Solow Tact

brown 20 Solow TactFew have complained of a shortage of lawsuits flowing from Sheldon Solow’s offices at 9 West 57th Street. The 80-year-old billionaire developer is known as one of the most litigious names in the local real estate scene, described by friends as someone who has a strong feeling of right and wrong, and derided by critics as a vindictive landlord who pursues frivolous challenges.

But Mr. Solow is now engaged in a legal battle with state government that suggests a distinct lack of frivolity both in its scope (he is eligible for perhaps over $250 million in state funds) and the strength of his arguments (a state court recently ruled in his favor, though the decision is now being appealed).

The dispute centers around Mr. Solow’s prized development parcel, a 9.2-acre former Con Edison site just south of the United Nations, and its eligibility for a state brownfields development incentive. After initially telling Mr. Solow his development firm was qualified to enter the brownfields incentive program, the state’s Department of Environmental Conservation in the Spitzer administration changed course and ruled the site ineligible, in part because it said the development would have happened with or without the credits.

Mr. Solow then sued the DEC, and in October, a New York Supreme Court justice decided in his favor, ruling Mr. Solow should qualify for substantial assistance in the form of tax credits. The case is one of a series of high-profile developments around the state where the DEC has sought to block entry to the brownfields program, only to be reversed by state judges. For the Solow case and at least two others, the DEC is appealing the court decisions; losses at the appellate level would likely mean that the state would have to pay out hundreds of millions of dollars during a strained fiscal time.

The success of the lawsuit thus far—and the potential to receive a corresponding nine-figure tax credit through the brownfields program—represents a bright spot for Mr. Solow at what appears to be a time of rough going.

Citibank last month filed a lawsuit against him, claiming he was in default on $85 million in loans tied to the site. According to the suit, a $490 million loan with the bank required Mr. Solow to keep annual cash flow in 2007 at no less than $50 million as of March 31, 2008, but documents Mr. Solow submitted to Citibank showed cash flow of just $11.6 million. He also was required to have “unencumbered liquid assets” of at least $50 million, though he had only about $12 million available, according to Citi. 

A source close to Mr. Solow said the developer believes the claim is not valid, as Citibank mismanaged his collateral.

Mr. Solow is also entwined in the case of Marc Dreier, the lawyer accused of bilking hundreds of millions from hedge fund managers. According to court papers, Mr. Dreier and his associate Kosta Kovachev posed to hedge fund managers as representatives for a real estate developer in New York—reported to be Mr. Solow—using his offices to commit the fraud.

More broadly, the financial crisis and sealed-tight credit markets are surely affecting Mr. Solow’s plans to build on the East River site, where he wants to put a $4 billion development of housing and office space. The development won a hard-fought zoning approval last March, though the community and local elected officials have heard little about the status of the project as the sprawling site has sat dormant—no building permits have been filed since early 2008. A spokesman for Mr. Solow said the developer is committed to developing the property “at the appropriate time, consistent with the plans approved by the City Council.”

 

A QUICK START on construction, of course, would defy the recent history of the site. In early 2000, Mr. Solow, in a partnership with the Fisher real estate family, was announced the winning bidder for the site, a former power plant. Financial partners changed, and the cleanup proceeded gradually (Mr. Solow’s lawyers say it cost about $100 million), and it wasn’t until 2007 that he began the city’s seven-month rezoning approval process.