Co-op Says HFZ Plundered Reserves
Ziel Feldman’s HFZ Capital Group bought the Chatsworth to return the once coveted Gilded Age building to its “original glory” by converting its rentals into co-ops.
But a decade later, the Chatsworth’s board alleges that Feldman and HFZ have left the Upper West Side building in “dire financial straits’” and used the co-op as its “personal piggy bank.”
The board accuses HFZ of dipping into the board’s reserves to upgrade their personal units, illegally lending money to other projects and falsifying the Chatsworth’s tax forms. The board said it was forced to hit shareholders at 340-344 West 72nd Street with a $10 million assessment, according to a complaint filed in New York Supreme Court in December.
The complaint also names Feldman, former HFZ principal Nir Meir and former HFZ chief investment officer John Shannon.
“The allegations in this lawsuit are a result of acts taken by Nir Meir,” an HFZ spokesperson said in a statement. “Those and other acts are reflected in the lawsuit HFZ filed against Meir.” That suit blames Meir for a lot of the condo developer’s problems, and alleges Meir charged personal expenditures to HFZ, including $10,000 weekly sushi dinner parties.
Meir’s attorney, Larry Hutcher of Davidoff Hutcher & Citron, responded, “This is just the most recent desperate act by Mr. Feldman, who refuses to take responsibility for any of his actions even though the documents and facts show otherwise.”
He added, “To continue to blame Mr. Meir is simply a fruitless and ineffective strategy.”
Shannon’s attorney could not be reached for comment.
HFZ has been besieged by liens, foreclosures, fraud allegations, infighting and ties to embattled Israeli diamond magnate Beny Steinmetz. Now co-op boards say they have been left to deal with the fallout.
The lawsuit alleges that HFZ was able to plunder the board’s reserves because it had control of the co-op board until May 2021.
The board of directors discovered the extent of the building’s problems after a due diligence report found that construction on the building was incomplete. It needed building-system repairs, common space work, facade work, gas installation in apartment units and permit closures. The report estimated the hard costs at more than $3.7 million and soft costs of around $400,000, according to the lawsuit.
The report also discovered a “disturbing fact” — that HFZ and its executives allegedly owed more than $2.7 million to subcontractors and consultants for work already completed, according to the complaint.
With maintenance issues unaddressed, individual owners allegedly made “side deals” with Meir to waive co-op dues payments until Jan. 1, 2021, according to the complaint. The board alleges Meir had no right to make the deals and now these shareholders have arrears totaling $1 million.
The “most egregious action,” according to the suit, was the defendants’ “sham recognition agreement” with lender Starwood Property Mortgage signed by Feldman in 2017. The agreement allegedly violated the offering plan, which stated HFZ’s obligations to the co-op would come before what it owed lenders. Instead, the deal let Starwood get paid first. Starwood is not a defendant in the lawsuit or accused of wrongdoing.
The board alleges that HFZ’s actions have cost it at least $10 million and that HFZ violated the civil RICO Act.
The attorney for the Chatsworth’s board, Ethan Kobre of Schwartz Sladkus, declined to comment.
HFZ’s troubles at the Chatsworth first became known in October 2020 when a Starwood entity sued the firm for $157 million. The lender alleged that HFZ, Feldman and his wife, Helene, defaulted on the senior and mezzanine loans, an unsecured loan and an inventory loan for the century-old building. HFZ’s lawyers denied Starwood’s allegations. The lawsuit is still active.
In May 2021, HFZ transferred 21 co-ops at the Chatsworth to a Starwood entity.
HFZ bought the Chatsworth in 2013 for $150 million and quickly sought to convert the 147-unit Beaux-Arts rental building into co-ops. At the time, Feldman told the Wall Street Journal his firm planned “to bring it back to its original glory.” One challenge was that about half of the building’s units were rent-stabilized, according to the Journal.
In 2017, HFZ sold 46 of the building’s rent-stabilized units for $38 million to an entity linked to the Safra family.
The Chatsworth has about 150 outstanding violations with the city’s Department of Housing Preservation and Development, according to PropertyShark, a commercial real estate data provider.
Douglas Elliman is handling sales for the building. Available units range between $2 million and $9.8 million, according to the Chatsworth’s website.