A.G. Schneiderman Announces Settlement Barring Major Nyc Developer From Participating In Real Estate Offerings
Jeshayahu Boymelgreen Barred From Participating In Condominium Development In Or From New York State For A Period Of Two Years; Failure To Abide By All Terms Of Settlement Agreement Will Lead To Permanent Ban
Schneiderman: We Will Not Hesitate To Take Tough Action Against Unscrupulous Individuals Who Continually Violate The Rights Of Purchasers And Tenants
Attorney General Eric T. Schneiderman recently announced a settlement with real estate developers Jeshayahu Boymelgreen, Itzhak Katan, and Domenick Tonacchio and several of their entities. The settlement ends the Attorney General’s investigation of potential Martin Act violations at six condominiums in Manhattan and Brooklyn that were developed by Boymelgreen either in partnership with others or on his own. The agreement also bars Boymelgreen from participating in the offer or sale of securities, including condominiums, in or from New York State for a period of two years. The Attorney General’s investigation found numerous violations at the properties, including failure to complete construction projects after selling residential units and failure to remedy alleged construction defects. Should Boymelgreen fail to fulfill his obligations under the settlement, he will be automatically and permanently barred from participating in the offer and sale of securities in or from New York State.
“Today’s settlement should serve as a lesson to other developers who choose to ignore and break the rules,” said Attorney General Schneiderman. “We will not hesitate to take tough action against unscrupulous individuals who violate the rights of purchasers and tenants. I am pleased that this settlement will return restitution to those who have been harmed by these illegal practices.”
The six properties included in the settlement are:
- The Downtown Condominium at 15 Broad Street in Manhattan;
- The 20 Pine Condominium in Manhattan;
- Beacon Tower at 85 Adams Street in Brooklyn;
- The Novo Condominium at 353 Fourth Avenue in Brooklyn;
- The Crest Condominium at 302 Second Street in Brooklyn; and
- The Newswalk Condominium at 535 Dean Street in Brooklyn.
The parties to the agreement are Boymelgreen, Katan and Tonacchio, along with Boymelgreen Family LLC; 343 LLC; and City View Gardens Phase II, LLC. Boymelgreen Family LLC is an operating company through which Boymelgreen acted in developing the properties at 15 Broad Street, 20 Pine Street and 85 Adams Street. 343 LLC is the named sponsor of the Novo Condominium, which Boymelgreen developed with Tonacchio and Katan. City Views Gardens Phase II, LLC is the named sponsor of the Crest Condominium, which Boymelgreen developed with Katan. Boymelgreen and entities he controlled were the sole developers involved in the Newswalk Condominium. 15 Broad, 20 Pine and 85 Adams were developed by Boymelgreen in a joint venture with subsidiaries of the publicly-traded conglomerate Africa Israel Investments Limited. In January, the Attorney General reached a separate settlement with Africa Israel relating to 15 Broad, 20 Pine and 85 Adams. Details of that agreement can be found here.
The Martin Act, New York’s blue sky law, requires offerors of real estate securities, such as cooperatives and condominiums, to disclose the terms of the offering to purchasers in an offering plan. The law also gives the Attorney General broad enforcement powers to compel developers to fulfill their legal obligations and promises made in the offering plan. For example, developers are required to complete construction of their projects by procuring the permanent certificate of occupancy (PCO) promised in the offering plan, and they must set aside money necessary to complete the project. Developers are also required to deliver properties that conform to the New York City Building Code which establishes standards for fire-safe construction and prevention of water leaks.
The 15 Broad Street property is a 400-unit condominium that sits directly across the street from the New York Stock Exchange and includes 23 Wall Street, a landmarked property. The Boymelgreen-Africa Israel joint venture undertook renovation of the building in 2002. The property received a generous tax exemption and abatement under Section 421-g of the Real Property Tax Law designed to spur conversion of office buildings in lower Manhattan to residential use to revitalize the Financial District.
By 2008, Boymelgreen and Africa Israel had sold all units in the building, collecting at least $360 million. Up until the units were sold, they also collected the 421-g tax break on each unit. However, the developers abandoned all efforts to complete the renovation and failed to procure the legally-required PCO and drained the funds escrowed to pay for the costs of completing the project, both clear-cut violations of the Martin Act With the building left unfinished, the iconic 23 Wall Street remained untenanted and almost completely unused for eight years, depriving the City of the Downtown revitalization that developers were supposed to deliver in exchange for the 421- tax break. . Current estimates indicate that the work needed to get a PCO will not be completed until 2018 and will cost more than $750,000.
The failure to get a PCO imposed real harm on unit owners at 15 Broad Street because under the offering plan, Boymelgreen and Africa Israel retained control of the board of managers until a PCO was issued. The developers used their control of the board to delay and derail a lawsuit filed by unit owners seeking damages for construction defects.
In February 2014, the Attorney General obtained a court order barring Boymelgreen and his partners on the 15 Broad project from conducting securities offerings in New York pending a public fraud investigation before a State Supreme Court Justice.
20 Pine Street is a 409-unit condominium in lower Manhattan that the Boymelgreen-Africa Israel venture began developing in 2004. As at the 15 Broad property, the developers sold out of all units, collecting about $500 million in gross revenue, drained funds needed to complete the project from the required escrow account and walked away from the obligation to secure a PCO. And as at 15 Broad Street, the developers controlled the 20 Pine board of managers until a PCO issued and they used that power to impede a lawsuit filed by unit owners against Boymelgreen and Africa Israel relating to construction defects. At the 20 Pine property, the developers got a PCO only after the NYAG started its public investigation into the offering.
The 85 Adams Street property is a 79-unit condominium in downtown Brooklyn which the Boymelgreen-Africa Israel joint venture began developing in 2004. They had sold all units at the property by 2008, grossing at least $60 million. In 2009, unit owners brought suit against Boymelgreen and his partners alleging serious construction defects, including an almost complete lack of the fire-rated construction required by the New York City Building Code.
The January agreement required Africa Israel to escrow with the Attorney General the funds needed to secure a permanent certificate of occupancy for the 15 Broad Street property and to obtain that certificate by April 1, 2018. If the company fails to do so, it is required to pay the unit owners $20,000 in restitution for each 90-day period that goes by without the required certificate of occupancy. The agreement also requires Africa Israel to permanently surrender control of the 15 Broad board.
Under the January settlement, the developers also compensated the City for the receipt of 421-g benefits at 15 Broad by depositing $2 million into the Affordable Housing - AG Settlement Fund, which was established in June 2014 to help finance affordable housing for low-income New Yorkers.
As to the construction defect claims at 15 Broad, 20 Pine and 85 Adams, the January settlement required Africa Israel to establish a restitution escrow with the Attorney General. By the terms of the January agreement, the funds in the escrow would be released to unit owners at the 15 Broad Street, 20 Pine Street and 85 Adams Street buildings if Africa Israel failed to resolve the construction defect claims by unit owners at the three buildings by a date certain. Since January, Africa Israel has entered into and paid on settlements of the construction defect claims at 15 Broad and 20 Pine have been resolved. It has not yet resolved the 85 Adams defect claims.
This settlement with Boymelgreen resolves the Attorney General’s investigation into these properties in its entirety.
The Novo at 353 Fourth Avenue is a 113 unit condominium in Park Slope, Brooklyn which respondents Boymelgreen, Katan and Tonacchio started developing in 2006. They sold all units by 2010, collecting $68 million in revenues and, as at the other Boymelgreen projects, never got a PCO. In its investigation, the Attorney General collected evidence of a serious lack of fireproofing, water leaks and other construction defects. Today’s settlement requires that the developers get a PCO by November 1, 2016. For each 60 days that PCO is late, the developers will pay $15,000 to the Novo board as restitution. And, the developers will pay $250,000 to the Novo board as restitution for the claimed construction defects at the property.
The Crest is a 68 unit condominium at 302 Second Street, also in Park Slope, developed by Boymelgreen and Katan in 2006.The sponsors sold all units by 2013, grossing at least $60 million. As with the other offerings, respondents Boymelgreen and Katan promised to deliver a building constructed in accord with New York City Building Code. The Attorney General has collected evidence indicating that the building lacks fireproofing and suffers from other construction defects. Unit owners sued Boymelgreen, Katan and others in a private action, which was settled during the pendency of the investigation.
Newswalk is a 137-unit condominium in Prospect Heights, Brooklyn. Boymelgreen began development of the property in 2000 and all residential units have been sold. Respondent Boymelgreen promised to deliver a building compliant with the New York City Building Code. The Attorney General has collected evidence indicating that the building is lacking fireproofing and suffers from other construction defects. Newswalk unit owners sued respondent Boymelgreen in a private action nine years ago and Boymelgreen has failed to resolve that litigation. Today’s settlement requires Boymelgreen to deposit funds with the Attorney General and, if the Newswalk case is not resolved by a date certain, those funds will be released to the Newswalk homeowners.
Also under the settlement the respondents will pay the Attorney General $100,000 to cover the cost of its investigation.
In addition to the relief outlined above, the agreement provides that if Boymelgreen offers condominiums again after the two-year bar expires, he will have to make special disclosures relating to the failure of Liberty Pointe Bank (a bank he founded which was closed by the New York State Banking Department), unpaid judgments against him or his entities in state or federal court and pending litigations against him or his entities relating to real estate. Moreover, should Boymelgreen fail to fulfill his obligations under the agreement, he will be immediately and permanently barred from New York State securities offerings.
The investigation was led by Assistant Attorney General Elissa Rossi and the Real Estate Finance Bureau, under the supervision of former Bureau Chief Erica F. Buckley. Bureau Chief Brent Meltzer now oversees the Real Estate Finance Bureau, which is led by Executive Deputy Attorney General for Economic Justice Manisha M. Sheth.