Peter Fine’s Atlantic Development is suing two major New York landlords, Larry Silverstein and Joseph Moinian, over funds the developer planned to use to fund below-market rate housing.
In court complaints filed against subsidiaries controlled by Messrs. Silverstein and Moinian, Atlantic claims the two landlords owe him millions—$3 million on the part of Mr. Moinian and unspecified “millions” on the part of Mr. Silverstein—for breaching contracts to buy development rights or certificates from Atlantic. According to a spokesman for Atlantic, one of the largest developers of affordable housing in the city, the breakdown of the two deals in the lawsuit has delayed at least one of its affordable developments: Harborview, a project planned on city Housing Authority land in Hell’s Kitchen.
The lawsuits speak to the problems affordable housing developers face amid the financial crisis, as they often finance their projects with funding from other luxury residential developers. Through tools set up by the city, affordable housing developers can sell development rights to luxury developers who want to build with greater density. Done through two programs—the now-altered 421-a program and the inclusionary housing program—affordable developers like Mr. Fine have used these tools as a main source of revenue to finance their affordable developments.
But now that some of the planned luxury developments around the city have been stalled or scrapped, any affordable developments expecting payments as a result are hit with a shortfall.
The suit involving Mr. Silverstein relates to Mr. Silverstein’s planned luxury high-rise at 99 Church Street. Atlantic was expecting payments as a result of the development, related to the old 421-a program, to fund affordable housing in the Bronx. But the tower is stalled, and in the suit, Atlantic claims that Mr. Silverstein intentionally delayed the closing of the deal to let the tentative agreement expire, freeing Mr. Silverstein from paying damages.
The essence of Atlantic’s claim:
When as a result of the recent credit crisis, however, Mr. Silverstein found himself unable to finance further construction of 99 Church Street, and thus determined to put the project indefinitely on hold, his affiliate — no longer in need of the tax benefits it had agreed to purchase from Atlantic — decided to renege on its written agreements, thereby depriving Atlantic of a significant source of funding for its construction of affordable housing in the South Bronx. Rather than accept the consequence of that decision — which, under the agreements, is the forfeiture of two letters of credit totaling 50% of the certificates’ purchase price as liquidated damages –Mr. Silverstein and his company then contrived to string Atlantic along and delay the closing of the transactions, in an ill-conceived attempt to run out the clock and use their own delay as a pretext for terminating the agreements.
A Silverstein spokesman, Bud Perrone, said in a statement that the firm hopes to have construction financing secured by the summer, and is currently doing some work on the site’s foundation.
“We are confident that we will prevail on the merits of the case and remain 100 percent committed to the Four Seasons project at 99 Church Street,” Mr. Perrone said.
The suit against Mr. Moinian has a similar context. Mr. Moinian—who declined to comment through a spokeswoman—had a deal with Atlantic to buy $40 million worth of development rights through the inclusionary housing program in order to build a large apartment tower at 605 West 42nd Street. According to Atlantic’s court filings, Mr. Moinian’s company agreed in February 2008 to buy 231,000 square feet of development rights for $176.90 a square foot.
Mr. Moinian put a deposit of about $3 million into escrow, and before the deal ever closed, Atlantic claims, Mr. Moinian’s firm never gave a letter of credit, effectively killing the deal. Atlantic says Mr. Moinian’s firm was then in default of the initial 2008 contract, and owes Atlantic the $3 million, which is the subject of the lawsuit.
Atlantic, which seems to be having other legal troubles right now (they’re reportedly being investigated as part of a possible bribe scandal), has delayed its Harborview project, according to a company spokesman, in part due to the broken deal with Mr. Moinian.
Here’s the Silverstein suit: