Michael Stern’s JDS Development Group and Kevin Maloney’s Property Markets Group are facing a $105 million lawsuit from AmBase Corp. in relation to the developers’ planned supertall condominium tower at 111 West 57th Street – with AmBase alleging an “unlawful scheme to dilute” its equity interest in the project.
AmBase, a Florida-based holding company, filed suit Friday in New York state Supreme Court against JDS, PMG, JDS principal Michael Stern, JDS director of finance Matthew Phillips and PMG principals Kevin Maloney, Elliott Joseph, and Ned White.
AmBase claims that the developers “devised a scheme to increase their ownership interest in the joint venture at the expense of AmBase” through “artificially driving up development expenses and then issuing unnecessary capital calls to cover the purported costs.”
The complaint alleges that JDS and PMG “funded their own portion of these capital calls by illicitly obtaining financing on favorable terms from undisclosed parties,” limiting their own risk in the condo development “while imposing substantial financial burdens on AmBase.”
AmBase initially acquired a 59 percent stake in the joint venture developing the 80-story, 1,400-foot-tall luxury residential tower for $56 million in 2013. JDS and PMG’s $39 million contribution to the partnership gave it the remaining 41 percent interest – though AmBase’s stake eventually grew slightly to north of 60 percent.
But when AmBase eventually refused to pay its portion of subsequent capital calls – after having funded the first three such calls in full – the developers allegedly diluted the Florida firm’s share in the project “from a majority interest of 60.3 percent to a minority interest of 45.3 percent,” the lawsuit claims. Meanwhile, the suit alleges, JDS and PMG did not dilute the equity of Atlantic 57 LLC, a non-party that purchased a 26 percent equity stake from JDS and PMG and subsequently did not answer capital calls.
In wake of the dilution of AmBase’s stake, the JDS and PMG partners then allegedly paid out a distribution to equity holders “in proportion to their unlawfully obtained, higher equity stake” – despite the condo development having “not earned any revenue” – and also “unlawfully concealed” from AmBase the third-party financing obtained for the project.
The distribution in question came after the developers received $750 million in construction financing from AIG and Apollo Global Management last summer for the Billionaires’ Row tower, according to the suit.
The suit also claims that JDS, PMG and the principals “engaged in other misconduct to advance their own interests to the detriment” of AmBase, including transferring their interests in the project “among themselves in violation of their agreements” and making “major decisions on behalf of the joint venture” – such as constructing a “lavish” sales office on Fifth Avenue — without notifying or receiving approval from AmBase.
AmBase is seeking a declaration that its equity interest in the joint venture behind 111 West 57th Street “has not been diluted” into a minority stake and also wants “to recover the distributions defendants diverted to themselves” in wake of the dilution, according to the lawsuit. The company is also seeking damages exceeding nearly $104.8 million.
Neither representatives for JDS and PMG nor Michael Tremonte of Sher Tremonte LLP, which is representing AmBase, returned requests for comment.
In March, JDS and PMG announced they would delay launching sales at 111 West 57th Street for about a year due to difficult conditions in the high-end, luxury condo market. The 60-story skyscraper is targeting a total sellout of $1.45 billion, according to an offering plan approved by the state Attorney General in October – with the priciest condo asking $58 million, or nearly $8,200 per foot.
Source: Real Estate