We recently represented two famous authors in the purchase of a 10,000 square foot commercial landmarked building in Manhattan. The seller is a real estate developer that planned on converting the property to a condominium. Due to the change in the market, they were not successful in their conversion plans and their construction loan had expired. The seller’s lending institution avoided foreclosure proceedings due to the uncertainty of the value of the building (the interior is destroyed and needs a complete renovation) and due to the fact that the seller was receiving interest from other developers and purchasers.
Our clients wanted to purchase the building, but knew they would not be able to get financing for a transaction of this nature and wanted to convert it to a residential property and restore it to its original use as a single family mansion. The issue we encountered is that our client needed to pull equity from an asset it had overseas in order to purchase this property. The seller could not afford to wait an unspecified period of time to enter into contract because their bank was threatening to foreclose on the building.
We therefore negotiated a triple net lease with a one year option to buy agreement. This way the lending institution saw positive cash flow coming in from the property which would cover all of its expenses and the potential for the building to be sold and for the bank to be paid their entire principal balance on the mortgage. Upon our review of the documents, it became apparent that the seller was going to give our 10% contract deposit to her bank as part of the forbearance and the sum would not be held in escrow. We would not consent to this and this lead to prolonged negotiations. During the negotiations, our clients were able to obtain the full sum necessary to purchase the building in cash, we avoided the option agreement and entered into contract with the 10% deposit being held in escrow.
An issue that arose when the seller purchased the building is that it was purchased from a religious institution in Manhattan. The building had been used as a synagogue for several years. Under New York State law, whenever a religious institution sells a property, they must obtain a court order approving the sale. The synagogue did in fact obtain the court order and legally sold the building. However, members of the synagogue that were opposed to the sale have been contesting it for several years. Prior to our client entering into contract, there was a Lis Pendens on the building (filed by the disenchanted members of the synagogue who were in fact barred from the building), which would block any sale. We made sure this Lis Pendens was removed before we signed the contract. The Supreme Court of New York ruled that the sale was done in accordance with State law and was sold to a bona fide purchaser.
Two weeks before our closing date, the synagogue filed an appeal on the Supreme Court’s ruling and took this matter to the Court of Appeals and has named the seller in our transaction as a defendant. We worked with our client’s title company and the seller’s title company (who is representing the seller in the lawsuit) to determine how long it will take to have to appeal thrown out of Court and to see if we can obtain indemnification from the seller’s title company and enable our title insurance company to insure our claim to ownership and eliminate any risk to our client.
After three weeks of negotiations with both title companies, we were able to obtain indemnification for our client’s title company and therefore obtain title insurance on the property. We successfully closed a week thereafter and we are currently working with our clients on the conversion of the building.
The Wall Street Journal wrote an article on this transaction on June 15, 2010. Please visit the “In The News” section of this website for the link to the article entitled “Black Synagogue Dispute Snags Buyers.”