Developer Levi Balkany has pulled out all the stops, including filing for bankruptcy twice, to get away with defaulted loans, fraud charges and, most recently, jail time.
Sandwiched in the middle are 35 formerly homeless tenants who were evicted from their apartment due to Balkany’s actions.
But Balkhani’s lenders won’t go down without a fight. Asset manager Arena Investors filed a complaint this week denying the developer’s latest bankruptcy filing.
The saga dates back to March 2019, when Balkany’s Happy Living Development applied to Arena for a $26 million bridge loan to cover the cost of an apartment project at 308 West 133rd Street in West Harlem.
Less than six weeks later, the developer defaulted on its debt, court records show.
Arena claims it extended the deferment agreement, giving Balkany a chance to resolve the default, but the developer failed to correct the loan. The default stemmed from “predatory lending,” as Balkani put it.
Balkani claims he is having trouble making interest payments because the city overestimated property taxes on the building, projecting annual bills of $15,000 instead of the $5,000 he expected.
“Property taxes for similar sized condos in the area are less than a third of the property,” Balkany wrote in an email.
Furthermore, the developer claims that Arena included in the terms of the loan a deadline for Balkany to obtain a temporary occupancy certificate for the project. The Balkans failed to meet the deadline.
“I would be naive to agree with that,” Balkani admitted. “It’s a tripwire artificially inserted by the arena to default on the loan.”
To save the project, the developer asked Arena if it could lease the units. He plans to try to solve the property tax problem with the 421a tax cut. The now-expired program offered 35 years of property tax relief.
“I was flatly rejected,” Balkani said, adding that his lender offered two alternatives: repay the loan by reducing the price of the apartment, or hand over the keys.
Arena alleges that Balkany rented out the units anyway, renting out 26 apartments to voucher holders, again in violation of the terms of the loan.
first shot fired
Arena filed a lawsuit against its borrower, accusing Balkany of breaching its contract because it had only approved the sale, not the lease, of units at the project. The court issued a temporary restraining order prohibiting Balkani from “further engaging in unlawful conduct,” according to legal documents.
But developers have also ignored this and continue to rent out units to voucher holders.
The court granted Arenal’s motion to appoint a receiver to oversee the Balkan debt. But the day before receivers took over, Balkani listed the entity that owns the property under Chapter 11 of the Bankruptcy Code.
Filing for bankruptcy will automatically stay ongoing litigation and, in the case of arrears, eliminate some debts. Balkani hopes the document will allow him to see his lease plans come to fruition.
“I filed for bankruptcy, which removed receiver and lease restrictions,” Balkani wrote in a July 2020 email in court records.
“We can get everybody involved next week, let’s go for it,” he added.
Balkani said the bankruptcy court was initially sympathetic to his problems. But after delving into the project’s financials, the court marked the developer’s profit and loss statement. The city provided only $180,000 to house the voucher holders, Balkany reported. In fact, the city has paid him more than $500,000.
The developer said he was misled by the building’s property manager, Steward Management’s Michael Fernandez, who he claims told him about the city’s voucher program and ended up loading the allocated funds into his own pocket.
Fernandez could not be reached for comment.
“To say that Steward Management lied to me is a huge understatement,” Balkany said.
Plan B
Meanwhile, Arena, blocked by Balkany’s bankruptcy filing, filed a personal loan guarantee suit against the borrower in December 2020.
Arena received a verdict of more than $40 million through August 2021. But Balkhani failed to pay the cash.
“Defendant has not paid a penny he was owed,” Arena’s attorneys claimed in a recent complaint.
Lenders sent Balkhani a restraining notice requiring him to freeze any assets owed to the company. Bank statements show that Balkhani spent at least $500,000 violating the notice.
Arena claims the transfers constitute fraud and is asking the court to compel Balkany to respond to a subpoena for information on financial documents.
Balkhani refused to answer, and the court ruled him in contempt of court and gave him until April last year to turn over the requested financial documents and any funds he transferred despite the restriction notice.
tenant casualty
Meanwhile, Arena bought 308 West 133rd Street for $22 million in a public auction and then sued the building’s 35 tenants to regain control of the property.
The tenants, all formerly homeless, rented apartments at the Balkany building with the city’s Department of Homeless Services. But the bankruptcy court struck down the building’s lease after a district court barred Balkany from renting out the units.
A New York Supreme Court judge ultimately granted the arena control of the building and the right to evict tenants. By early 2023, all but five of the 26 affected households have moved out.
The remaining tenants are trying to hold off for another year so they can find new homes. The court denied the motion in a March 21 order.
From Chapter 11 to Chapter 7
While his tenants look for alternative housing, Balkani continues to hide from his creditors.
Balkany filed an appeal on April 25, 2022, the last day for the developer to correct the contempt charge. Arena claimed that the court denied the claim on May 12, making it “almost certain” that Balkhani would go to jail.
The next day, the borrower filed for Chapter 7 bankruptcy. Chapter 11 filings allow a company to reorganize its finances, while Chapter 7 results in the liquidation of debtor assets to pay creditors.
But Balkany documents show only $31,000 to the developer’s name. He also alleges that despite collecting rent at 308 West 133rd Street, he has not earned any income since January 2020.
Now, Arena has filed a lawsuit denying Balkani’s attempt to repay the debt.
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The lenders claimed that the debts were “undischargeable” due to Balkhani’s scheme, which included the deliberate withholding of funds and property that “lawfully belonged”. [Arena]”.
A lawyer for Arena did not respond to a request for comment.
