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Sutton Place tower developer loses legal battle

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A proposed rezoning could thwart an auction buyer’s attempt to build high in the low-slung neighborhood

UPDATE: It’s almost certain now that the foreclosure auction on the proposed project at 3 Sutton Place will move forward after a New York bankruptcy court judge ruled Wednesday that developer Joseph Beninati’s Bauhouse Group had filed a “baseless” lawsuit against its lender Gamma Real Estate, The Real Deal reports.

As part of the preliminary ruling issued Wednesday, the judge said that Gamma Real Estate’s actions surrounding the Sutton Place tower project were not premature or rushed, and that the company had not breached its contract with the Bauhouse Group.

“The judge said these were a baseless set of accusations meant to buy time and hope,” the lawyer repping Gamma Real Estate told TRD. “It cost a year.”

Beninati had alleged that the goal of Gamma Real Estate had been to take over the lucrative site all along, but the judge did not find any proof of this. The foreclosure auction is scheduled for December 13 and in light of this ruling it will likely proceed as planned.

A consortium of community members and elected officials continue to rally against a skyscraper proposed for a low-rise residential block on East 58th Street. The East River Fifties Alliance, which includes officials like City Council Members Dan Garodnick and Ben Kallos, Manhattan Borough President Gale Brewer, and neighborhood stakeholders, are not letting up on their fight against Bauhouse Group’s proposed 950-foot tower at 426-432 East 58th Street despite last week’s court ordered auction of the site due to the developer’s mounting fiscal troubles.

The group hopes that the community-generated rezoning plan it submitted to the City Council in January will take hold before a reinvigorated project can begin at the site. The rezoning would limit the height of new development in the area bounded by East 52nd and East 59th streets east of First Avenue to 260 feet. Currently, area zoning sets no specific height for apartment buildings. The rezoning could also discourage bidders at the auction, the Wall Street Journal notes.

Rumors of a foreclosure at the site have been swirling since February, when lender Gamma Real Estate started taking steps to foreclose on the site. At the time, Joseph Benanati of Bauhouse Group called the move premature, noting that Gamma’s “flawed and incomplete legal steps to rush the auction are commercially unreasonable and will not withstand judicial scrutiny.” Bauhouse moved to sue Gamma mid-February for attempting to rush the foreclosure proceedings and for structuring the loan in such a way that the developer was bound to have difficulties. A judge denied a request for an injunction later that month.

The lawsuit was seen as a way to stave off foreclosure proceedings, and it worked (for a while.) The project went into Chapter 11 Bankruptcy in early April, another move to push off a bankruptcy auction. The sale of the 262,000-square-foot project was approved in September. The sale would not only include the site, but also the plans for the tower drawn up by British architect Norman Foster. The site was initially expected to fetch about $270 million at auction, but as the luxury sales market continues to dip in New York City, the price may now be much lower.

Meanwhile, the Department of Buildings blocked a permit last week that’s needed to complete demolition at the site, which may further devalue it to potential bidders. The permit application sought to stabilize a building adjacent to the development zone.

The auction is expected to take place in December. Alan Kersh, President of the East River Fifites Alliance, issued the following statement:

We are strongly opposed to a 950-foot-tall skyscraper on a narrow residential side street. But we are also inspired by Mayor Bill de Blasio’s vision for ‘One New York.’ This is a zoning change that will encourage development while keeping the low- and mid-rise character of the neighborhood intact. Our plan also increases neighborhood diversity by adding incentives to vastly increase the amount of affordable housing.