Real estate boomed in 2021, but these buyers lost big
We introduce the biggest losers in the real estate bull market.
Most investors have committed murder in the past two years when prices skyrocketed in virtually every sector of the housing market. But some investors are learning that even supposedly iron “Swiss bank vault” towers in Manhattan harbor great risks.
The XI, a huge $ 2 billion condominium project of 236 units and winding twin towers designed by superstar architect Bjarke Ingels, is currently rotting along the High Line in Chelsea. Last year, the financial collapse of developer HFZ Capital Group halted construction of the XI. It went into foreclosure, washing away tens of millions in investor capital.
“Nobody knows when it will be ready,” said Kitt Garrett, a Chelsea resident and member of the Save Chelsea community group. She added that the boarded up sidewalks made the High Line less enjoyable and made the area feel less safe.
“When you have someone looking at a luxury new build and there is one? [languishing] Across the street, people will take a break, ”said Compass realtor Michael J. Franco of the“ great strain ”the project has placed on the neighborhood.
“You have to tell them it’s on hold and you don’t know when it will come back up.”
HFZ sold over three dozen units designed by Bjarke Ingels (inset) at the XI before the sale was discontinued.Sean Mathis / Getty Images for SXSW; Dbox / HFZ capital group
According to records filed with the Attorney General’s Office last year, the HFZ sold 38 units on the XI before ceasing sales in the building. Those buyers should eventually get their apartments after the building is completed from whoever buys HFZ’s debt, attorney Adam Leitman Bailey said.
In November, The Post released news that billion dollar real estate mogul Steven Witkoff is ready to be the buyer and complete construction of the tower – but how long it would be to complete the deal, how long it would take to complete construction and what does that mean? remains unclear for investors.
HFZ directors Nir Meir (left) and Ziel Feldman (right) lost the money from small investors when the XI in Chelsea pulled their company under the table. Today this building continues to rot along the High Line.Tana Lee Alves / WireImage for Niche Media, LLC; Michael Sofronsk
An auction planned by the project’s lender, the Children’s Investment Fund, a British hedge fund, was postponed from last fall to the new year.
“If the market had continued to rise and you didn’t have COVID, these guys [HFZ] would have been fine, “said Leitman Bailey. “But they weren’t doing so well, they just got by, and then COVID strikes and that just wipes you out.”
But investors also lost a lot in other HFZ developments.
Feldman and Meir from the HFZ developed and converted many of the city’s liveliest new buildings, such as the Belnord.Michael Sofronski
Over the past decade, HFZ directors Ziel Feldman and Nir Meir have designed and remodeled more than a dozen of the city’s chicest and most luxurious new residential buildings, such as the historic Belnord on the Upper West Side, the Bryant overlooking the New York Public Library and the Astor, a historic Upper West Side building originally built in 1909 by William Waldorf Astor II.
Many little millionaires are already investing money in these HFZ projects in the pre-construction phase, knowing that in the end they would get units in these buildings.
“They would blame the market, or construction, or banks, or whatever the reason for delaying delivery [the units] as long as humanly possible. “
An anonymous housing investor
At the time, getting an apartment at a discount undoubtedly seemed like a great way. Now, however, many are suing the developer, claiming that they were cheated of the promised units. Because these transactions were technically investments, unlike traditional home sales, individuals do not enjoy the same protection as a typical buyer.
“They would postpone it as long as possible,” said an anonymity investor for the developer, whose entire building stock is being devoured by rival property sharks who smell blood in the water. “They would blame the market, or construction, or banks, or whatever the reason for delaying delivery [the units] as long as humanly possible. “
The investor said it waited more than five years to close a unit that HFZ provided in exchange for its investment.
HFZ “started making all sorts of excuses as to why they couldn’t close,” they said. Ultimately, “we understood that HFZ had no intention of ever closing our unit.”
It remains unclear how many Joe Schmo buyers went down on the ship, but there are currently several cases of such deals pending through the New York court system and more lawsuits are likely to follow, a source familiar with the deals said, also referring to anonymity asked.
Investor Sergey Kostyatnikov claimed to have poured $ 3.8 million into HFZ’s Marquand apartment a year ago, according to a lawsuit. HFZ never provided him with units. Stefano Giovannini
That source said he knew of about 10 people who had invested money in HFZ buildings in anticipation of receiving one or more units in those buildings. He said these investments ranged from $ 3 million to $ 4 million to more than $ 10 million.
The HFZ accepted the money, but in some cases never delivered the units that had been promised. Well, these investors are unlikely to get much, if any, of their money back.
This story is repeated over and over again in the records of the New York State Supreme Court.
In a lawsuit filed last December, investor Sergey Kostyatnikov claimed to have invested $ 3.8 million in the HFZ condominium conversion at Marquand, 11 E. 68th St. on Lenox Hill.
Kostyatnikov was then promised two units in the Astor – according to his complaint, he never got these either.Stefano Giovannini
According to his lawsuit, Kostyatnikov (who declined to comment through his lawyer) was entitled to one of two units in the building. HFZ never delivered any of these units to Kostyatnikov, but agreed to offer him a pair of units in the Upper West Side company’s condominium building, the Astor. According to Kostyatnikov’s complaint, he never received these units either.
In another lawsuit, an investor trading through the limited liability company Astor Ben Sasha LLC alleged that they poured $ 6.2 million into the Astor in 2014 in exchange for a unit in the building. According to the lawsuit, they have since been waiting to take possession of the unit, even though they have pumped another US $ 1 million into “interior and interior fittings” for the apartment.
Another LLC, Arel Capital Partners II, is suing HFZ for $ 7.3 million it allegedly invested in the 88-90 Lexington, Fifty Third and Eighth and the Astor condominium projects in exchange for two units in the latter building, who never received it.
Arel Capital Partners II is suing HFZ for $ 7.3 million that the LLC allegedly invested in condominium projects for the company such as 88-90 Lexington.Lorenzo Ciniglio / Freelance
Instead, the lawsuit alleges, HFZ refinanced these four buildings and put the proceeds from that transaction into its ill-fated XI project to house the city’s first Six Senses hotel (now postponed indefinitely).
Prospective buyer Jenny Kwan loaned HFZ more than $ 3 million in 2015 on the understanding that the funds could serve as a loan to purchase a unit in the developer’s Bryant Condo building at 16 W. 40th Street.
She sued the company last month for refusing to shut down a couple of units in the building while still on hold on her money.
Jenny Kwan loaned HFZ more than $ 3 million in 2015 as she thought it would count as credit for a unit in the Bryant building. According to their lawsuit, this was not the case.Stefano Giovannini
The problem for these people is, of course, that the HFZ is broke and has neither the money nor the apartments to stock up on.
In August Feldman filed a lawsuit alleging that Meir siphoned off “tens of millions of dollars of HFZ’s money” and pumped the funds into luxury like a sprawling Hamptons mansion. He called his former partner a “sociopath” 17 times in court records and compared him to Bernie Madoff and cult leader Jim Jones.
Meir has denied these claims – but has since liquidated his greatest fortune. That year he sold his Hamptons playground to billionaire Robert Kraft for $ 43 million.
No wonder Feldman is so trained – as a guarantor for a number of loans the HFZ took out to build its projects, he could personally be hooked for tens of millions of dollars.
He has also started liquidating his personal real estate holdings.
In January he sold his property in Bridgehampton at 187 Dune Road for $ 50 million. Feldman is also trying to unload his penthouse at the HFZ Marquand development center. He recently cut his asking price for the 6,200-square-foot pad from $ 39 million to $ 35 million.
HFZ representatives and Feldman declined to comment, as did Meir’s lawyer.
Their real estate empire is gone, with Feldman and Meir reminding us that even gold-plated real estate deals in Manhattan can turn sour.