Business Day With Fortune Falling, a 1 Percent Divorce By JULIE CRESWELLFEB. 1, 2014 This is a story of marriage and money in the 16-room, five-and-a-half-bath duplex world of luxury Manhattan real estate. It begins inside the gilded walls of 740 Park Avenue, on the Upper East Side. Built in 1929, the year of the Great Crash, by a grandfather of Jacqueline Kennedy Onassis, this 19-story apartment building stands today like an exclusive club for the fabulously wealthy. To gain entry, it is suggested, a buyer should show at least $100 million in liquid assets. Behind the limestone facade and heavy bronze doors reside billionaires like David H. Koch , the industrialist; Ronald Lauder, of Estée Lauder fame; and Stephen A. Schwarzman, the financier. It was into this milieu that Elizabeth and Kent Swig stepped during a season of high financial spirits. That the Swigs managed to scale such heights surprised no one: They were something of a royal couple in property circles. Their marriage, in 1987, had united two of America’s great real estate clans, the Macklowes of New York on her side, and the Swigs of San Francisco on his. By the time the couple arrived on Park Avenue, in 2002, Kent Swig, a charismatic dealmaker with a surfer-dude demeanor, was already starting to build a name for himself with equal parts debt and daring. As the onetime protégé of his father-in-law, Harry B. Macklowe, the powerful New York property developer, Mr. Swig was soon credited with helping transform the dull-as-bond-tables financial district into a fashionable residential address. In a business where there was always revolving credit and a bigger deal, the only way, it seemed, was up. At the peak, his properties were worth an easy $3 billion. Then Lehman Brothers went bust and the bottom fell out, and the Swigs’ life collapsed beneath them, in a 10-figure version of the great American housing crisis. Creditors called in loans. Mr. Swig had personally guaranteed an estimated $116 million of debts. Lawsuits flew. One business partner struck Mr. Swig with an ice bucket. “He suddenly found himself in the middle of the terrible, terrible downturn, and it was almost impossible not to get crushed,” said Larry A. Silverstein, the New York developer, who has known the Swig family for decades. On a December evening in 2009, as the walls closed in, Ms. Swig padded through apartment 2/3 D, with its 37-foot-long living room, south-facing views, planted terrace and library. She later contended in court filings that she found Kent lying drunk on the floor of one of the bedrooms, and that he became “enraged” and “motioned to strike her”; she dialed 911. (A lawyer for Mr. Swig confirmed that the police were called, but denied that Mr. Swig did anything to provoke the call.) Friends and associates say she blamed him for everything — for the financial losses, the social embarrassment, the smashed Murano vase. Before long, the unthinkable happened inside 740 Park Avenue: Word went out that the Swigs might face foreclosure. Liz and Kent Swig, both 53, have now reached the season of divorce. Their duplex was listed last month, for $32.5 million, through Mr. Swig’s luxury property firm, Brown Harris Stevens. “Located in one of Park Avenue’s most distinctive prewar cooperatives, this magnificent corner 16-room duplex apartment is certain to impress,” the listing reads. Their home in Southampton on Long Island — a seven-bedroom contemporary on 4.2 waterfront acres — hit the market for $26.5 million. There is never a happy divorce. But this one ends more than a married life of galas at the Whitney and scenes in the Hamptons. It also represents the dissolution of the Macklowe-Swig business relationship. And while divorce, particularly the big-money kind, can be a nasty business, it has nothing on New York real estate: Mr. Swig has contended that Harry Macklowe has conspired to ruin him financially, a claim that his father-in-law has denied. The Rise On a February evening in 2007, the revelers arrived in Lower Manhattan, in bull market style. The Exchange, at 25 Broad Street, was Kent Swig’s latest bauble — a 1902 office building that he was converting into luxury apartments. That evening, the base of the building — rusticated granite that segues to buff-colored brick with terra cotta trim — was bathed in purple light, the signature color of Swig Equities, Mr. Swig’s real estate development, investment and management company. By then, the real estate market was already cooling, but inside the Exchange, the scene was hot. Parts of the grand lobby, which has 18-foot-high coffered ceilings and terrazzo floors, were swathed in purple carpet with orange rings. A model apartment, the “musicians pad,” featured a pony-skin rug and vintage guitars. In a sales office were regal portraits of Liz and Kent Swig, with plaques describing their fabulous lives. (The paintings were later destroyed when a pipe burst.) Mr. Swig had reached this lofty perch the old-fashioned way: inheritance. He is the grandson of Benjamin Swig, who, with a Depression-era business partner, Jack D. Weiler, began building a real estate dynasty. At its peak, Swig holdings included stakes in the W. R. Grace Building in Manhattan, dozens of office buildings from San Francisco to Washington and the luxury Fairmont Hotel chain. Mr. Swig did not intend to go into the family business. He studied Chinese history at Brown University, where he competed as a springboard diver, and then collected a law degree, planning to specialize in international law. But when his father, Melvin Swig, received a diagnosis of cancer in the mid-1980s, Kent took up the mantle. In the late 1980s, he moved to New York and was soon working for Harry Macklowe, with whom the Swigs had partnered on several projects. It is said that Mr. Macklowe was so taken with the young man that he sought to introduce him to his only daughter, Liz. The night when the two were supposed to meet, each canceled — and then met by happenstance, that very same night, in line at the Saloon, a restaurant near Lincoln Center that has since closed. Fifteen days later, they were engaged. Mr. Swig was on his way. His first big play came in the early 1990s, when his firm partnered with Arthur and William Lie Zeckendorf, members of another New York real estate dynasty, to buy Brown Harris Stevens, then a troubled real estate brokerage and management firm. A few years later, the group acquired the giant Halstead Property company. But Mr. Swig had bigger plans. He set his sights on the financial district. After the 9/11 terrorist attacks, many developers shied away from the area. But Mr. Swig, who a few years earlier had beaten 20 other bidders for a downtown building, saw an opportunity. He often said he had coined the SoHo-esque moniker for the financial district, FiDi (pronounced FIE-DIE). It was a bit of neighborhood rebranding that Mr. Swig hoped could transform the dark canyons of finance — a dead zone outside of business hours — into a vibrant community of luxury condos, restaurants and boutiques. The deals came fast. In 2003, he bought 5 Hanover Square, four blocks from the New York Stock Exchange, for $52 million. The next year, he bought 44 Wall Street, 80 Broad Street and 110 William Street for a combined sum of about $300 million. “I saw the greatest opportunity of a lifetime, and bought every single property I could possibly buy,” Mr. Swig later told The Real Deal, a magazine. He said his downtown bet was either going to make him look really good “or it was going to make me look really foolish.” Uptown, Mr. Swig was making an equally big bet on a building called the Sheffield. In 2005, along with Serge Hoyda and Yair Levy as partners, Mr. Swig’s company paid $418 million, a record at the time, for this 50-story rental building on West 57th Street, between Eighth and Ninth Avenues. The three planned to convert the rental units into condos. Almost immediately, residents pushed back, angering Mr. Swig. Once, when a group gathered to protest, he hired a marching band to drown them out. Mr. Swig also acquired the storied property management firm Helmsley-Spear. That deal immediately chilled relations with the Zeckendorf brothers, who considered that the purchase competed directly with their holding in Brown Harris Stevens. (A spokesman for the brothers said “there has never been a falling-out.”) Today, many real estate experts say Mr. Swig stayed too late at the party and paid steep prices for many of his buildings. He also personally borrowed from banks, private investment firms and others to fund his stakes. “During the boom, from 2003 to 2006, he was riding high,” said Jonathan Miller, a real estate appraiser and consultant. “But he was still doing deals as the damage was already starting to occur in the market.” A spokesman for Mr. Swig called that assessment “inaccurate,” saying Mr. Swig’s strategy has been based on “opportunistic acquisitions” in “down market” environments, as he demonstrated in the financial district. Whatever the case, Kent and Liz Swig were living the good life: surfing in Australia and, at home, having parties for rising artists like Gary Hume. Ms. Swig attended fund-raisers and galas with Donatella Versace and Allison Kanders, an arts patron. “I have great respect and admiration for Kent’s real estate deals,” Ms. Swig told Gotham magazine in the spring of 2008. “I get to play with the interiors of his buildings, and we have fun. It’s a really wonderful marriage of the two things.” She decorated their home at 740 Park Avenue with funky art and color-coordinated candy. To celebrate the birthday of her brother, William Macklowe, she had several hundred pounds of slate rock, wildflowers and rock-climbing accessories hauled into the apartment for a dinner party, she told New York magazine. The Fall The risks were clear enough in hindsight. By the summer of 2007, the tremors in the subprime mortgage market had reached Wall Street. As banks began to pull back, Mr. Swig took out, on his own, what he believed would be a short-term personal loan of $21.1 million from an investment firm called Square Mile. Mr. Swig believed that the firm’s principals would take the necessary steps — getting approval from other lenders — to convert the loan into a preferred equity stake in the Sheffield project, according to court documents. But that project was turning into a disaster. Rental tenants at the Sheffield refused to leave. Condo sales were poor. Lawsuits were flying. There were also huge cost overruns on the project — work that Mr. Swig was overseeing, as well as having done by his own, private construction company. Mr. Swig’s partners, Mr. Levy and Mr. Hoyda, were becoming concerned that Mr. Swig was siphoning money from the project for personal expenses, according to a lawsuit brought later. In September 2008, during a meeting at the office of Mr. Swig’s lawyer, Mr. Levy became so incensed that he struck Mr. Swig in the right shoulder and right hand with a metal ice bucket. Mr. Levy eventually pleaded guilty to harassment and was sentenced to two days of community service. Mr. Swig was getting squeezed. He took out more than $30 million in loans, borrowing against the Park Avenue duplex and the Hamptons home. Then, in the fall of 2008, Lehman went bust. Before the year was out, Square Mile had sued Mr. Swig for $28 million. Mr. Swig felt betrayed. He argued that the Square Mile principals had made a decision as the markets deteriorated that they would be in a “better position” to maintain the loan as it was rather than take equity in a building whose value was plummeting, he said in court filings. Moreover, he argued, Square Mile was seeking an “exorbitant rate of return,” a 24 percent interest rate. Others, including Lehman, soon sued. Lehman said Swig Equities had defaulted on hundreds of millions of dollars of loans for two buildings, including the Exchange. A few months later, Square Mile won a $32 million judgment against Mr. Swig. The firm moved quickly to collect its money. Almost overnight, Mr. Swig had become asset rich, but cash poor. He could not pay his doctors, his lawyers or Bank of America for the loans on the family homes. Bank of America began contemplating foreclosure. “Things were falling apart. We had no money. We weren’t paying people,” said a former executive at Helmsley Spear, which Mr. Swig shut down in 2010, two years after acquiring it. As bills piled up, Mr. Swig began working out of a small office on a separate floor at the Swig Equities headquarters, said this person, who spoke on condition of anonymity because he still works in the real estate business. “We all knew he was just hiding.” By the fall of 2009, Mr. Swig needed $200,000 just to pay his lawyers. He turned to the Macklowes. The note that Mr. Swig signed with the Macklowes that day also included an unusual clause: The Macklowes agreed that they would not encourage or support any attempt to push Mr. Swig into involuntary bankruptcy. The same day that his in-laws gave him the loan, Mr. Swig signed a postnuptial agreement with his wife. In the event of a divorce, Ms. Swig would get both homes, while he would assume responsibility for the debts against the properties. She would also get almost $12 million in artwork, including works by Jeff Koons and Takashi Murakami. Ms. Swig also declared sole ownership of $1.8 million in jewelry and $11 million worth of furnishings, including a $1,000 pig-shaped ashtray in the cigar room and a pair of Albert Cheuret sconces, circa 1925, which were valued at $100,000. Five months later, in March 2010, Kent Swig filed for divorce. And soon Harry Macklowe, Mr. Swig later contended in court filings, began to break the promise he had made when he gave his son-in-law the loan. The War The water was pouring through the ceiling of 2/3 D. It was March 1, 2012, and the washing machine in the apartment above the Swigs’ was leaking into their apartment. The bill for the damage, according to court filings, ran $270,000. Mr. Swig says he never saw a dime of the insurance money. Instead, he contended, someone forged his name on the checks in order to pay the Macklowes the $200,000 he owed them, according to court filings. Mr. Swig even hired a handwriting expert whose analysis concluded that Harry Macklowe and his wife, Linda, could “neither be identified nor eliminated,” as having signed Mr. Swig’s name. The Macklowes, in separate affidavits, denied signing Mr. Swig’s name on any document. It was war. While the New York real estate market rebounded and many other dealmakers licked their wounds and moved on, Mr. Swig found himself stuck in multiple lawsuits, fighting for the remnants of his empire. The whole drama has captivated the New York real estate clique. “People thought they were seeing another Harry Macklowe,” a former business associate said of Mr. Swig, speaking on condition that he not be identified because he travels in the same circles. “But that wasn’t the case at all.” Many can hardly believe that Mr. Swig has avoided bankruptcy. More than two years ago, after months of pushing and shoving among his creditors, Mr. Swig reached a settlement, agreeing to repay them by this spring or risk the forced sale of his remaining assets, which include stakes in a handful of buildings. He has paid about half of the outstanding principal that was due, and “there is no contemplation of any forced asset sales,” according to a spokesman for Mr. Swig. Mr. Swig, responding to questions via email, said that he has regrets. (Ms. Swig declined to comment, as did the Macklowes.) “I was financially exposed on a personal basis, a situation that I unfortunately created,” Mr. Swig wrote. Mr. Silverstein, the developer, says he believes that Mr. Swig will bounce back. “Ultimately, Kent is the kind of person who will rise up above it all and move forward with his life,” he said. Mr. Swig, on a blog that he keeps, has said he has occasionally traveled by using frequent-flier miles. Few believe that he is that short of cash, pointing to his ability to access Swig family trusts that are protected from creditors. He also says his in-laws still want to destroy him. He points to five separate lawsuits that were filed against him in which the same lawyer — one who has also represented Mr. Macklowe and Ms. Swig — represents the plaintiffs. He argues that many of the parties who have sued him, including his wife, “have no evident means of paying legal fees, or generating any income, other than Mr. Macklowe,” according to a court filing he made last spring. Mr. Macklowe rejects this view. “At no time have I encouraged or supported any person to, or at any time initiated or commenced any involuntary proceeding against Kent Swig,” Mr. Macklowe said in a court filing. In fact, Mr. Swig seems to be putting his legal troubles behind him. In recent days, he settled the suit brought by Mr. Hoyda and Mr. Levy, his partners in the Sheffield, which has become a financial success. The settlement details were not disclosed, but a lawyer for Mr. Swig said his client would be able to “make a substantial paydown to his creditors,” with his share of the proceeds. In the real estate game, fortunes are made, lost and, sometimes, remade. Mr. Swig, his spokesman said, is “currently seeking real estate opportunities in which to invest and develop.” A version of this article appears in print on February 2, 2014, on page BU1 of the New York edition with the headline: Breakup at 740 Park Avenue. Order Reprints|Todays Paper|Subscribe
Posted on: Sun, 02 Feb 2014 04:25:53 +0000
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