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Complex in receivership

The East Avenue Commons apartment complex has been put into receivership.

State Supreme Court Justice Kenneth Fisher ordered the 267-unit building, at 111 East Ave. in the city’s upscale East End, put under a receiver’s control Oct. 29. The order came at the request of the property’s Miami-based mortgage holder, which filed a foreclosure action on the same day.

Apartment buildings at 290-300 Alexander St. and an office building at 247 N. Goodman St. covered by the same $16.3 million mortgage also are involved in the foreclosure and receivership action.

Fisher named the Cabot Group as the properties’ manager and receiver of rents. Court documents state that no payment had been made on that mortgage since June by Titan Properties Two of Rochester LLC, a company controlled by real estate developer Jason Palmer.

The actions put new pressure on Palmer, who also is battling a $53 million foreclosure action filed in June against Rochester and Greece commercial and apartment properties.

In the June action, Wells Fargo Bank N.A. complained that the real estate company in whose name the mortgage was written in 2007, Encore Property Management of Western New York LLC, had not made a monthly payment since the previous November.

Fisher put the Encore properties under a separate receiver’s control in July. The 13-parcel group includes the Blossom Business Center on University Avenue and Normandie Apartments on Alexander Street and the Imperial Manor apartment complex in Greece. Fisher is slated to hear a summary judgment motion, seeking immediate foreclosure, in that case this month.

The more recent foreclosure action came at the urging of city officials, who have long fretted about the poor state of the East End and Alexander Street apartment buildings. East Avenue Commons serves as off-campus housing for Eastman School of Music students and houses retail businesses. Both properties are in areas that have seen an influx of young professionals and well-off empty-nesters, a residential trend the city is eager to nurture.

Corporation Counsel Thomas Richards, the city’s chief lawyer, had closely followed the $53 million Encore foreclosure and had conferred with the receiver appointed in that action. A similar receivership could prevent further deterioration of Palmer’s East End and Alexander Street properties, he concluded.

The only remedy open to the city was to condemn the buildings and eject the tenants, which Richards believes would have hurt the residents and hastened the buildings’ deterioration. Only the lender holding the mortgage on the properties could initiate a foreclosure and ask for a receiver.

East Avenue Commons and other Palmer-owned sites had faced a separate foreclosure action filed by a downstate investment group looking to collect on a $4.35 million note unrelated to Palmer’s Rochester properties.

Richards hoped to see a receiver appointed in that action, but the downstate group dropped the matter in September. Richards then started pursuing a dual course.

He worked with Palmer, urging the landlord to cure the properties’ deficiencies, but also set his staff to tracing a series of sales that the properties’ mortgage had undergone after Palmer first secured the $16.3 million loan from Countrywide Commercial Real Estate Finance Inc. in 2006.

After weeks, Richards learned that the mortgage had landed in the hands of MLCFC 2006-4 Palmer Buildings LLC, which turned out be an affiliate of LNR Property Corp. LNR Property is a Miami-based real estate company, 75 percent of which is owned by the private equity firm Cerberus Capital Management L.P. and its real estate affiliate Blackacre Institutional Capital Management LLP.

LNR officials quickly saw the merits of a foreclosure and receivership, Richards said. On Oct. 29, LNR Partners’ Miami-based asset manager, Dennis van der Reis, noting that the mortgage as of Oct. 8 was $2.5 million in arrears, submitted affidavits urging Fisher to put East Avenue, Goodman Street and Alexander Street properties into receivership.

In dealings with the city, Richards said, Palmer repeated a claim that the landlord had made earlier to the Rochester Business Journal: that he was on the verge of closing a deal of more than $80 million that would yield funds sufficient to cure his money woes.

When the $80 million failed to materialize, Richards said, Palmer seemed willing to address problems at the apartment buildings but did not appear to have the means to do so. Though the properties bring in steady income, Richards said, Palmer appeared to have paid too much for them.

After meeting with Palmer several times in August and September, he has had no contact with the landlord for some weeks, Richards said. City tax records put the combined assessed value of the properties securing the $16.3 million Titan Properties mortgage at $5.3 million.

It is not clear whether Palmer, who did not return a call seeking comment for this article, is represented by an attorney in either foreclosure action. Robert Gitlin, a Rochester lawyer who had represented Palmer in the $53 million action, withdrew from the case in early August.

Gitlin’s pullout put the action on hold for 30 days to give Palmer time to hire a new lawyer. As of this week, none had registered with the court.

In court papers, Gitlin states that Palmer, who claimed to have withheld Encore Property Management mortgage payments over an escrow account dispute, appeared to have a potentially valid argument against the foreclosure. Palmer never produced documentation, the attorney states.

Palmer initially represented himself as having a controlling interest in Encore Property Management, Gitlin states in the affidavit. But legal documents identify Palmer’s mother, Linda Palmer as trustee of the Palmer Family Trust, as having control of the company. Palmer claimed to have power of attorney over his mother’s affairs but never produced a power of attorney document, the attorney adds.

In the court filing, Gitlin details futile attempts to contact Palmer, who was facing a contempt of court charge for alleged failures to cooperate with the receiver. Though Palmer promised to deliver documents to support his case, Gitlin states, Palmer repeatedly failed to show for appointments or arrived empty-handed.

At one point, Gitlin states, Palmer pleaded that his mother, who lives in the Utica area, was gravely ill. A day later, Palmer said his father would bring the required papers, which again did not appear.

As the court date for the contempt hearing loomed, Gitlin was slated to leave for a two-week vacation. When Fisher declined to postpone the hearing, Gitlin asked to be excused as Palmer’s attorney. Fisher, who ultimately cited Palmer for contempt, complied.

The judge is slated to hear arguments in the Encore action later this month. No court date is set in the Titan Properties Two foreclosure.

11/13/09 (c) 2009 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or e-mail rbj@rbj.net.

 

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