An Upper West Side building whose owners hope to replace bankers with bud-tenders has come under fire from a lender.
Michael and David Herzog have allegedly violated the terms of a $7 million mortgage at 57 W. 86th St., where they plan to replace a Chase branch with a cannabis dispensary, and have been in default on the loan since August 2024, according to a new lawsuit. The family now faces foreclosure at the 5-story, 12-apartment mixed-use building near Columbus Avenue, based on the suit, which was filed Friday by trustee Wells Fargo in Manhattan state Supreme Court.
Chase’s decision in 2021 not to stay on as the sole occupant of the building’s 4,200-square-foot retail space, its home for more than a decade, apparently touched off the legal dustup with the Herzogs, who have not yet filed a response to the complaint and could not immediately be reached for comment.
Indeed, after Chase vacated the site, the revenue stream of the 13,300-square-foot prewar building dipped below the level acceptable to lenders, according to the suit, which was brought by Wells Fargo on behalf of investors in the bond backed by the building’s mortgage.
In a 2024 letter to the Herzogs alerting them that they were in default, the lenders demanded a payment of $356,000 within 10 days to make the loan whole again, though the payment was apparently never made, court filings indicate.
In December the Lakewood, New Jersey-based Herzogs allegedly found a replacement tenant for the long-empty storefront, which news reports identified as the Bronx-based dispensary Hibernica. But the Herzogs did not get their lender’s approval before inking the deal, the suit claims, resulting in a second loan violation. The dispensary does not yet appear to have opened.
Still, the brokers who handled the transaction, a division of the firm Meridian Capital Group, were apparently justly compensated with a fee of $10,000, court filings show.
The Herzogs, who work as residential developers in their Jersey Shore community but who do not seem to have much of a city presence, paid $11.4 million for 57 W. 86th in November 2020. Originally a pair of late-1800s side-by-side townhouses, No. 57 was converted in 1929 into a single Art Deco-style structure by Corn Exchange Bank and Trust, listing documents show. At the time of its marketing in 2020, the building, owned by the same landlords since the late 1970s, was asking $15.3 million, and so ultimately traded for more than 25% less.
As part of their acquisition of the walkup near Central Park, the Herzogs borrowed $6.6 million from Argentic Real Estate Finance, the loan at the heart of the current court fight. It was assigned to Wells Fargo in 2022; LNR Partners is acting as the special servicer in the case.
Though the upper stories of No. 57 are lined with apartments, the residences do not seem to have contributed to the landlords’ apparent financial jam, as with some developers who have purchased multifamily buildings in recent months.
An explanation might be that 11 of No. 57’s 12 units are not rent-regulated, based on a 2020 advertisement for the site, and so they are not subject to city restrictions on rent increases and other rules that undercut some investors’ business plans.
In April a unit with two bedrooms and one bath was listed for $4,600 a month, based on a StreetEasy listing.
Attorney Jessica Macarone of McCarter & English, who filed the complaint in the current case, also could not be immediately reached.
