Face-Off: Board v. Developer, Building 1 - Newswalk Condominium

Nightmare on Dean Street: a band of owners found their promised piece of heaven was a doorway to hell.

In the fall of 2002, Michael Rogers moved into the Newswalk condominium, a luxurious reincarnation of an aging Daily News printing plant in Prospect Heights, Brooklyn. As he strolled around his spacious, sun-drenched three-bedroom loft apartment, Rogers felt like he’d bought a little piece of heaven. Today, almost eight years later, he feels like he’s locked in the basement of real estate hell. The reason is one of the grimmer legacies of the city’s late economic bubble: shoddy construction work.

In the case of the Newswalk condominium, the workmanship of the project’s developer, the once-high flying condo mogul Shaya Boymelgreen, was so stunningly sloppy that unit-owners have filed a lawsuit seeking at least $10 million in damages, and they’re now waging a scorched-earth publicity campaign to make sure that the developer’s misdeeds are not soon forgotten.

“What strikes me most,” says Rogers, “is that Boymelgreen took a good solid building and did things to it that actually caused it to decay.”

Things like attaching bulkheads directly to the roof membrane, which caused massive leaks. Things like insulating between the main building and one of its two wings with flammable wood chips, which caught fire. Things like waterproofing exterior walls so poorly that water got into concrete beams, causing rebars to rust and concrete to crack.

Today, 40 of the 173 apartments are undergoing major repairs to their structural concrete. Half of the apartments leak when it rains. The jazz musician Richard Bona came home one day and discovered that thousands of dollars worth of musical instruments were submerged in water, ruined.

“What were [the developers] thinking?” asks Rogers, an author, public speaker, and self-described “futurist” who serves as the board’s secretary. “Our engineer was amazed. He’d never seen anything like this.”

It turns out the developer, like so many of his brethren during the long-gone building boom, might not have been thinking about much of anything – other than turning a quick profit. The Village Voice reported in December that Boymelgreen frequently used construction companies owned by his daughter and other relatives to perform technically complex condo conversions of old buildings like the Newswalk. (Boymelgreen did not respond to a request to be interviewed for this article.)

Realizing they were faced with major structural problems as soon as they started moving into their apartments in 2002, Rogers and his fellow unit-owners (including board president Askia Davis, shown above) decided they didn’t have the luxury of sulking and finger-pointing. They needed to get busy.

First, Find the Flaws

It was obvious that the first thing they needed to do was document the building’s structural flaws. So, the board hired Rand Engineering & Architecture to perform a structural analysis of the entire building. Meanwhile, the board notified all unit-owners that they should promptly report all leaks and other structural problems to the property manager, who created an Excel spreadsheet. The database kept growing because some leaks didn’t show up immediately and others were seasonal, caused by melting snow. The building has undergone two changes of management since then and is now managed by Cooper Square Realty.

When the engineer’s 300-page report was presented to Boymelgreen, he made what the board’s current attorney, David Berkey of Gallet Dreyer & Berkey, calls an “inadequate” settlement offer. Boymelgreen then proceeded to make some repairs. But rather than placating the residents, Boymelgreen’s half-hearted efforts only increased the level of acrimony.

“Lots of condos have construction problems,” Rogers says, “but we felt this was so egregious – and Shaya was still doing major buildings – that we went to the attorney general’s office.”

On March 26, 2007, the board’s then-current attorney (the condo subsequently signed up with Berkey) wrote a letter to the Real Estate Finance Bureau of the enforcement division at the attorney general’s office with specific complaints. The overture met with silence. “The AG totally ignored us,” Rogers says.

Now frustrated and snubbed, the condo’s board let the other shoe drop. In 2007, it filed suit against Boymelgreen, seeking to recoup at least $10 million to cover the cost of repairs and legal and engineering fees, as well as amenities that were promised in the offering plan but never delivered.

“After we filed the lawsuit, we finally heard from the attorney general’s office,” Rogers says with a chuckle that’s a bit rueful, a bit bitter. “They told us they couldn’t help us because we’d filed a lawsuit.”

At this point, the residents of Newswalk faced another delicate question: Should they go public with their battle or keep it in-house? There was no quick consensus.

“There was an enormous amount of discussion,” Rogers says. “At first, some residents could not understand why we should go public with our problems. They felt we should keep this secret. But it wasn’t a secret. How can a real estate agent walk into a building that’s covered with scaffolding and not know something’s wrong? And by remaining silent, we would allow Boymelgreen to do this again.”

News broke early this year that Attorney General Andrew Cuomo, who is expected to run for governor, had amassed an $18 million political war chest. The most generous givers, it turns out, work in the real estate industry, perhaps not surprising since the state attorney general is responsible for approving co-op and condo offering plans and for handling complaints about construction flaws.

Boymelgreen, who built more than 2,400 apartments in New York City during the boom, gave Cuomo $8,000. Other prominent donors include Bruce C. Ratner, who is developing the Atlantic Yards project next door to Newswalk, and Jerry Speyer and his son Robert Speyer of Tishman Speyer Properties, who recently defaulted on the massive Stuyvesant Town and Peter Cooper Village apartment complexes. After an inquiry by The New York Times, Cuomo returned the money to Boymelgreen.

“So Shaya got his money back,” says Rogers, “but we never got any attention from the attorney general. So one of the things we’re doing now besides suing Shaya is a guerilla marketing campaign. We’re putting together a website called ‘Shame on Shaya’ in English, Russian, and Hebrew.”

The multi-lingual nature of the website is explained by the global reach of Boymelgreen’s crumbling real estate empire. Backed by diamond magnate Lev Leviev, one of the wealthiest men in Israel, Boymelgreen built condos all over the world, from India to Jerusalem to New York to Las Vegas. Their partnership was dissolved, under bitter circumstances, in 2007.

Now that the Newswalk’s “Shame on Shaya” website is up and running, the board has turned its attention to the lawsuit and the ongoing repairs – and how to pay for them. Common charges have risen by 40 percent since 2008, and the board plans to take out a loan of about $4 million this year. Workers are currently rebuilding the roof and the roof deck, waterproofing all exterior surfaces and fixing damaged concrete. The work is scheduled to go on until the end of the year. Then comes the final step.

“When our work is done we’re going to re-brand the building,” says Rogers. “We’ll have a new website, an open house for realtors, and advertising to let people know that Newswalk is a new building.”

For the many other boards in the city dealing with the fallout from shoddy construction work, Rogers offers two pieces of advice. “The main thing is to get a good engineering report and find out everything that’s wrong with the building as soon as possible,” says Rogers. “Then you need to set deadlines with the sponsor and let him know there’s a limited time in which these things can be rectified – or you’ll go to the attorney general or file a lawsuit. In a friendly tone, let the sponsor know there’s a limit to your patience.”

There are also statutes of limitations. A board has three years to sue for negligence, dating from the commission of the negligent acts. In the event of fraud, it has six years from when the fraud occurred or two years from discovery of the fraud, whichever is later. And a board can sue within up to six years of the occurrence of a breach of contract. The two sides are now in the discovery phase of the lawsuit, which is expected to end sometime this summer. The case should go to court within a year, unless there is an out-of-court settlement.

“Unfortunately the sponsor didn’t come to the table, so the board had no choice but to sue,” says Berkey, the Newswalk’s current attorney, who was hired after the lawsuit was filed. “If they wanted to get any recovery, that’s all they could do. They’re trying to be made whole.”

And they’re hoping they can do it without going to court. “The board is very open to settlement discussions,” says Rogers. “We hope we don’t have to spend the time and money on a trial when the case is so clear-cut.”

–Bill Morris

What You Should Do:

Dealing with Defects

Two choices. You deal with the defects or ignore them. If you ignore them, the building could face penalties from the Department of Buildings and/or other housing agencies.

Two paths. You can have your lawyer file a complaint with the attorney general’s office and you can consider a lawsuit. Do both simultaneously because construction contracts often have a limited warranty and/or there is a statute of limitations on when you can file. If you delay on one while waiting for the other, you can miss the deadline.

Professional backup. Hire an engineer to chronicle all defects and project costs in a timely fashion. This will be the basis for a complaint and/or lawsuit.

Notice. Use the engineer’s report as part of a timely “notice of defects” you give the developer (check your contract to see when the warranty period runs out).

Government response. The AG’s office is understaffed and overwhelmed by complaints and will often not respond to cases that it deems less pressing. If a building has sufficient resources to initiate a lawsuit, some professionals say the AG’s office will not proceed, saving its firepower for more “needy” cases. Therefore, the board should be ready to proceed on its own. Nonetheless, getting the AG involved is a plus: his office can impose fines, sanctions, and/or stop the developer from developing any other properties until he corrects the defects.

–Tom Soter (from an interview with David Berkey,
partner in Gallet Dreyer & Berkey)