A recent appeals court ruling has stalled the foreclosure of Oheka Castle, prompting the lender to auction off the property’s $28 million mortgage loan.
In June, the New York Supreme Court Appellate Division reversed an April 2019 lower court ruling that had granted summary judgment for Oheka lender U.S. Bank National Association, denying claims by defendant Kahn Property Owner LLC and its principal Gary Melius that the lender withheld escrow payments and failed to engage in good faith discussions on a possible loan workout agreement.
The Appellate Division decision ruled that the lender “failed to submit any business record” that substantiated the alleged loan default, temporarily halting the foreclosure process.
The unfavorable court ruling and a foreclosure process that has so far dragged on for more than six years, prompted U.S. Bank to put the Oheka loan on the market with Newmark, which is accepting offers for the loan through the auction site Ten-X. The non-performing loan, which has a current principal balance of about $28 million, has a minimum bid set at $9 million and its auction is scheduled to begin on Monday, Oct. 17.
Attorney David Rosenberg of Garden City-based Rosenberg Fortuna & Laitman, who is the court-appointed referee in the case, said the Appellate Division decision was made on a purely procedural point. He added that the lender or whoever ultimately buys the Oheka note, will likely make a new motion for summary judgment which would attempt to cure the procedural problem raised by the appellate court.
“This will likely delay the foreclosure process by several months if not longer,” Rosenberg told LIBN.
Interest on the Oheka loan continues to accrue at 11.6 percent annually and Rosenberg estimated that the amount due the lender as of three years ago was more than $37.2 million. The lender has also had to pay the annual property taxes on Oheka, which are currently listed as $282,575, according to public records.
It’s been a long and contentious road for the lender and its Miami Beach, Fla.-based special loan servicer LNR Partners in their attempt to foreclose on the 23-acre Oheka property.
LNR began foreclosure proceedings on the Oheka property in June 2016, claiming that Melius had defaulted on two commercial mortgage-backed securities loans totaling more than $29.79 million. Melius, who rescued the once-decaying building in the 1980s and turned it into an iconic catering and event space, had countersued to dismiss the foreclosure action and was seeking damages of at least $10 million from LNR.
In Jan. 2019, the court appointed Jeffrey Kolessar, vice president of Philadelphia-based GF Management, as receiver to oversee operations at Oheka. Kolessar continues to get 2.5 percent of gross revenues from the property as a commission for his services and is entitled to be compensated for “reasonable out-of-pocket expenses,” according to court filings.
Kolessar declined to comment on the amount he has received from Oheka’s revenue.
Originally built for financier Otto Kahn in 1921, the 126-room Oheka–listed on the National Register of Historic Places–was abandoned and crumbling when Melius took ownership in 1984. Over the years he’s spent millions in renovations, including more than 450 new windows and doors, 4,000 pieces of slate to repair the roof and the planting of more than 3,000 trees and bushes, according to court papers.
Melius has not responded to requests for comment.
The Newmark loan listing describes the Oheka property at 135 West Gate Drive in Huntington as an “unmatched luxury historic hotel and event venue with remarkable structure and site improvements, featuring a level of both detail and grandeur that could not be cost-justified today.” The listing says the opportunity “presents prospective purchasers with the ability to acquire a unique and sizable non-performing loan offering a substantial opportunity and various resolution strategies.”
The Newmark team marketing the Oheka loan includes Steven Schultz, Tony Georgiev, Brock Cannon and Dan Oliver.
David Winzelberg
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