ERBO Properties files bankruptcy to prevent UCC sale by lender

By Sarah Lizee

Olympia, Wash., Feb. 14 – ERBO Properties LLC filed Chapter 11 bankruptcy Monday in the U.S. Bankruptcy Court for the Southern District of New York.

ERBO owns property at 541-545 West 21st Street, New York. The property was primarily used as storage space for many years, but in 2018, the company decided to redevelop the property into an office building.

ERBO entered into a contract with HigherGround 541, LLC, which was retained to oversee and implement all aspects of the redevelopment.

HigherGround assisted ERBO in securing loans from G-4 18190, LLC, a well-known middle-market construction lender. The total amount of the loans was about $57 million, broken into an acquisition loan, a building loan and a project loan.

Cauldwell Wingate Co. was later hired as construction manager for the project, and construction began in July 2019.

However, in the summer of 2021, G-4 asserted the building loan was out of balance and threatened to cut off funding unless other additional capital was contributed.

In November 2021, the debtors obtained a mezzanine loan from 541 West 21 SME LLC. The mezzanine loan was secured by the membership interest in a newly created mezzanine borrower in the amount of $4.7 million. Proceeds were mostly used for interest payments to G-4.

During this time, the Covid-19 pandemic had caused substantial disruptions and delays in the New York construction industry. ERBO said this led to delays in completing the project, and the delays increased the cost of the development as interest continued to accrue under the various loans.

The redevelopment of the property was mostly completed in August 2022, but G-4 again asserted the construction loan was out of balance and demanded the debtor’s equity owners contribute additional capital. A stalemate ensued and G-4 withheld funding.

Without the funding, final work on the project stopped because subcontractors were not receiving payments and Cauldwell and HigherGround essentially disengaged from the project, ERBO said.

ERBO said the mezzanine lender has made it clear that it intends to take over the project.

The mezzanine lender and G-4 have both issued default letters, and the mezzanine lender scheduled a Feb. 14 Uniform Commercial Code (UCC) sale to foreclose on its collateral.

ERBO said it made the Chapter 11 filing to preserve its equity in the property and complete final construction.

The debtor believes it has valid claims against HigherGround for breach of the development management agreement and potentially Cauldwell for breach of the construction management agreement.

In its petition, the company listed one to 49 creditors, $50 million to $100 million in assets and $50 million to $100 million in liabilities.

Tarter Krinsky & Drogin LLP is representing the company.

The New York-based property owner filed bankruptcy under Chapter 11 case number 23-10210.

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