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Dust Clearing at Riverhouse as Developer Secures $61M in Additional Financing

Riverhouse - Battery Park City

Late last week, CBRE Investors’ CBRE Capital Partners investment entity originated $61 million in first mortgage financing for the LEED Gold-hopeful Riverhouse condominium project in Battery Park City. The mortgage is backed by the 77 units that remain available at the 262-unit, 31-story building, and is for a three-year term with a one-year extension option, putting to bed some of the rumors that have been swirling for the past year about the project’s financial difficulties and poor unit sales performance. The news is also interesting because of the backdrop it provides to the fledgling Gidumal litigation, which we first reported here at GRELJ a couple of weeks ago.

In terms of the project’s somewhat sordid financial history, the Riverhouse was originally developed by Lehman Brothers and the Sheldrake Organization pursuant to a $282.4 million senior mortgage from Helaba Bank and a $74 million junior loan from the AFL-CIO trust. Although the former loan was paid off, the developers defaulted on the junior loan at maturity in November of 2009, resulting in a $48 million lis pendens filing against the property in February. Just before the filing, the Lehman entity alleged that Sheldrake had misappropriated over $12 million in funds from Helaba which had been earmarked for ground lease payments and construction expenses by submitting falsified invoices to the lender. Lehman served Sheldrake with a Notice of Removal (from its capacity as the development team’s day-to-day manager of the project), and Sheldrake unsuccessfully sought an injunction in Supreme Court barring its removal.

Afterwards, what was left of the development team hired CBRE to sell the junior note, but CBRE ultimately decided to originate the financing itself. According to Frank Scavone, COO at CBRE Capital Partners, the Riverhouse “exemplifies an otherwise successful development project in need of additional time to realize full sell out.” Affidavits submitted earlier this year in connection with Sheldrake’s application for injunctive relief indicated that 17 additional sales contracts have been signed, with another 7 out for signature – positive signs that the project is back on track.

It would be purely speculative to consider whether any of Riverhouse’s issues – at least indirectly – led to the allegations set forth in the Gidumal complaint; indeed, intra-development team power struggles are relatively common and don’t typically impact unit purchasers in any meaningful manner. However, this is the first time we’ve heard – at least publicly – these types of allegations on a green building or LEED project; whether they impacted the overall quality of Riverhouse’s construction or the performance of its building systems is the type of question mark which the Gidumal litigation could shed light on if the lawsuit proceeds through discovery.

As a final side note, the Riverhouse has yet to receive formal LEED certification; it registered with USGBC in June of 2005 under LEED for New Construction Version 2.1.

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  1. Found In Space: Ambitious New Plans Give Green Makeover To Manhattan’s Water Street, DUMBO’s Pearl Street | greenbuildingsNYC - June 23, 2010

    [...] condo Riverhouse may be notably less green than promised — Stephen has more on Riverhouse over at Green Real Estate Law Journal — and the apparently irresistible rise of mediocre and proudly un-green mega-developments [...]

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