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Investor Sues Kushner Over Brooklyn Project, Claims Failures Caused Financial ‘Wipeout’

89 Hicks St., a rent-stabilized multifamily building acquired by Kushner Cos.

An investor who fronted nearly $10M in equity for a Kushner Cos. Brooklyn Heights apartment and townhouse development in Brooklyn is suing the firm, claiming its money is effectively gone because of Kushner’s mistakes and mismanagement.

An entity called BLS Holdco LLC filed the lawsuit in New York County Supreme Court on Tuesday, naming both Kushner Cos. and company CEO Laurent Morali as defendants. The suit relates to six properties that were formerly Brooklyn Law School dormitories that Kushner paid $36.5M for nine years ago. PincusCo first reported the suit.

The plan was to turn three properties, at 27 Monroe Place, 38 Monroe Place and 100 Pierrepont St., into townhouses and three others, at 89 Hicks St., 18 Sidney Place and 144 Willow St., into rental units.

BLS Holdco claims Kushner repeatedly assured it that only seven of the 77 apartments were stabilized. In actuality, all of the apartments were subject to stabilization laws, but the investor says it was never told of any possibility that would be the case. Kushner, the lawsuit claims, blamed a third-party consultant.

Further, the suit claims, Kushner was told to register the apartments with the Division of Housing and Community Renewal, which would have allowed the landlord to remove them from stabilization because of the laws in place at the time.

The company — which was founded by Charles Kushner but run by his son, Jared Kushner, at the time of the purchase — didn’t take that step, which would have rendered the rent stabilization issues "far less problematic," according to the lawsuit.

"Instead, Kushner simply ignored all regulatory steps and treated the units ... as free-market units from the start," the suit reads. "If BLS Holdco had known the truth regarding rent stabilization and the units in the Multifamily Properties, BLS Holdco would not have invested in the deal."

In 2018, Kushner paid $100K to tenants at 89 Hicks St. for improperly overcharging and deregulating units, The Real Deal reported. A representative for Kushner told the publication that the buildings' valuations were damaged by the lawsuit and that the BLS Holdco accusations are without merit.

“We are disappointed by the fact that this particular investment wasn’t as successful as expected,” Kushner's spokesperson told TRD.

The suit describes BLS Holdco's investors as "citizens of New York, New Jersey and Delaware," but little more is known about the firm. It claims to have invested $9.3M in equity, more than 70% of the total, in the townhouse and multifamily properties.

The lawsuits, failure to deregulate the apartments and less-than-expected return on the townhouse renovations led to "a total loss" in the investment for BLS Holdco, per the suit.

"In sum, during one of the most robust real estate cycles in recent history, Kushner lost over $13 million on the redevelopment of the Townhouses," the lawsuit reads.

BLS Holdco's charges include a breach of fiduciary duty and unjust enrichment. It is represented by Nathaniel Ament-Stone of Katten Muchin Rosenman LLP.