An arbitrator issued a $46.9 million award in opposition to Michael Stern and JDS, discovering that the developer diverted insurance coverage proceeds from its Brooklyn Tower venture and didn’t account for hundreds of thousands in mortgage advances.
Arbitrator Eugene Farber discovered that Stern and his growth agency hid a $35.4 million insurance coverage payout over a burst water pipe in 2022 from its lender Silverstein Capital Companions. JDS additionally failed to indicate that $13.1 million in mortgage advances meant for distributors was used for its supposed functions, based on Farber.
Stern and his lender SCP have been locked in a struggle over the tower since JDS defaulted on its mortgage in 2023 and the lender took management of the property in 2024. Extra not too long ago, the 2 have been duking it out in arbitration. The dispute obtained so heated that SCP alleged Stern fabricated a household emergency to dip out of a scheduled listening to.
Stern argued it was an “apparent reality” {that a} developer might maintain among the insurance coverage proceeds from the insurance coverage firm CNA to cowl the venture’s “delicate prices” corresponding to delays. Stern additionally argued that JDS Development — not the borrower entity — was the insured celebration and was not a part of the settlement to hand over the venture to SCP.
Stern additional alleged that the lender intentionally underfunded the venture in an effort to take management of it.
Farber rejected these arguments, writing that the lender had a safety curiosity within the proceeds primarily based on its mortgage settlement, and that insurance coverage checks had been payable to each JDS Development and the borrower entity.
“The arbitration ruling is totally improper and can’t be reconciled with the plain phrases of the events’ agreements. It ignores each the info and the legislation,” a spokesperson for JDS mentioned. “We intend to pursue all claims in opposition to the lender which has substantial publicity. Courts exist to cease simply this sort of rogue lawfare and we’re assured they may. JDS will proceed to develop and ship among the most iconic initiatives in NYC, Miami, and nationwide.”
Farber, appointed by the American Arbitration Affiliation, finally awarded SCP $46.9 million, plus 9 p.c annual curiosity from September 2024. The award nonetheless must be confirmed by a courtroom, the place Stern could have one other probability to contest.
“We are going to implement this award,” a spokesperson for SCP mentioned in an announcement. “Having moved previous the challenges created by prior possession, we’re excited to ship the completed venture to our residents and tenants by 12 months’s finish.”
The Darkish Tower
The arbitration stems from the fallout of Stern’s 1,066-foot-tall residential tower often called the Brooklyn Tower, 9 DeKalb, or, for Brooklynites, the Tower of Sauron.
SCP, the lending arm of Silverstein Properties, offered a $240 million mezzanine piece of a $664 million debt bundle towards the development of the venture in April 2019. In 2023, JDS defaulted and SCP entered into forbearance agreements on the loans with JDS. SCP then purchased the senior mortgage and initiated a foreclosures on the mezzanine mortgage.
By June 2024, JDS and SCP reached an settlement to hand over the property to Silverstein to keep away from a foreclosures. However the hand-off didn’t go easily.
In Might 2025, Stern and JDS filed an arbitration in opposition to SCP alleging the lender failed to barter a settlement settlement in good religion, which JDS and Stern argued launched them from their obligations. In June 2025, SCP filed its personal arbitration, searching for reimbursement for mortgage funds it superior to JDS to pay distributors.
The competing arbitrations had been mixed into one. Farber was appointed because the arbitrator.
In September, the arbitrator rejected Stern’s argument that he was launched from his obligations, stating that SCP supplied to signal the settlement settlement on Stern’s phrases. Stern failed to offer his insurance coverage file till the arbitrator warned Stern about attainable adverse penalties in March 2026, based on Farber.
When Stern lastly produced the file, it confirmed Stern had “wrongfully diverted and brought” insurance coverage proceeds, Farber wrote.
Farber rejected, nonetheless, hundreds of thousands of {dollars} of SCP’s claims. In a single instance, SCP sought $12.5 million to make use of as a reserve for a lawsuit introduced by BNP Paribas. However Farber discovered BNP’s deal to purchase items wasn’t coated within the time period sheet.
Within the award, the arbitrator additionally famous that Stern requested a brand new date for a key listening to in November 2025 on the final minute, claiming his daughter was scheduled for surgical procedure in Florida.
SCP alleged in its personal filings, citing an investigator’s affidavit, that Stern as a substitute spent the day of the scheduled surgical procedure getting espresso, heading to his workplace, consuming sushi for lunch after which purchasing after work, however by no means set foot in a hospital.
Stern instructed the arbitrator the surgical procedure had been postponed.
Farber wrote that Stern “by no means offered ample proof of the adjournment or that the surgical procedure ever really occurred.”
SCP has claimed the losses from Brooklyn Tower have been huge.
“In all, SCP shall be out over a billion {dollars}, for a constructing that’s not price practically that a lot,” the corporate acknowledged in a movement to the arbitrator in late 2025.
SCP’s new mortgage originations have slowed for the reason that Brooklyn Tower. SCP additionally changed Michael Might, who has led the corporate since its launch in 2018, with senior government Shawn Katz in June 2024. A spokesperson for SCP mentioned the corporate is “actively pursuing” new lending alternatives in New York Metropolis and throughout the nation and originated a $113 million mortgage in March for a venture within the Turks and Caicos.
Stern has focused on constructing in Miami, together with an almost 800-unit rental venture branded by Mercedes-Benz Locations and a Dolce & Gabbana-branded supertall. Mercedes-Benz Locations is dealing with foreclosures, however Stern reportedly has been engaged on bringing in a brand new companion, Jeffrey Soffer’s Fontainebleau Improvement, for each initiatives.
Learn extra
Michael Stern misses payment deadline to Silverstein in Brooklyn Tower dispute
Silverstein to launch sales at troubled Brooklyn Tower
Stern gives up Brooklyn Tower to Silverstein
