Isaac Hager’s Cornell Realty is desperate to keep the Tillary Hotel out of the hands of its lenders.
Hager bankrupted the Downtown Brooklyn hotel as well as a Williamsburg hotel site in 2020 to end a foreclosure by its mezzanine lender, Eli Tabak’s Bluestone Group. But now he’s worried about his main lender, Ohana Real Estate, which entered the fray in January by buying the hotel’s debt from Madison Realty Capital.
Cornell is asking a judge to bar Ohana from a bankruptcy sale in August. Bidding for the Tillary, which operates as a homeless shelter, starts at $94 million.
Hager accuses Ohana of employing a loan-purchase strategy to take control of the hotel through a credit offer, which uses existing debt on the property in place of cash. Ohana chief investment officer Franco Famularo said there was “nothing nefarious” about its loan purchase.
Tabak’s group also fights to disqualify Ohana. He filed his own lawsuit against the lender, claiming Ohana breached an agreement between the primary lender and the mezzanine lender.
The case is one of dozens that Brooklyn real estate entities have referred to federal bankruptcy judge Robert Drain’s White Plains courthouse. Drain was thought to be debtor-friendly, but he retired on Thursday and handed the case over to Judge Sean Lane.
The Tillary Hotel litigation highlights the plight of Hager, a Brooklyn merchant who survived lawsuits and foreclosures after the Great Recession to become one of Brooklyn and Queens’ most active developers. He could now lose two key parts of his real estate portfolio.
Hager teamed up with his friend Lipa Rubin, who made his money as a fishmonger, in September 2019 to buy the Tillary, a 174-room hotel and 64-unit building at 85 Flatbush Avenue Extension. The following year the pandemic hit and the hotel was turned into a shelter for homeless men, whose lack of Covid precautions sparked complaints from residents of the apartments above.
“I had no idea what I was getting into,” Rubin told the New York Post.
In August 2020, Tabak, who held a $6 million mezzanine loan on the property, filed for UCC foreclosure. Ahead of the auction scheduled for October, Hager filed the hotel for bankruptcy. Her anger is now mostly focused on Ohana.
Hager alleges that last year Ohana indicated his desire to become an ownership partner with DivcoWest. He even gave Famularo from Ohana a tour of the hotel and additional site information. Hager now alleges Famularo’s interest was a ruse to stop a pending sale of the property and take it back.
But Famularo has a different memory. He said he visited the hotel and building, but Hager seemed to know nothing about it or his finances.
“Mr. Hager’s lack of knowledge of the property and his inability to answer basic questions were very concerning,” Famularo said. “It caused an immediate loss of confidence.”
The Ohana associate came away with the impression that Hager was more concerned with protecting his own interests than those of his creditors.
Famularo also challenged an assessment presented by Hager’s legal team. The appraisal, by BBG Real Estate Services, valued the property at $72 million, well below Ohana’s expected credit offer.
“I find it very confusing that the appraiser would claim that the highest and best use of the 9 year old property is a homeless shelter, only to then say that such a plan would result in an additional 24 months of operation at 100 % vacancy and would result in $48 million in lost value,” Famularo said.
Tabak, for his part, alleges that Ohana’s offer should be rejected because it violates a so-called intercreditor agreement that governs the relationship between a senior lender and a mezzanine lender. Ohana disputes this.
The company, which is claiming $3.8 billion in hotel and resort investment, is asking the bankruptcy court to clear its credit offering at the auction, which would position it to take control of the property. If Ohana’s request is denied, Hager would have a better chance of keeping her.
Hager submitted his own plan to the bankruptcy court. It says Centers Health Care’s Daryl Hagler would inject $96.8 million to fund Hager’s plan and pay off all debt. Ohana calls it fiction.
“The idea that there is another competing plan is fanciful,” Ohana’s attorneys wrote in a court filing.
Hager is also facing a bankruptcy sale on a 26-story hotel and residential tower site at 159 Broadway in Williamsburg. Bidding on the site, marketed by Rosewood Realty Group, starts at $28 million.
Hager is the grandson of the late Rabbi Mordechai Hager, the longtime leader of the Viznitz Hasidic sect. Isaac, also known as “Itzy”, started the real estate company North Development Group in the mid-2000s and began partnering with Chaim Lax, the founder of diamond trading and real estate company Dynamic Diamonds.
Hager, Tabak and Ohana did not return requests for comment.