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Developer Sacked at Battery Park City's Riverhouse

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All is not love and peace signs down at Riverhouse, the eco-obsessed luxury condo tower in Battery Park City that lured celebrity buyers like Leonardo DiCaprio and Tyra Banks into its David Rockwell-designed interiors. Despite the 264-unit building being around 70% sold, rumors and whispers about money troubles have been floating around all month. That speculation was bolstered by the $48 million lis pendens (a pre-foreclosure legal move) filed by PNC Bank on the property in early February, as seen on PropertyShark. But the real drama at 1 River Terrace has nothing to do with bankruptcy or shaky financial footing, but rather a power struggle between the sponsors?local developer the Sheldrake Organization and what remains of Lehman Brothers' real estate partnership. The dispute, which has resulted in Sheldrake being removed as managing member of the overall partnership, is over the use of funds. Or, in Lehman's words, fraud.

There's a mountain of legal paperwork, but here's the juicy stuff: Lehman alleges that Sheldrake misappropriated $12 million in Riverhouse funds meant to go towards things like PILOT payments (the land-lease fees given to the Battery Park City Authority) and construction expenses. Lehman claims Sheldrake pulled this off by creating and submitting false invoices to a German-based lender, and the money was steered out of Riverhouse's coffers and into other, more personal accounts. According to court documents, Lehman claims to have uncovered all this during an inspection of Riverhouse's financial books and records at the end of January. Soon after, Sheldrake was hit with a "Notice of Removal" from Lehman booting the developer from its day-to-day management role, citing "fraud and/or willful misconduct." The developer would remain in the joint venture, but have little say over any important decisions.

Sheldrake has been seeking an injunction barring its removal, which is where we find ourselves today, with both sides back in court. In an affidavit, Sheldrake president J. Christopher Daly said Lehman's investigation, "did not reveal any information that Lehman had not been aware of, and had acquiesced in, for two or three years..." Daly denied the fraud and misconduct claims, and said the Notice of Removal was "no more than a veiled attempt by Lehman to steal the project from Sheldrake." Spicy! (In followup paperwork, Lehman denied having prior knowledge of Sheldrake's money games.) Sheldrake also argued that its reputation "would suffer irreparable injury" if it got ousted as administrative member, but in the end?we've just been told?the court has done just that. This might be behind-the-curtain boredom for most, but a footnote in a Lehman court filing fills in the blanks on the building's current sales tally:

187 sold and more on the way? Sounds pretty darn good in this market, especially with all that battling at the top going on. Let's chalk it up to the DiCaprio Dreaminess Factor, which we imagine is an extremely powerful, extremely blue-eyed amenity. We're unsure what this all means for the overdue Teardrop Park extension in Riverhouse's backyard, but Lehman Brothers's Teardrop Park might make for a fitting name, no?
· Riverhouse [Official Site]
· Riverhouse coverage [Curbed]