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Joe Beninati was a little-known developer with a mixed track record in Connecticut when he bought three small apartment buildings last year on East 58th Street with a big idea: Plant a 113-unit, 950-foot luxury apartment tower designed by high-profile architecture firm Foster + Partners in the heart of the well-heeled enclave of Sutton Place. For Beninati, it was an opportunity to vault from relative obscurity into the ranks of the city's most illustrious builders, and he was willing to take enormous risks to get there.
"How many times in your life do you get to build a 1,000-foot-tall building in Manhattan?" Beninati said. "You might get up to bat twice in your whole life for something like this. There are guys who go 20 years and have major-league careers and never get up to bat in the World Series. It just doesn't work out."
To do the deal, Beninati signed what many in the industry viewed as a Faustian bargain. He borrowed $147.25 million at what amounted to a 30% interest rate from Gamma Real Estate, a lender whose founder has a long and litigious track record in the city's real estate industry.
By January, Beninati was in default on the debt. In a last-ditch effort to prevent Gamma from seizing the property in a foreclosure auction, he declared bankruptcy last month for BH Sutton Mezz LLC, a corporate shell he controlled that received a portion of Gamma's loan. Beninati wouldn't comment on the bankruptcy case.
The ensuing legal battle will likely last months. It threatens to swamp Beninati financially and ruin his ability to ever do deals in the city again.
"There's definitely reputational risk in declaring bankruptcy," said Robert Ivanhoe, who leads the New York real estate practice at law firm Greenberg Traurig. "He has had issues in his past, and now this comes on top of that. It may hurt him in the future if he's trying to get a loan from a bank."
What turned into an imbroglio started with promise. In January 2015, Beninati bought three contiguous, six-story buildings at 428, 430 and 432 E. 58th St. for $32 million, and hatched plans to raze them and erect a 67-story tower in their place. While supertall towers were...