A distressed loan tied to a stalled Garment District factory conversion has traded hands for roughly $15 million, a haircut of about 85% off the loan’s payoff, putting the partially finished building at 335 W. 35th St., near Penn Station, back in play for opportunistic buyers. The sale ranks as one of the steepest discounts on development debt in Midtown in recent memory and highlights the mounting pressure on unfinished condo conversions. The new noteholders now have a clear fork in the road: push ahead with the original condo plan or pivot to a rental strategy.
Who bought the debt
Empire Capital Holdings and the Hakimian Organization purchased the note for roughly $15 million, about an 85% discount on what was owed, according to Bloomberg Law. Buying the loan, rather than the property outright, can provide a backdoor path to control or eventual ownership, and people familiar with the deal say the buyers are weighing whether to complete the planned condos or rework the building as rental apartments. The transaction was reported by sources familiar with the negotiations.
Project history and why it stalled
The 12-story loft at 335 W. 35th St. was acquired in 2016 by entities tied to the Chen family and marketed as a condo conversion called "Society House" with roughly 65-67 units and room for a cultural center, according to The Real Deal. Shanghai Commercial Bank originally provided construction financing and later refinanced the project, but the development ran into financing and construction troubles. Court records show the ownership entities filed for bankruptcy in early 2024 as those problems piled up, according to loan records compiled by PincusCo. At the time of the filings, the project was described as largely complete but distressed, with more than $70 million listed in liabilities.
What the sale could mean for Midtown conversions
An 85% haircut on construction debt is a clear signal that lenders are willing to write down troubled loans, clear them off their books and let fresh capital figure out a new game plan. For buyers like Empire and Hakimian, both active players in recent discounted Midtown deals, acquiring the note is a relatively low-cost way to lock in potential upside if they can either finish the condo conversion or retool the property as a rental building, Crain's New York Business reports. The trade adds to a growing list of distressed Midtown sales as developers and lenders rethink whether new condos still pencil out in the current market. How aggressively the new noteholders move on construction and repositioning will decide whether this becomes a rare conversion comeback story or a bargain-priced rental play.
Legal path ahead
Buying the loan gives the purchasers leverage over the property, but it also hands them a legal to-do list. Any new noteholder will have to navigate pre-foreclosure claims, outstanding liens, municipal violations and the permits still needed to restart and complete construction. Public filings show Shanghai Commercial Bank and other creditors pursued pre-foreclosure and bankruptcy actions tied to the property, underscoring the procedural thicket ahead, according to court and loan records on PincusCo. If the buyers decide to press their advantage, expect fresh filings or eventual title transfers to surface in the city’s ACRIS records in the coming weeks.
