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Latest 10-Q filed 11/13/2025 · Compared against 8/8/2025
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ITEM 1A. RISK FACTORS
The risk factors disclosed in the section entitled Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2024, set forth information relating to various risks and uncertainties that could materially adversely affect our business, financial condition, liquidity, and operating results. Such risk factors continue to be relevant to an understanding of our business, financial condition, liquidity and operating results as of JuneSeptember 30, 2025, and there have been no material changes to those risk factors for the sixnine months ended JuneSeptember 30, 2025 except for the following updates:
WeOur dependency on two commercial leases with certain agencies of the City of New York (NYC), as a single government tenant in our office buildings, with one lease having terminatinged effective August 23, 2025, and the other lease expiring on December 27, 2025. O and our inability to replace NYC as a tenant at rent rates comparable to the rates in the lease that terminatesd in August 2025 or to enter into a five-year extension of the lease expiring in December 2025 could cause a material adverse effect on us, including our financial condition, results of operations and cash flow.
Our rental revenue depends on entering into leases with and collecting rents from tenants. As of JuneSeptember 30, 2025, Kings County Court, the Human Resources Administration, and the Department of Environmental Protection, all of which are agencies of the City of New York, leased an aggregate of 548,580ll 206,084 of rentable square feet at 141 Livingston Street and terminated its lease for all 342,496 rentable square feet of commercial space at our 250 Livingston Street. The commercial office propertiesrental space at 141250 Livingston Street and 250 Livingston Street,is vacant as of August 23, 2025. Our commercial leases with the rents from which representeCity of New York comprised approximately 21% 16% and 22% of our total revenues for the three months ended June September 30, 2025 and 2024, respectively, and 20% and 22% of total revenues for the nine months ended September 30, 2025 and 2024, respectively. We are also subject to covenants covering these leases in our loan agreements related to our commercial office properties located at 250 Livingston Street and 141 Livingston Street. Breaches of these covenants could result in defaults under the loan agreements.
250 Livingston Street Property
As of February 23, 2024, The City of New York, a municipal corporation acting through the Department of Citywide Administrative Services (NYC), notified us of its intention to terminate its lease at 250 Livingston Street effective August 23, 2025, and they terminated the lease on that date. The lease generally providesd for rent payments in the amount of $15.4 million per annum. We may be unable to replace NYC as a tenant or unable to replace it with other commercial tenants at comparable rent rates, may incur substantial costs to improve the vacated space or may have to offer significant inducements to fill the space, all of which may have an adverse effect on our financial condition, results of operations and cash flow.
On March 18, 2025, we were notified by legal counsel to the servicer for the loan related to the 250 Livingston Street property that, due to the failure of our subsidiary, 250 Livingston Owner LLC, to cause all revenue generated by the 250 Livingston Street property to be deposited into the cash management account as required by the loan agreement related to the $125 million building mortgage loan, an event of default occurred under the $125 million building mortgage loan. The notice provided that if the 250 Livingston Owner LLC fails to cure the event of default, the lender may, among other things, accelerate the $125 million building mortgage loan and demand all amounts owing to the lender to be immediately payable, institute proceedings for the foreclosure of all liens securing the loan and sell the 250 Livingston Street Property, or file a lawsuit against the 250 Livingston owner LLC or the guarantors. As of May 12, 2025, we have complied with the lenders requirement to have the deposits made by all tenants deposited directly into the cash management account. On May 8, 2025, we transferred $6.3 million to the cash management account to cover amounts owed prior to the activation of the cash management account. On May 15, 2025, legal counsel for the lender notified us that they allege that we are in default on the $125 million mortgage loan due to its allegation that we, as the guarantor, did not maintain a net worth of not less than $100 million as of December 31, 2024, as required under the loan agreement. We replied to the lender disputing such calculation and alleging that the lender did not calculate net worth in a reasonable manner and provided our lender with our own calculation of net worth that shows a net worth in excess of the required amount. On May 28, 2025, the lender replied to us concurring with us and notifying us that they agree that we are compliant with the $100 million requirement. On July 28, 2025, we were notified by legal counsel for the lender that they alleged that we were once again in default for failure to remit all revenue derived from 250 Livingston into the cash management account. We responded by disputing the allegations in the May 8, 2025, letter and noting all rents from the tenants have been deposited into the cash management account.
All amounts remaining in such cash management account after the lenders allocations set forth in the loan agreement will be disbursed to us onceif the tenant cure conditions are satisfied under the loan agreement.
If we are unable to replace the NYC lease at comparable rents, we may not be able to cure the conditions listed in the loan agreement. If the excess, and it could impact our available cash is not released to us, it could impact our available cash to fund corporate operations and pay dividends and distributions to our stockholders.
On October 6, 2025, the Company failed to make its required deposit to the cash management account to fund the interest and tax escrow deposit for September 2025. The Company received notices of nonpayment on October 20, 2025 and November 12, 2025, but has not received a notice of the acceleration of the loan. The loan documents state that a failure to fund corporate operapay interest within five days of due date is an event of default. On November 12, 2025, the Company sent a letter to Midland requesting that the loan be immediately fully transferred to Special Servicing for potential loan modifications and pay dividendsbecause the Borrower does not plan to continue to support the ongoing operating and distributions to our stockholdersebt service shortfall related to 250 Livingston Street property. Although the Company is in the process of negotiating a Consent and Cooperation Agreement for the sale of the property, there can be no assurance that such Consent and Cooperation Agreement will be consummated.
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141 Livingston Street Property
The 141 Livingston Street lease expires on December 27, 2025, and if NYC were to decide not to renew or extend such lease on its stated termination date, pursuant to the terms of the lease, we would be at risk of not being able to replace NYC as a tenant, leasing the space below the current rates, incurring costs to improve the space or offer other inducements to fill the space, all of which may have an adverse effect on our financial condition, results of operations and cash flow.
If we are not able to extend or replace the NYC lease at our 141 Livingston Street property for a minimum of a five-year term, we will be required to either fund a reserve account in the amount of $10 million payable in equal monthly payments over the 18 months after lease expiration or deliver to the lender a letter of credit in the amount of $10 million.
On October 28, 2024, we received notice that, as of October 7, 2024, the servicing of the mortgage notes was transferred to a special servicer (the Special Servicer) due to our alleged failure to make certain required payments under the loan agreement, including, but not limited to, the reserve deposit starting on July 7, 2024. The Special Servicer demanded that we pay (i) $2.2 million of reserve payments into a reserve account immediately (for July-October 2024) and continued monthly payments of $555,555 for an additional 14 months, (ii) $1.2 million of default interest and late charges through October 7, 2024, and (iii) an additional $10,417 per diem interest for each day thereafter.
On November 11, 2024, the Special Servicer notified the Borrower that, due to its alleged event of default under the Loan Agreement, as a result of the failure to make the payments described above, the mortgage notes have been accelerated, and all amounts under the loan agreement were due and payable. Such amounts included, but were not limited to, $100.0 million principal amount of the mortgage notes, approximately $5.0 million of default yield maintenance premium, $10.0 million aggregate reserve deposit, and the above-described penalty default interest and penalties.
We believe that (i) we have made timely payments under the loan agreement, (ii) the servicer and the Special Servicer have misinterpreted the terms of the loan agreement requiring monthly reserve payments beginning on July 7, 2024, (iii) we have no current obligation to make such reserve payments under the loan agreement and (iv) we should not be obligated to pay the default interest and late charges.
On December 18, 2024, we received notice from the Special Servicer that due to its allegation that we as the Guarantor did not maintain a net worth of not less than $100 million as of December 31, 2022 and 2023, respectively, as required under the loan agreement, we were in default on the loan. We replied to the Special Servicer disputing such calculation and alleging that the Special Servicer did not calculate net worth in a reasonable manner. We provided the Special Servicer with our own calculation of net worth that shows a net worth in excess of the required amount.
On January 21, 2025, we received notice from the Special Servicer alleging that certain elements of our insurance on the building at 141 Livingston Street were not in compliance with the loan agreement requirements, including, but not limited to, due to a deductible in excess of what is permitted under the terms of the loan agreement and the use of an insurance carrier with a rating agency rating below that which is permitted under the terms of the loan agreement.
On March 12, 2025, we received a letter from counsel to the successor to the special servicer reaffirming the occurrence of alleged events of default under the loan agreement described above and demanding the establishment of a restricted account, a cash management account and a debt service account. In addition, the letter demanded that tenants of 141 Livingston Street be sent notices directing them to make lease payments to the cash management account.
We believe that we are not required to establish the foregoing accounts or send such notices to the tenants. However, if we are required to establish such accounts and deliver such notices, it could impact our available cash to fund corporate operations and pay dividends and distributions to our stockholders.
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On March 20, 2025, Wells Fargo Bank, National Association, as trustee for the benefit of the registered holders of certain pass-through certificates issued by trusts that are the holders of the promissory mortgage notes secured by the 141 Livingston Street property, referred to as Plaintiff, filed a lawsuit against the Borrower, as well as us and our Operating Partnership subsidiary, as guarantors, in the Supreme Court of the State of New York. Plaintiff demands, among other things, that (i) the 141 Livingston Street property be sold and the Plaintiff be paid the amounts due under the loan agreement, with interest thereon to the time of such payment, together with, among other items, the expenses of the sale, Plaintiffs attorneys fees; (ii) Plaintiff be paid all rents and revenues of the 141 Livingston Street property as they become due and payable; (iii) a receiver be appointed to manage the 141 Livingston Street property, with power among other things to demand and recover payment from anyone who has received a distribution from 141 Borrower after any event of default; (iv) Plaintiff have such other and further relief as may be just and equitable; (v) guarantors pay to Plaintiff the amount of any losses or damages suffered or incurred by Plaintiff as the court may determine to be just and equitable and amounts owed under the guaranty. We believe that the claims set forth in this complaint are without merit and intend to vigorously defend against this lawsuit.
On April 7, 2025, we filed an Affirmation in opposition to the motion of the Plaintiff for the appointment of a receiver and in support of defendants cross motion to dismiss the action and cancel notice of pendency with the Supreme Court of the State of New York, County of Kings. A hearing on the motions was scheduled for April 8, 2025, but it was adjourned until May 6, 2025. The Plaintiff submitted additional filings on April 29, 2025, and we submitted our replies on May 6, 2025. On May 13, 2025, the Court denied (i) the Plaintiffs motion to appoint a receiver to manage the 141 Livingston Street property, as Plaintiffs likelihood of ultimately prevailing on its claims herein appears remote and (ii) the Companys cross motion to dismiss the lawsuit, as Plaintiffs contentions do raise a question of fact. On XXX new events happened that we need to add.
In April 2025, we and the NYC agreed to the terms of a five-year extension of the current lease, with an option for the NYC to terminate the lease after two years with a prior six-month notice. The NYC has sent the lease to us to sign. On April 22, 2025, we sent the lease to the loan special servicer for approval in accordance with the terms of the loan agreement. On May 21, 2025 the special servicer approved the lease subject to certain conditions. We rejected the conditions that amongst other changes required us to change the terms of the cancellation provisions in the lease and make amendments to the loan documents to be in the line with the lenders allegations in the above lawsuit. There can be no assurance that the lease will be approved or finalized.
On June 11, 2025, the lender filed an appeal of the denial of the receiver. On June 23, 2025, the Lender filed an amended complaint seeking a declaratory judgment that its conditions for its consent to the lease were reasonable. On July 2, 2025, the lender filed a renewed motion for a temporary receiver. On July 11, 2025, the Company filed an answer with counter claims, seeking among other things declaratory relief that the lenders conditions are unreasonable for the proposed lease renewal. On July 18, 2025 W, we filed opposition to the renewed receiver motion. On July 30, 2025, the judge heard arguments on the renewed motion for a temporary receiver. The motion is currently pending. On July 31, 2025, the lender filed a motion to dismiss the Companys counter claims. Currently we have until The Company filed opposition on September 30, 2025, to respond and a hearingthe motion is currently scheduled for Septehearing on December 106, 2025.
There can be no assuranceOn September 30, 2025, that the lease will be approved or finalize court denied or that we will prevail in or successfully settle the litigatithe Plaintiffs renewed motion described above. Failure to successfully resolve tfor a receiver. The dispute related to 141 Livingston Street propercourt ruled, however, that if the City could materially affect our business, financial condiof New York exercises its option and results of operations. Further, even if we were successful in defending against this lawsuit, such defto terminate early under the proposed lease extense would distract our management team from our operations, which could have an adverse effect on our business. In addition, any uncertainties resulting from ion, the Company will be required to pay $2,000 on the continuation of any litigation could have a material adverse effect on our business, results of operations, financial condition and prospects.
See Note 4, Notes Payable, to Condensed Consolidated Financial Stfirst day of each month thereafter until a total of $10,000 has been accumulatements (Unaudited) included in Part I of d. Under this Form 10-Q for additional information related to 141 Livingstdecision Street property and 250 Livingston Street property.
David Bistricorder, our Co-Chairmanfailure of the board of directors aCompany to fund Chief Executithe reserve Officer, afund Sam Levinson, our Co-Chairman of the board of directors and Head ofat that time would be grounds for the Investment Committee, have outside business interests that will take theiLender to submit an order appointing a receiver time and attention away from us, which could materially and adveo the court of endorsely affect us. In addition, notwithstandingment. On October 28, 2025, the Investment Policy, members of our senior management may in certain circumstances engage in activities that compete with lender filed a notice of appeal of the cour activities or in which their business interests and ours may be in conflict.
David Bistricer, our Co-Chairmants decision. On October 28, 2025, the lender filed a notice of appeal of the board of directors and Chief Executive Officer, Sam Levinson our Co-Chairman courts decision.
On October 27, 2025, the Civil Appeals Management Program (CAMP) of the board of directors aAppellate Division, Second Chairman of the InvestDepartment Committee and other members of our senior management teamNew York State Court of Appeals continue to own intducted a mandatory conferestsnce in properties and businesseswhich the Company and that were not contribue Plaintiff participated to us in the formation transactions. For instance, eattempt to reach of David Bistricer, our Co-Chairmana settlement of the board of directors and Chief Executive Officer, JJ Bistricer, our Chief Operating Officer, Sam Levinson, our Co-Chairman of the board of directors and Chairman of the Inpending litigation. Another settlement conference took place on November 13, 2025.
The Company believestment Committee, and Jacob Schwimmer, our Chief Property Management Officer, has ownership that the claims set forth in the Plaintiffs complainterests in real estate are withoutside of the Company. David Bistricer, our Co-Chairman of the board of directors and Chief Executive Officer, a merit and intends to continue to vigorously defend JJ Bistricer, our Chief Operating Officer, own Clipper Eqagainst this lawsuity. However, Clipper Equity does.
There can be not own any real estate assets.
We have adopted an Investment Policy that p assurance that the lease will be approvides that our officers, including David Bistricer, JJ Bistricer and Jacob Schwimmer, are not required to ed or finalized or that we will present certain identified investment opportunities to us, including assets located outside tvail in or successfully settle the New York metropolitan area, for-sale condominium or cooperative conversions, development projects, projectsigation described above. Failure to successfully resolve that woulde dispute require us lated to obtain guarantees from third parties or to backstop obligations of other parties, and land acquisi141 Livingston Street property could materially affect our business, financial conditions. As a and result, except to the extent that our officers must present certain identified business opportunities to us, our officers have no duty to refrain from engags of operations. Further, even if we were successful in defending, directly or indirectly, in the same business activities or similar business activities or lines of business in which we or our subsidiaries engage or propose to eng against this lawsuit, such defense would distract our manage or to refrainment team from otherwise competing with us, and therefore may compete with us for investments in propur operations, which could have an adverse effect on our business. In addition, any uncertiainties and for tenants. These individuals also may pursue acquisiresulting from the continuation of any litigation opportunities that may be complementary tocould have a material adverse effect on our business, and, as a result, those acquisitions of opportunities may not be available to us.
We and members of our senior management may also determine to enter into joint ventures or co-investment relationships with reerations, financial condition and prospect to one or more properties. As a result of the foregoing, there may at times be a conflict between the interests of members of our senior management and our business interests. Further, although David Bistricer, JJ Bistricer and Jacob Schwimmer will devote such portion os.
See Note 4, Notes Payable, to Condensed Consolidated Financial Statements (Unaudited) included in Part I of their business time and attention to our business as is appropriate and will be compensated on that basis, under their employment agreements, they will also devote substantial time to other business is Form 10-Q for additional information related to 141 Livingston Street property and investment activities250 Livingston Street property.
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