AM&A's project in doubt as developer's legal, financial troubles mount

Plans to convert the former AM&A's building downtown into a Wyndham Hotel with two restaurants and a nightclub are in flux after the developer allegedly missed a deadline to make a roughly $2 million final payment on its mortgage.

As a result, the downstate real estate firm that holds the mortgage on the AM&A's Department Store complex in downtown Buffalo is now seeking to foreclose on the property, accusing the Chinese investment group that owns the building of defaulting on the loan.

And the asbestos abatement contractor for the project has filed a claim for nearly $500,000 in back payments — the second such claim in two years by an environmental firm against the investors. The investor group has countersued, accusing the contractor of not only failing to do the job right under their agreement, but also asserting that it owes them nearly $900,000 in damages.

Christopher Gorman, an attorney for Landco, declined to comment but said the group "will be addressing the matters in court."

The financing troubles and the start of foreclosure proceedings cast a dark cloud over the ambitious — but slow-moving — $70 million project.

The effort to renovate one of downtown's most visible vacant buildings has faced numerous obstacles since the investors emerged out of nowhere to purchase the languishing property in 2014. The group, which includes both American-based and Chinese investors, has faced considerable skepticism and uncertainty in the community from the start, in large part due to cultural and even language barriers, but also because of doubts about the group's ability to get the job done. And it ground slowly through the design and municipal approval process before any major work could begin.

The current owners, Landco H&L, originally proposed converting the 375,000-square-foot former department store complex into a hotel for Asian tour groups visiting Niagara Falls, with a medical clinic among the features.

That plan has since morphed under its new leader, Billy Bao, into a more traditional 340-room Wyndham Buffalo Hotel, with a pair of giant atriums carved into the middle of the multibuilding facility from the third floor to the top in order to provide windows for the guest rooms.

Plans now call for two first-floor restaurants — one Chinese, one Japanese — along with a New York City-style nightclub, an arcade and a large pool and spa in the basement. There will also be 6,000 to 8,000 square feet of retail space, plus 40,000 square feet of banquet and meeting space. Earlier plans for a sixth-floor steakhouse with a glass ceiling have been abandoned, to be replaced by hotel suites with skylights.

 

But the building's former owner, Apollon Group, through New Horizon Acquisitions, filed foreclosure papers last week in state Supreme Court in Erie County, saying that Landco has failed to pay off the remaining balance and interest last month in accordance with the loan terms. It's asking the court for approval to seize and sell the property to repay the debt, which totals $1.91 million.

Apollon, based in Roslyn Heights, N.Y., owned the 10-story complex at 377 Main St. before selling it to the Queens-based Landco in November 2014 for $2.775 million. It then extended Landco a $2.175 million mortgage, at 5 percent interest, with a personal guarantee by Lily Li, then the leader of the Landco group.

A condition of the mortgage said that Landco would pay principal and interest of $14,354.04 per month until Nov. 6, 2018, "when the whole of the said principal sum and interest then remaining unpaid shall be fully paid." That date was not extended, according to the foreclosure documents, and the loan is "due and payable." And the interest rate now jumps to at least 16 percent.

That type of balloon payment typically is included in deals as a way of lowering the initial payments, but it also sets a deadline for the borrower to refinance the loan before the big payment comes due.

It's not clear what effect the foreclosure filing may have on the project. But that's not the only legal problem Landco now faces.

Clean Air Abatement, a Brooklyn-based firm that performs environmental cleanups for commercial projects, says that Landco owes it $491,000 for asbestos remediation that it performed from June 2017 through May 2018. It filed a mechanics' lien in state Supreme Court, seeking payment.

That work was a critical piece of the Queens-based investment group's $70 million effort to convert the AM&A's building into a hotel. Until the building was cleaned — work that is now completed — the rest of the project could not proceed.

The husband-and-wife owners of Clean Air say they were paid in full under a $2.5 million contract with Landco, for $30 per hour. But that negotiated amount only covered 80 percent of their labor costs. They say they were verbally promised the additional money once the work was completed to cover the full cost of paying their employees $37 per hour, as well as supplies and equipment.

That money, which wasn't covered in a written agreement and doesn't include any profit for Clean Air's owners, never came. Without the extra funds, they say, they can't meet an upcoming workers' compensation insurance payment due next month for $93,000, not to mention higher rates starting in January, when their annual insurance bill will soar from $168,000 to $443,000 because of the AM&A's job.

That and other overhead expenses may force them to close their 5-year-old business, just as they are starting to win new business in Buffalo and Rochester.

"We are in such financial jeopardy," said Zoila Alonzo, Clean Air's co-owner and director of operations. "Me and my husband are in danger of losing everything."

Landco fired back with a lawsuit of their own against the contractor, alleging breach of contract, failure to employ sufficient and adequately trained labor, failure to complete the work on time within 180 days, and even theft of copper and other metals from the worksite. Landco also said it incurred extra costs to help out Clean Air, including to cover costs for subcontractors and equipment to keep the project moving. In all, Landco says Clean Air owes it almost $885,000.

This is the second dispute Landco has had with a contractor over the environmental cleanup — an enormous job that officials have previously estimated at about $7 million. That's because in addition to significant asbestos throughout the building's walls, the three basement levels were flooded and heavily damaged several years ago after pipes burst inside.

After meeting resistance from the state when they tried to do the cleanup on its own, the investors hired Queens-based Tri-State Cleaning Solutions in 2016, only to have Tri-State walk off the job three months later, alleging that Landco owed it $680,000, while the investors complained about Tri-State's performance.


Source: https://buffalonews.com/2018/12/03/amas-project-in-jeopardy-after-lender-files-for-foreclosure/

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