Ruby Schron and David Werner notched a court victory over the Carnegie House co-op board, which is desperately trying to avoid a massive rent increase to its ground lease.
A state judge on Wednesday denied the board’s request to halt arbitration on the ground lease reset at 100 West 57th Street. Judge Arthur Engoron found that the board “failed to show irreparable harm” and that its claims were “unlikely to succeed on the merits.”
The board and Georgetown 57, an LLC that controls retail space in the building, are trying to buy time and gain leverage in their negotiations with Schron’s Cammeby’s International Group and David Werner Real Estate, which own the ground. The ground rent could skyrocket to $40 million from $4 million.
If the board and landowners can’t agree on a new ground lease, and either the co-op is dissolved or a new lease is approved but the residents are unable to pay the new rent, the Billionaires’ Row apartments could become rent-stabilized — and shareholders would lose ownership of the building.
“We are disappointed by the court’s decision, but we remain committed to exploring all possible avenues to protect our community and prevent the displacement of over 300 families amid New York’s housing crisis,” Richard Hirsch, president of the board, said in a statement.
Billionaires’ Row residents are not normally seen as threatened by the housing crisis, but not everyone at 100 West 57th is loaded. Some were able to buy into the building at bargain prices — a one-bedroom recently sold for $180,000 — because of the looming ground rent increase, which they now seek to avoid.
The board and Georgetown 57 sued in September, asking the court to stop arbitration and to force the state’s Division of Homes and Community Renewal to establish how initial rents will be calculated if the units become rent-stabilized.
The lawsuit accused the landowner, an entity tied to Cammeby’s and Werner, of negotiating in bad faith to force the co-op into insolvency. The board pointed to a state law that says HCR sets initial rents if a co-op becomes rent-stabilized because of the owner’s actions.
At 100 West 57th, the owners argued that the lawsuit was premature and that the lease requires arbitration to reset the rent before it expires on March 15, 2025.
In a court filing, the owners point to marketing materials from 2014 that projected the ground lease rent to jump to $40 million in 2025. Cammeby’s and David Werner bought the property in 2014 from Georgetown itself.
“Plaintiffs have unclean hands because Georgetown actually sold the land to Fee Owner in 2014 for nearly $300 million, demonstrating that Georgetown believed 10 years ago that the value of the property at that time required a ground rent of well more than $20 million, and gave its marketed prediction the rent would reset to $40 million in 2025,” the filing states.
Georgetown is a minority owner in the LLC that controls the retail co-op, according to the firm, which is led by Adam Flatto.
The land owners told the co-op that arbitration would likely value the property at $495 million and result in a new rent of about $40 million. Recognizing that this would be “a significant increase,” the owners asked the board to provide a counter offer.
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The board came back with $5.4 million, and then increased the offer by $50,000, according to the owners’ court filings. The owners then pitched $25 million. With Wednesday’s decision, the co-op board and Georgetown 57 have 15 days to appoint their arbiter to a three-member panel.
The co-op’s residents have been fighting the looming rent reset on other fronts, spending tens of thousands of dollars lobbying for state legislation to cap rent increases on ground leases and to ensure renewals. The bill did not come to a vote last session.