Investor alleges that HFZ diverted funds at the behest of JPMorgan to save XI

Ziel Feldman and the XI. (Getty, the XI)

UPDATED June 10, 8:37 pm: When HFZ Capital began to struggle with its twisted condo project XI in Chelsea, an investor alleges that the company fraudulently diverted funds from another deal to keep it afloat.

Richard G. Leibovitch of Arel Capital

Richard G. Leibovitch of Arel Capital

New York-based Arel Capital is suing affiliates of HFZ Capital over a $ 7.3 million investment it made in four former Capital HFZ buildings in 2014. HFZ Capital was looking to convert four pre-war rental properties into condominiums: at 88 Lexington Avenue; 90 Lexington; 301 West 53rd Street; and The Astor at 235 West 75th Street.

Arel alleges that he had a minority equity stake in the portfolio and was supposed to get the money back after HFZ secured a $ 600 million refinance in 2016. The company says that instead of receiving any of the refinancing funds, the money was diverted to pay off loans in XI, which was experiencing financial problems.

Arel alleges that HFZ, along with its top executives, Ziel Feldman and Nir Meir, diverted the money at the behest of JPMorgan Chase, which was a lender in both the condo conversion portfolio and the XI. (JPMorgan was a senior lender for the refinance and a middle lender for the XI.)

The lawsuit, filed in the New York Supreme Court this week, also alleges that “the defendants concealed the diversion of funds for years, deliberately refusing to provide the plaintiff with a complete and accurate accounting” of the 2016 refinance.

HFZ Capital and Ziel Feldman did not respond to a request for comment. JPMorgan declined to comment.

Nir Meir’s attorney says all the claims are frivolous and said the developers put up $ 100 million of their own money to try to save the condo portfolio.

“The claims are without foundation,” said Larry Hutcher of Davidoff Hutcher & Citron.

Arel also alleges that HFZ likely violated New York’s Martin Law by offering two apartment units at the Astor to Arel. A lawyer for Arel Capital did not respond to a request for comment.

In January, CIM Group seized in all four Manhattan condo conversion projects and took control of the properties. CIM Group is suing HFZ and Feldman for the guarantees granted on junior mezzanine loans linked to the four properties. The CIM Group initially provided those loans in 2018.

The development company, led by Feldman, initially paid Westbrook Partners $ 610 million for the four properties in 2013, partnering with Fortress Investment Group on the purchase.

Construction in the eleventh it has also stalled. The unfinished building, designed by English architect Bjarke, contains 236 units spread between two twisted towers with a projected sale of $ 2 billion. The Real Deal previously reported that Suffolk Construction and Zeckendorf Development plan to take over the project.

HFZ was once one of New York’s most prolific condo developers, but is now embroiled in lawsuits, foreclosures, and infighting. Feldman and Meir, who left the company in December, sold some of their personal residences. Meir recently sold a Bridgehampton mansion to Patriots owner Robert Kraft for $ 43 million.

Correction: An earlier version of this story misrepresented Meir’s attorney’s comment regarding the developer’s investment.

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