By: Ellen Cans

Capstone Equities has filed a lawsuit over alleged breaches of guarantees made in connection to the Whale Building at 14 53rd St. in Brooklyn.

As reported by Crain’s NY, the renovated seven-story industrial building in Sunset Park has a foreclosure auction pending, slated to take place on Aug. 8th.  Capstone Equities is the entity carrying out that auction.  The Midtown East-based real estate investment firm filed a lawsuit in Kings County Supreme Court on July 11 against developer Nightingale Properties and its CEO.  It alleges that Nightingale, the Midtown South-based real estate developer who owns most of the Whale Building, defaulted on an $88 million loan for the building.  The suit names Elchonon Schwartz, CEO of Nightingale, for alleged breaches of four personal guarantees on the property.

Some two months ago, Capstone purchased a $70 million nonperforming note on the property from investment company TPG Real Estate Finance Trust.  This put Capstone at the wheel of the pending foreclosure auction.  Per Crain’s, the lawsuit alleges that there are carry, completion, payment and environmental guarantees in the original loan, which it bought from TPG, all four of which were breached.  Capstone claims that it is now owed approximately $90 million for the breaches on the loan it took over.

The oversized waterfront complex, with panoramic views of Manhattan, boasts close to 500,000 square feet of space.  Nightingale had purchased a 75% stake in the Whale Building in September 2020 from Madison Realty Capital for a price tag of $84.1 million.  To finance it’s purchase, Nightingale had taken out an $88.9 million loan from TPG. This past May, TPG sold the loan to Capstone.

Brooklyn’s historic Whale Building, built in 1918 and renovated in 2016, consists of four separate structures adjacent to the Brooklyn Army Terminal along the waterfront.  It is also home to high-end indoor-soccer facility Socceroof, which boasts the biggest rooftop bar in Brooklyn. The Whale Building, however, is currently only 32% leased, according to real estate research firm CoStar, which is very likely a key reason as to the developer’s current woes.  The pandemic may have played a significant part in vacating the building.

Per Crain’s, marketing materials from real estate firm Rosewood Realty Group, which will facilitate the foreclosure auction planned for August, say the property has 621 feet of frontage on the south side of 53rd St.  The materials also state that the property had an annual net operating income of roughly $505,301 as of December 2022.

Rosewood Realty Group was created in 2007, by CEO and founder Aaron Jungreis, and has been at the pinnacle of the New York Investment Sales industry since inception. The company has been ranked the number one single office firm in New York from 2008-2021.

‍Since the company’s formation in 2007, Rosewood Realty Group has sold over 3,750 properties with an aggregate value in excess of $23.5 billion. Rosewood Realty Group reached over $3.2 Billion in annual sales through a team approach, creative solutions, customized marketing, deep seated relationships, enormous proprietary database, and client focused approach.

The building had previously been owned by Madison, which had purchased the building 2015 for $82.5 million.  Madison still owns a 25 percent stake in the Whale building.  “Madison previously owned 10% of the building, and we saw this as an attractive opportunity to increase our stake at a much lower basis, given that we had put $50 million of improvements in the property,” co-founder Josh Zegen had said.