Few 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.
At least for the past few years, Mr. Solow intended to get credits through the state’s Brownfield Cleanup Program, which gives developers who build on contaminated sites tax credits for both a set portion of their cleanup costs and a set portion of the total costs of the development. The program, first passed into law in 2003, had no cap on the benefits to developers, thereby allowing multibillion-dollar developments to potentially qualify for payouts of hundreds of millions of dollars in state funds. (The State Legislature revised the program last year, installing a cap of $35 million in benefits, but Mr. Solow would be grandfathered into the old rules.)
Mr. Solow indeed stands to gain substantially, as the DEC has estimated he would qualify for at least $250 million, based on his filings, if he emerges victorious from the legal battles, according to a DEC official.
The DEC, which said during the Pataki administration that Mr. Solow’s development would qualify for the program, has contended during the Spitzer and Paterson administrations that development on the site, one of the largest undeveloped tracts of private land in Manhattan, would have happened without the incentives.
“Remediation was substantially complete, it was fully required by other binding obligations, and the redevelopment was moving forward irrespective of the BCP,” the DEC said in court papers. A DEC spokesman declined to comment further due to the ongoing litigation.
But Mr. Solow’s lawyers said that the DEC was adding a new provision not in the law, claiming the site was eligible for the program regardless of whether development would have occurred.
In October, Justice Lewis Bart Stone agreed, ruling the DEC’s rejection of the development was “in violation of law by adding a condition not found in or authorized by the statute.”
The Solow case comes as the state is appealing similar rulings for a mixed-use project near Rochester and for a planned mega-mall–resort near Syracuse, DestiNY USA, where developer Pyramid Companies plans a development of between $2 billion and $6 billion.
David Freeman, an attorney with Paul Hastings who co-chairs a New York State Bar Association committee dealing with environmental policy and who said he is not involved in these developments, said the DEC “has the weaker of the arguments” in the appeal.
“The issue is, in DEC’s mind, whether these projects would have been done anyway,” he said, “but that’s not a standard that’s actually in the legislation, that’s a standard cooked up by DEC.”
An attorney for Mr. Solow, Daniel Riesel, was more blunt about the developer’s prospects.
“I don’t believe the state has a snowball’s chance in hell because they really tried to change the plain language of the statute,” he said.
For now, though, the site goes without construction, a point that has frustrated community members and elected officials.
“We were looking for open public space, but not in the form of giant craters,” Councilman Dan Garodnick said via e-mail.
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