In Tower Tussle, The Empire Strikes Back

They’re at it again. The fragile peace between the board of the Empire, a luxury condo on the Upper East Side, and the building’s developers fractured last week, and the knives are out again.

Despite the efforts of the State Attorney General’s office, which began mediating between the Empire’s board of managers and the developers-Aby Rosen, Michael Fuchs and Trevor Davis-in March 2003, and a resulting settlement agreement in which the two sides resolved some of their differences, significant problems lingered and the truce fell apart last week.

On April 14, the Empire’s board filed a $10 million civil suit against Messrs. Rosen, Fuchs and Davis in U.S. District Court in Manhattan, claiming that the developers never carried out agreed-upon repairs, which would force tenants to borrow millions to pay for the work. The Empire’s board also seeks monetary retribution for what they claim to be the developers’ history of providing sub-par apartments through false advertising, coupled with spotty or nonexistent repair work.

The Empire, a 31-story luxury condominium, was the first collaborative project between the three developers turned defendants. Mr. Davis is the principal of Davis and Partners, and Mr. Rosen and Mr. Fuchs are principals of RFR Holding. In 2000, the Empire’s lavish tower at 188 East 78th Street completed its ascent over Third Avenue. Several high-end residential developments followed under the joint venture RFR/ Davis, including the Seville, 425 Fifth, the Impala and Park Avenue Place.

Excited high-profile buyers, including Yankees slugger Jason Giambi, YES network head Leo Hindrey and real-estate mogul Steve Witkoff, bought Empire condos. Anxious buyers scooped up luxury apartments having only seen the blueprints or brochures for sponsor units ranging in price from $640,000 to $4.15 million. Although commonplace in today’s heady market, this frenzied rush to purchase was still a novelty at the time.

Shortly after opening up, many Empire tenants have complained about countless problems, from flooding to improperly fitted windows.

In the suit, the board also throws the weighty charge of racketeering against the “sponsor,” RFD Third Avenue I. Associates, the overarching enterprise owned and controlled by Davis and Partners and RFR Holding. The board alleges that the developers violated the RICO law (Racketeer Influenced and Corrupt Organizations Act), which is more commonly used for combating Mafia dons than interceding in a posh condo battle.

“This action arises from the defendants’ pattern of fraudulent and otherwise wrongful conduct in among other things, their construction of, marketing and sale of residential units in, the Empire,” begins the 46-page lawsuit.

The board of managers provides a long list of allegations, including “frigid” or “sweltering” indoor temperatures, frozen and burst pipes, and lack of insulation. Further allegations address inaccuracies in the promotional materials.

“This is an issue that there was a settlement on. We carried out the work to fix the problem. If there’s any problem with the work that was done, we plan to bring back the subs and correct any problems that are existent,” said Steve Solomon, a spokesperson for the developers.

According to the board, the developers aren’t the only ones at fault.

“Our frustrations are in two places,” said Bruce Sibley, president of the Empire’s seven-member board.

“Obviously, the sponsor didn’t address the problems. Secondly, we spent the better part of two years working with the Attorney General’s office to broker an agreement,” said Mr. Sibley.

“The best way to describe it is that they said they would stand by the agreement in the event that the sponsor did not meet its obligations,” he said.

Shortly after filing the suit against the developers, the board served a demand on the Attorney General’s office to formally arbitrate the matter. At press time, the Attorney General’s office has not come to a decision.

“We don’t have any comment on pending litigation,” said Jaunita Scarlett, the press secretary for the Attorney General’s office.

The Attorney General’s office entered the fray after Rand Engineering, an independent firm, was brought in to assess the building. In February 2003, the firm produced an 89-page report that listed a host of problems. In September 2003, a settlement was reached to address repairs outlined in the Rand report.

“The Attorney General’s office was actively engaged in the process,” said Mr. Sibley. “Although from our perspective, given that the work was not proceeding to schedule, [the Attorney General’s office] was not being as assertive as it needed to-to enforce an agreement which it signed.”

In December 2004, Rand Engineering generated another report, stating that only 25 percent of the repairs had been made, according to the suit. A spokesperson for Rand Engineering declined to comment on the Empire.

Despite the dramatic legalese, one broker with experience selling units in many new developments believes the situation has been overblown.

“There isn’t a single condominium in New York City, new construction, that doesn’t have issues,” said Richard Steinberg, senior managing director of Warburg Realty. Mr. Steinberg sold 10 apartments in the Empire, including a 3,000-square-foot pad to Mr. Giambi for $3.3 million in 2002.

“When I sold [to] Jason Giambi, and when I sold the two penthouses, there were some water leaks …. [B]efore the closing, we went through punch lists,” said Mr. Steinberg, emphasizing that engineers and workers were quickly brought in remedy the situation, leaving his clients without any future complaints.

“I don’t know whether that solved the structural problems that created the leaks,” said Mr. Steinberg. “But I can tell you that they were responsive every time.”

Not so, says the board president.

“They were totally non-responsive, and denied that these problems exist,” said Mr. Sibley, who dropped $1.6 million on his residence four years ago. The corporate executive and father of two claims that the building’s faulty construction has put a strain on his family.

During “a very cold winter month,” Mr. Sibley alleges that his electric bill exceeded $950 after he ran his HVAC constantly in hopes of achieving a more even, and comfortable, temperature. He claims that indoor temperatures have sometimes been in the 20’s and 30’s and his wife’s walk-in closet is unsuitable for changing.

“We could use her closet as a wine cooler,” he said.

Joking aside, for Mr. Sibley, and the tenants he represents in the suit, solving this crisis is of paramount importance.

“The problems that the building is facing are important issues, many of which affect people’s lives on a day-to-day basis,” he said.

In Tower Tussle, The Empire Strikes Back