540 West 21st Street files bankruptcy with $256.66 million in debt

By Sarah Lizee

Olympia, Wash., Aug. 3 – 540 West 21st Street Holdings LLC filed Chapter 11 bankrutpcy on Wednesday in the U.S. Bankruptcy Court for the District of Delaware.

The company intends to file a prearranged liquidating plan and intends to sell its real property in New York.

The debtor had purchased the property with plans to secure financing and eventually build a 20-story, 275-foot-tall luxury mixed-use condominium building set to include 34 residential units, chief restructuring officer Tomer Jacob said in a declaration filed alongside the petition.

However, since purchasing the property, the company has been unable to secure enough funding to complete construction of the project.

Financing attempts

The debtor had obtained a $20 million loan from Bank Hapoalim BM secured by a mortgage on the property.

In addition, West 21st Street Investment Member LLC, 540 W. 21st Development LLC, 540 West 21st Street LLC and 540 West 21st Street Investments III LLC were created as the ultimate owners of 540 West 21st Street Holdings LLC for the purpose of obtaining equity and additional unsecured debt financing.

West 21st Street Investment Member got roughly $5 million in unsecured financing from a single individual, 540 West 21st Development LLC got about $32 million in unsecured financing from various individuals and entries, many of which are also equity holders in 540 West 21st Development’s parent companies, 540 West 21st Street and 540 West 21st Street Investments II.

Meanwhile, 540 West 21st Street got about $178 million in unsecured financing and 540 West 21st Street Investments II obtained about $13 million in unsecured financing from various individuals and entities, many of which are also equity holders in 540 West 21st Street and 540 West 21st Street Investments II.

Starting in December 2021, Bank Hapoalim indicated that it was unwilling to extend more capital and informed the debtor that it intended to exercise remedies and collect on the original loan.

On May 9, 2022, Ray New York, LLC, with SL Green Realty Corp. acting as servicer, purchased the original loan from Bank Hapoalim and agreed to provide additional financing up to $80.45 million.

Ray New York then proposed a potential restructuring transaction where the debtor would transfer the property to Ray New York to complete development and then provide returns to the debtor and its stakeholders through a nonrecourse promissory note.

Pivot to sale

The debtor presented the terms to equity holders and unsecured creditors on Oct. 11, 2022, but a significant number of stakeholders indicated a preference for selling the property on an as-is basis as an alternative to pursuing the restructuring transaction proposed by Ray New York.

In November 2022, the debtor retained Jones Lang LaSalle Americas, Inc. to market and sell the property instead.

In June, the debtor and 550 W21 Owner LLC (Chelsea 540 Owner LLC), entered into a purchase and sale contract, which contemplated that the debtor would file the Chapter 11 case and engage in a bankruptcy sale process.

Ray New York also agreed to provide the debtor with enough financing to complete the transactions and fund operations throughout the case.

Other details

In its petition, the debtors listed up to 49 creditors, $95.84 million in assets and $256.66 million in debt.

Its largest unsecured creditor is DZ 21st Street LLC, based in New York, with a $28.75 million put option payment claim. No other creditors were listed with unsecured claims of $1 million or more.

Bryan Cave Leighton Paisner LLP is lead counsel and Chipman Brown Cicero & Cole, LLP is Delaware counsel.

The New York-based real estate holding company filed Chapter 11 bankruptcy under case number 23-11053.

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