Ashkenazy gets creative to save 635 Madison

After loan troubles and litigation at 625 Madison Avenue, Ben Ashkenazy faces foreclosure at the building immediately across the street after defaulting on a $90 million CMBS loan.

At 635 Madison, where he holds the ground lease, he is trying to use a pandemic-era protection for small businesses to keep the asset. The rub is, the policy expired more than a year ago. And it’s not clear that Ashkenazy Acquisiiton is a small business, either.

In July 2020, four months into the pandemic, the company, through the associated firm Ironwood Realty, defaulted on a mortgage at 635 Madison, a 19-story Midtown office tower with ground-floor retail, documents show.

The loan was transferred to special servicer LNR Partners, an arm of Barry Sternlicht’s Starwood Property Trust, the next month. By December, LNR had accelerated the debt.

Ashkenazy responded by claiming Covid-related hardship in April 2021 under the state’s commercial moratorium on evictions and foreclosures for small businesses. The hardship was clear enough: The occupancy rate at the tower, at the corner of East 59th Street on the struggling strip, would fall to 71 percent that year, down from 84 percent in 2019.

So LNR waited to bring a foreclosure action until December 2021, just before the small business protections expired. Fifteen months later, Ashkenazy and Sternlicht’s servicer are duking it out over whether the state’s protections still apply.

Ashkenazy’s counsel told the court that the last moratorium extension allowed for the repeal of only “certain provisions” of the act once it expired — and that the stay on foreclosures was not among them.

Scott Tross, LNR’s attorney, countered that the moratorium was very much dead.

“Recent cases that have considered the act have emphasized that it was intended to provide only limited and temporary relief,” the attorney wrote.

Then Ashkenazy’s team got technical, claiming LNR was obligated to contest Ashkenazy’s hardship claim before filing to foreclose.

Tross, however, pointed to a ruling last summer in another case that a hearing on a landlord’s hardship declaration “was no longer necessary because the commercial foreclosure moratorium had been lifted.”

The parties also quibbled over whether Ashkenazy should have qualified for the moratorium in the first place, as it protected landlords owning a maximum of 10 commercial units. There are 35 at 635 Madison alone. But Ashkenazy noted that Ironwood doesn’t own the units, only the ground lease.

The suit is pending. The original loan was made by JPMorgan Chase and bundled with other debt into commercial mortgage-backed securities and sold to investors. LNR is essentially acting on the investors’ behalf; M&T Bank affiliate Wilmington Trust is the trustee of the CMBS.

Neither Tross nor Ashkenazy’s counsel, Jed Bergman of Glenn Agre Bergman & Fuentes, replied to a request for comment.

Ashkenazy is also facing foreclosure at 2067 Broadway after the investor and the Gindi family defaulted on a $11.6 million loan.