeless tenants ejected from their apartments as a result of Balkany’s maneuvers.
But Balkany’s lender isn’t going down without a fight. Asset manager Arena Investors filed a complaint this week to deny the developer’s latest bankruptcy claim.
The saga goes back to March 2019, when Balkany’s Happy Living Development tapped Arena for a $26 million bridge loan to cover the cost of a condo project at 308 West 133rd Street in West Harlem.
Less than six weeks later, the developer defaulted on the debt, court records show.
Arena claims it extended a forbearance agreement, giving Balkany the chance to cure the default, but the developer failed to right the loan. As Balkany tells it, the default stemmed from “predatory lending.”
Balkany claims he ran into trouble with interest payments after the city overassessed the building’s property taxes, estimating the annual bill at $15,000, instead of the $5,000 he anticipated.
“Similar sized condo apts in the area had less than a third of the property taxes than this property,” Balkany wrote in an email.
Moreover, the developer claims Arena imposed a deadline in the loan terms for Balkany to obtain a temporary certificate of occupancy for the project. Balkany failed to meet that deadline.
“I was naive in agreeing to it,” Balkany conceded. “It was a artificial trip wire inserted by Arena to put the loan into default.”
In a pivot to save the project, the developer asked Arena if he might rent the units instead. He planned to try for a 421a tax abatement to clear up the property tax issue. The now-expired program offered a 35-year break on property taxes.
“I was flatly and outrightly refused,” Balkany said, adding that his lender extended two alternate options: pay off the loan by lowering condo prices, or hand over the keys.
Balkany rented the units anyway, leasing up 26 apartments to voucher holders in another breach of the loan terms, Arena alleges.
First shot fired
Arena filed suit against its borrower, alleging Balkany was in default as it had only approved sales of the project’s units, not rentals. The court issued a temporary restraining order, barring Balkany from “further illegal conduct,” legal documents show.
But the developer ignored that, too, and continued to rent units to voucher holders.
The court granted Arena’s motion to appoint a receiver to oversee Balkany’s debts. But the day before the receiver took control, Balkany put the property’s ownership entity into Chapter 11 bankruptcy.
A bankruptcy filing will automatically stay ongoing lawsuits, and in a case of money owed, can erase some debts. Balkany hoped the filing would let him see his rental plan to fruition.
“I filed bankruptcy and that eliminates receiver and restraining on leasing,” Balkany wrote in a July 2020 email included in court records.
“We can get everyone in next week, lets go for it,” he added.
Balkany says the bankruptcy court was initially sympathetic to his problems. But digging into the project’s finances, the court flagged the developer’s income statements. Balkany had reported receiving just $180,000 from the city to house the voucher holders. In reality, the city had paid him over $500,000.
The developer says he was misled by Michael Fernandez of Steward Management, the building’s property manager, who he claims introduced him to the city’s voucher program and ultimately pocketed the funds distributed.
Fernandez could not be reached for comment.
“To say that Steward Management duped me is a huge understatement,” Balkany.
Plan B
Meanwhile, Arena, blocked by Balkany’s bankruptcy filing, sued the borrower in December 2020 over his personal guaranty on the loan.
By August 2021, Arena nabbed a judgment for over $40 million. But Balkany failed to fork over the cash.
“Defendant did not pay one penny of what he owed,” Arena’s attorney alleged in a recent complaint.
The lender served Balkany with a restraining notice, requiring him to freeze any assets owed to the firm. Balkany spent at least $500,000 in violation of that notice, bank statements show.
Arena claimed the transfers amounted to fraud and asked the court to force Balkany to respond to an informational subpoena of financial documents.
Balkany refused to answer and the court ruled he was in contempt, giving him until April of last year to cough up the requested financial documents and any funds he had transferred despite the restraining notice.
Tenant casualties
Meanwhile, Arena picked up 308 West 133rd Street in a public auction for $22 million, then filed suit against the building’s 35 tenants to regain control of the property.
The tenants, all formerly homeless, had rented apartments at Balkany’s building with the city’s Department of Homeless Services. But after a district court barred Balkany from renting out the units, a bankruptcy court rejected the building’s leases.
A New York Supreme Court judge ultimately awarded Arena control of the building and the right to eject its renters. By early 2023, all but five of the 26 affected families had moved out.
Those remaining tenants attempted to stay their ejection for another year so they might find a new home. The court denied the motion in a March 21 order.
From Chapter 11 to 7
As his tenants searched for alternative housing, Balkany continued to dodge his creditor.
On April 25, 2022, the developer’s last day to cure his contempt of court, Balkany filed an appeal. The court denied it on May 12, leaving Balkany to face “the near certainty of going to jail,” Arena claims.
The next day, the borrower filed for Chapter 7 bankruptcy. Whereas a Chapter 11 filing allows a company to restructure its finances, Chapter 7 results in the liquidation of a debtor’s assets to repay its creditors.
But Balkany’s filing showed the developer had a mere $31,000 to his name. He also claimed that he had earned no income since January 2020, despite the rents collected at 308 West 133rd Street.
Now, Arena has filed a complaint to deny Balkany’s attempt to discharge his debts.
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Loan default could eject 35 tenants from Harlem condo
The lender alleges that those debts are “non-dischargeable” because of Balkany’s schemes, which included intentionally withholding funds and property “rightfully belonging to [Arena].”
Arena’s attorney did not respond to a request for comment.