November 18, 2009
If a court in New York can come to this conclusion, can a court in California come to the same? That would probably be something Peter Pau and RREEF, developers behind the Sunnyvale Town Center that is headed to foreclosure want to know. Regardless, this is a huge decision by the NY court because it comes at a time when there are probably hundreds of stalled commercial projects around the state.
If the same conclusion can be arrived at by other states, that number would balloon into the thousands.
The New York State Supreme Court Appellate Division, in a split decision, upheld an lower court’s injunction requiring Citigroup to continue funding a $155 million construction loan on the Destiny USA Holdings project, even though the bank believes the project is a failure. Citi says the ruling is unprecedented in the state’s history. Now, New York lawyers are pondering how to write construction loans that would allow banks to stop funding what they believe are failing projects.
The ruling isn’t a total victory for Robert Congel, the developer behind Destiny. The court required the company to post a $15 million bond before Citi has to fund the rest of the money, roughly $29 million.
The bank’s argument was that there were no tenants signed up, and the project was over budget. The developer argued it was Citigroup’s financial problems which prompted the decision.
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