Cornell Realty Management’s Isaac Hager faces bankruptcy court again — this time over his minority interest in a Midtown building that tried to stay out of foreclosure.
A company through which Hager owns a 15 percent interest in Churchill Real Estate’s Penn Plaza building at 257-263 West 34th Street filed for Chapter 11 bankruptcy in Brooklyn on Wednesday. PincusCo first reported the filing.
David Goldwasser of FIA Capital Partners, a bankruptcy specialist who has earned a reputation for bringing New York home builders to Westchester County bankruptcy court, is listed as chief restructuring officer. Goldwasser had the same role when Hager bankrupted the Tillary Hotel in downtown Brooklyn two years ago.
Hager has poured about $7.5 million into the Churchill project, according to the bankruptcy filing, which says the building is vacant because of Covid but has “potential value equivalent to about $52 million in mortgage debt or above”.
None of the property’s other investors are filing for bankruptcy, Churchill’s attorney Robert Tolchin said The only true.
Churchill has had difficulty finding tenants for the building, in part because of the pandemic and crime in the area. Both 7-Eleven and Merck pulled out of a potential lease after nearby muggings and stabbings. Workers at one of the two companies that rented space, Kolb Radiology, were attacked outside the property while making a delivery. (Bloomberg reported last week that perceptions of crime in the city are ahead of reality.)
Churchill says he’s spent about $90 million on the office and commercial building since 2016. However, after Churchill received a preliminary habitability certificate in 2019 and the project was nearing completion, New York’s office and retail leases were stalled by the pandemic.
Churchill hired Avison Young in 2020 to search for potential residents of the building. The firm filled 40 percent of its allotted space, but that wasn’t enough for Churchill to meet his monthly payments.
After Churchill missed his monthly payment in April 2021, the building’s senior lender declared its loan in default and began charging interest on arrears two months later. Marathon Asset Management provided Churchill with $52 million through three loans in 2019 to refinance the project’s debt and complete construction.
Marathon filed for foreclosure on the debt in state court last September. Churchill argued at the time that Marathon could not sue for foreclosure because the Shell company in the Cayman Islands, which it believed to be the debt, was not registered to do business in New York.
“We’ve all been through hell, but we can come back.”
In response, Marathon said the company only held credit for this project and failed to meet the state’s registration requirements. Still, she transferred the loans to a Delaware-based company in November.
In January, a state judge appointed a receiver to take over the property and forced Churchill to turn over the associated books, keys and bank accounts. Marathon’s motions to foreclose on the loans remained unresolved and were brought to federal court in March.
Marathon has previously claimed Churchill owes him nearly $56 million, including $4.6 million in interest.
Tolchin described Marathon as a “vulture” and said the loan should have been restructured in light of the pandemic.
“We’ve all been through hell, but we can all come back,” Churchill’s attorney said. “We didn’t mismanage the building.”
Hager and his lawyers did not comment before the publication.
Hager, a dealmaker who survived court cases and foreclosures after the Great Recession to become one of the most active developers in Brooklyn and Queens, is familiar with bankruptcy and foreclosures.
Hager has been fighting to keep the Tillary Hotel out of the hands of lenders for nearly two years. Most recently, he asked a judge to stop senior lender Ohana Real Estate from pursuing a bankruptcy sale this month.
Hager teamed up with his girlfriend Lipa Rubin in 2019 to buy the Tillary, a 174-room hotel and 64-unit apartment building at the 85 Flatbush Avenue Extension. When the pandemic hit, the hotel was turned into a shelter for homeless men.
Hager bankrupted the hotel, along with a 26-story hotel and residential tower at 159 Broadway in Williamsburg, in 2020 to stop a foreclosure by its mezzanine lender, Eli Tabak’s Bluestone Group. Tabak, which held a $6 million mezzanine loan on the downtown Brooklyn property, filed a UCC foreclosure in August 2020.
Hager is the grandson of the late Rabbi Mordechai Hager, the longtime leader of the Viznitz Hasidic sect. Isaac, also known as “Itzy”, founded real estate firm North Development Group in the mid-2000s and began a partnership with Chaim Lax, founder of diamond trading and real estate company Dynamic Diamonds.