Coliving firm sued over NYC lease

George Sell George Sell Uploaded 07 May 2020

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US: German coliving firm Quarters is being sued over the $8 million lease on a property in Brooklyn by the building's owner.

According to a report in The Real Deal, entities controlled by Mark Tress of Cedar Holdings, a New Jersey-based real estate investor, owner and developer, sued Quarters in federal court May 4. The suit claims Quarters began using construction delays as grounds to terminate its 10-year lease at 251 DeKalb Avenue “only after it became clear that Covid-19 was spreading rapidly through New York City”.

“Quarters promises property owners ‘partnership from start to finish,’” the developer says in its complaint. “But in the midst of the current public health emergency, Quarters is not living up to its own lofty language. Instead, it has sought to pull back on its commitments to expand and provide housing in New York City.”

Quarters has 5,000 beds under management in Europe and North America, and launched a $300 million push into the US market last year to develop 1,500 units around the country. It operates two Manhattan locations, both on the Lower East Side, with a combined 111 beds, and is building three Brooklyn locations totalling 290 beds.

A spokesperson for Quarters called Cedar’s allegations “entirely meritless” with “no basis in fact or law.”

“We look forward to proving our case in court and promptly disposing of this lawsuit,” the spokesperson said in a statement.

According to the complaint, filed in the United States District Court for the Southern District of New York, Quarters’ assertion of a lease default relates to the developer’s failure to complete construction by a November 30 deadline. Cedar admits to the delays, but claims that Quarters maintained that it “fully intended” to occupy the building regardless and “pressed” Cedar to continue renovations.

Cedar claims it undertook more than $1 million worth of renovations at 251 DeKalb since December, in accordance with the coliving firm’s custom requirements. The developer acquired the three-story building in 2016 for $5.8 million and public records show a $7 million mortgage on the property.

The landlord said the first sign of trouble came when it requested on March 12 that Quarters provide an estoppel certificate so Cedar could secure fresh financing to finish construction.

In court documents, Cedar says it did not hear from its tenant until March 17 — after New York governor Andrew Cuomo banned mass gatherings.

Cedar’s suit seeks more than $8 million, the value of Quarters’ lease.

“It is disappointing that, in this difficult time, Quarters is walking away from a project our clients have invested significant time, energy, and money in,” said Nathaniel Kritzer, a partner at Steptoe & Johnson LLP who represents Cedar in the dispute.

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