Real-Estate

Silverback Development’s Josh Schuster Controversy

Silverback Development’s Josh Schuster, who is facing numerous legal claims from stakeholders. Photo Illustration of Schuster (Photo by Emily Assiran)

People couldn’t help but be impressed when they visited Josh Schuster’s office at 40 West 57th Street.

The sleek tower overlooking Central Park is considered one of the choicest properties in New York by the city’s status-seeking elite, a place where blue-chip hedge funders make billion-dollar fortunes on the floors above and the in-crowd rubs shoulders during power lunches at Nobu.

40 West 57th Street

40 West 57th Street (Google Maps)

For a young developer looking to make a name for himself, sharing an address with Paul Singer’s Elliott Management and veteran developer Steve Witkoff can itself be the success he looks to create.

But at just 37 years old and with only a few big deals under his belt, Schuster, the founder of Silverback Development, has yet to achieve the marks normally required for entrée into one of the city’s “It” buildings.

It helped that one of his early advocates is a tenant: the $21 billion asset manager Silverpeak, which invested in a few of Schuster’s initial deals and invited his company to use some of its office space.

The relationship gave the condo developer a stamp of credibility and helped him gain a reputation as one of real estate’s fast-rising stars. Some even suspect Schuster named his company Silverback to ride Silverpeak’s institutional coattails.

“The presentation is superb quality,” said one executive who visited Schuster’s office. “He’s sitting in their offices. [Silverpeak co-founder] Mark Walsh is right there in the office with all the artwork. [Schuster’s] taking you downstairs for lunch at Nobu and charging up the black AmEx.”

But earlier this year, Silverpeak booted Schuster from its office. And stakeholders are now claiming the developer built his success on a platform of lies and misconduct.

“The success of all projects is of the utmost importance and top priority of the development team.”

Josh Schuster, Silverback Development

Schuster owes millions of dollars in legal claims that the courts have ordered him to pay, and cases keep piling up. Several key members of his team recently left over alleged unscrupulous behavior they witnessed. And investors say Schuster misled them about how he used their money, and has evaded them when they demand to be paid back. Many of them – including some friends, former co-workers and their friends and family — fear their money will get wiped out.

In response to the allegations, Schuster said many of the claims are inaccurate, though he declined to comment on them specifically. He said the allegations are being made by various involved parties who, on multiple occasions, failed to meet their contractual obligations and responsibilities.

“The success of all projects is of the utmost importance and top priority of the development team, as is evidenced in navigating complexities throughout an unprecedented pandemic,” Schuster wrote in an email to The Real Deal.

These challenges don’t appear to have diminished Schuster’s ambitions. In October, the developer broke ground on his biggest project to date: a $250 million condo tower in Manhattan’s Turtle Bay that he’s developing in a partnership with Hong Kong’s Hopson Development Holdings – one of the largest developers in China.

The last 18 months have tested even New York’s most seasoned developers.

But there are a number of concerning allegations that predate the pandemic, according to friends, investors and former employees who spoke with TRD on the condition of anonymity because they didn’t want to be associated with the scandal.

Problem projects

A midwesterner who set his sights on New York City real estate coming out of college in Louisiana, Schuster broke onto the scene in 2005.

While he lacked the credentials that many of his Northeast-raised peers used to start their careers, people who know him called Schuster an incredible salesman with a striking ability to convince others to get behind his vision. He started off small and in 2016 launched Silverback Development, which he claims now has a pipeline of projects worth more than $2 billion.

131 East 47th Street

131 East 47th Street (SLCE Architects)

Those include the condo development at 131 East 47th Street — a 200-unit condo tower set to rise 34 stories. In Long Island City, he bought an under-construction rental tower at 24-16 Queens Plaza South in 2019 for $80 million and pivoted the project to condominiums. And in Brooklyn, he started converting a former dorm used by the Art Institute of New York at 67 Livingston Street into condos, though he changed tack to rentals when the for-sale market turned.

But behind the scenes, several of Silverback’s other projects are in trouble.

In Gramercy Park, for example, Schuster’s partners removed him as the general manager of a $150 million condo development after the project’s lender sent a warning notice about its financials, according to sources familiar with the situation.

359 Second Avenue

359 Second Avenue (Picksell)

Silverback had entered into a joint venture in 2017 to develop the project at 359 Second Avenue with the property’s owner, Argentinian developer Claudio Soifer.

“Through this joint venture we’ve created an attractive deal structure,” Schuster said at the time.

The 53-unit condo project broke ground in January 2020 with construction financing provided by Sculptor Capital Management (formerly Och-Ziff Capital Management Group) and Michael Dell’s MSD Partners.

But the development fell behind on interest payments and its budget fell out of balance. Schuster also did two things that violated his loan agreement: He failed to notify his lenders about a court judgement issued against him, and he pledged his interests in the project as collateral for a loan he took out – both of which constitute a default under his mortgage agreements.

As a result of the budget issue, Sculptor Capital sent a shortfall notice and Soifer, the project’s majority shareholder, removed Schuster as managing director, sources said. A representative from Sculptor Capital declined to comment and Soifer did not respond to requests for comment.

One of the investors in the project, Harry Karten, said via email that he is involved in restructuring the deal and that “Silverback is still very much involved.”

Around the time of Schuster’s removal, the partners ran a forensic audit that revealed roughly $2 million from the project’s coffers were unaccounted for, according to two people familiar with the situation.

And what’s more, people close to the company point to a set of circumstances that raise flags about how Schuster fundraised for the Gramercy Park project and others.

Specifically, two investors said they gave Schuster money for the project, only to learn later that they were not listed on organizational charts Silverback presented to its lenders.

24-16 Queens Plaza South

24-16 Queens Plaza South (Redundant Pixel)

One former staff member said there were multiple occasions where people came forward claiming they were investors on a given project, but they didn’t show up on the org charts.

“We started being contacted by individuals claiming they were invested in the project and we had no knowledge of their involvement,” the former employee said.

And based on the size of the Gramercy condo’s budget and the amount of investments thought to be raised, it appears that the project has been overcapitalized.

This has led some to the explanation that Schuster either took money from investors and didn’t put it into the project, or sold shares in the development that he didn’t have the right to sell.

Into thin air

Allegations of mismanagement stretch across Silverback’s portfolio.

In the Bronx, Silverback is planning a 200-unit rental building at 580 Gerard Avenue in Grand Concourse. The property is in an Opportunity Zone, which provides long-term tax incentives for developments in disadvantaged neighborhoods.

“Not since 1970 has demand for housing in the Bronx been higher, making this an opportune time for a project of this kind,” Schuster said in the fall when he announced plans for the site.

But internal emails show that the project’s partners had considered removing Schuster as the manager.

One source said an auditing run earlier this year revealed that $1.1 million was unaccounted for from that project. In order to avoid a lawsuit, the source claimed, Schuster transferred his $1.34 million in equity in the deal to one of his partners, leaving him with just a nominal financial stake.

In Stamford, Connecticut, where Silverback closed its first deal, one investor claims Schuster took his money and used it elsewhere. Steven Fisch, principal at the Tribeca-based firm Continental Properties, filed a lawsuit against Schuster in March. Fisch claims he gave the developer $500,000 in 2018 to invest in a 128,000-square-foot office redevelopment at 1111-1177 Summer Street.

Fisch claims in the suit that Schuster said he would use the funds to purchase 50 percent of the equity in the deal. But a review of the project’s books showed that Silverback put only about $180,000 into the project, and only owned 5 percent of the deal, Fisch said. He did not respond to requests for comment.

According to the suit, Fisch said his money “disappear[ed] into thin air” and that the Silverback founder deliberately deceived him.

“Schuster knew that, had he told Fisch the truth about what Schuster intended to do with his money, Fisch would not have agreed to provide him with $500,000,” his lawyers wrote in court filings.

Silver surfer

Schuster, the son of a physician, attended Tulane University with his sights set on a job on Wall Street before a class in real estate led him to take a position at a Harlem property management company. Afterward, he went to work for JMH Development where his projects included converting a massive Cass Gilbert-designed warehouse in Williamsburg at 184 Kent Avenue into rentals, which the company sold to Kushner Companies in 2015 for $275 million.

It was a valuable learning experience for someone looking to cut their teeth in the business. The project involved cutting a football-field sized hole in the center of the 425,000-square-foot building to allow light and air to get into the apartments. One of Schuster’s strengths, people who know him say, is his detailed knowledge of construction sites, and his willingness to get his hands dirty when needed.

The developer got exposure to construction sites at an early age. His late grandfather, Jack, was a real estate executive who worked with developers in the 1980s and ‘90s including William Zeckendorf Jr.

“I want to contribute to the skyline like my grandfather did,” Schuster told the Wall Street Journal in 2016.

Josh Shuster (Bicol Clinic)

Schuster co-founded a nonprofit (Bicol Clinic)

The Silverback chief ventured into philanthropy, co-founding a nonprofit called the Bicol Clinic Foundation, which helps build medical facilities in places such as the Philippines, Nepal and Haiti. He also serves on the board of Baruch College’s real estate school with some of the industry’s biggest power players.

After JMH, he went to work in 2011 with Dan Hollander at DHA Capital, where he took on bigger projects including a condo conversion of a former parking garage in NoLita where the company brought in musician Lenny Kravitz to design units and kick off sales with a nightclub bash.

And Schuster was starting to get noticed; TRD named him one of real estate’s rising stars in 2015.

A year later, he launched his own firm. Somewhere along the way he made an impression on the people at Silverpeak, the alternative asset manager founded in 2010 by Mark Walsh and Brett Bossung, who had headed Lehman Brothers’ Global Real Estate Group.

Silverpeak invested in a few of Schuster’s early deals, and invited his company to work out of its 57th Street office. And the asset manager had a right of first offer to invest in any deal Silverback was undertaking.

Silverback Development’s Josh Schuster Controversy

Mark Walsh, Silverpeak co-founder

The arrangement made some people more comfortable doing business with Schuster than they would if he had been out on his own.

“The only reason people invested in Josh is because of Silverpeak,” one investor said.

But now the relationship has turned cold.

In 2019, Schuster claimed Silverpeak backed a $50 million fund he raised for new investments. TRD reported on the story, a copy of which Silverback posted to its website, but people familiar with the company say Silverpeak now disputes it participated in the fund. And outside the few early deals, the firm passed on other opportunities Silverback brought to the table.

A spokesperson for Silverpeak confirmed it asked Schuster to leave its offices earlier this year, and said it has nothing to do with allegations concerning his projects.

Still, some who feel they’ve been wronged by Schuster say Silverpeak owes a measure of responsibility for giving him their stamp of approval.

The Silverpeak spokesperson declined to comment on that contention.

Promises broken

Schuster’s growing list of legal headaches includes at least nine pending cases in New York, Florida and Nevada with more than $4 million in judgments and additional claims adding up to $5 million.

Those cases include a $25,000 gambling debt that the Mirage hotel and casino in Las Vegas claims plus $15,000 in interest from a stay during the International Council of Shopping Centers expo in 2019. In Florida, Schuster’s landlord during the pandemic claims he owes $150,000 in back rent. And associates who lent Schuster millions of dollars say he hasn’t paid them back.

One recurring theme is that litigants say they’ve had a hard time tracking down the developer, who moved several times during the pandemic.

In one of the cases, Schuster owes $1.9 million to Nick Lettire, a general contractor who has worked with Silverback in the past. The judge in the case ordered Schuster in January to repay the sum, but Lettire said he hasn’t paid up.

Schuster acknowledged in case filings that he fell behind, saying the pandemic had made things difficult.

“Unfortunately, while we continue to juggle the many balls we have in the air relating to this and many other matters and projects . . . we have to date been unsuccessful and dropped the ball to a certain extent in this matter,” he wrote in an affidavit in late April.

In early July, the judge found him in contempt of court.

Eight employees, roughly half of Silverback’s staff, have quit since late last year. Several said their concerns over Schuster’s behavior started to build over the past several months, but hit home when he failed to make payroll and began coming up with excuses.

“There was a failure to pay them not just their wages, a promised increase in wages, and the 2020 annual bonus,” said Mara Lowenstein, an attorney who is working with some of the former employees to collect back pay.

Schuster declined to comment on the matter.

Unfinished business

At Silverback’s Long Island City condo project, unit owners in May protested against what they saw as a lax job by the developer: unfinished amenities and common spaces, water damage in the gym and leaky faucets in their brand new apartments.

[Schuster’s] taking you downstairs for lunch at Nobu and charging up the black AmEx.”

“The sponsor absolutely wouldn’t communicate to the residents despite multiple attempts and letters to reach them,” one resident wrote, adding they feared Silverback was going to walk away from the problems after selling the units. “We had to literally protest in the lobby to warn potential buyers for the sponsor to actually agree to schedule a meeting to discuss the problems.”

It’s a property Schuster purchased in partnership with AEW Capital Management — one of the largest real estate investment managers in the world with more than $85 billion in assets under management.

AEW is another deep-pocketed player along the likes of Silverpeak, Hopson and Dell’s MSD Capital that saw something they like in the young developer.

But Schuster didn’t just raise money from big-time investors. He syndicated equity in his deals from friends and employees, who in turn brought their friends and family members into deals because they trusted and believed in him. Many now fear those investments are in jeopardy, and they’re responsible for it.

Those people are taking it personally, too. They said they believed in Schuster and placed their trust in him, and feel he took advantage of their faith.

The shine of Schuster’s sterling image, they say, has worn off.

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