In the HBO series “The Wire,” Omar Little gives a piece of prophetic advice: “You come at the king, you best not miss.”
Jeff Krasnoff’s Rialto Capital, after going scorched earth on CRE’s troubled borrowers, is now going after the King of Retail, Jeff Sutton.
Rialto on Wednesday filed a lawsuit in Manhattan Supreme Court seeking to foreclose on Wharton Properties’ leasehold on the retail building at 144 5th Avenue in the Flatiron District. It’s also seeking to enforce a bad boy guarantee over Sutton’s alleged “misappropriation or conversion of the rents” at the property.
Sutton declined to comment and Rialto wasn’t immediately available.
While the $8 million loan certainly isn’t the largest Rialto’s taken action on, billionaire Sutton may be the most formidable opponent Krasnoff’s company has taken on yet.
Rialto has mostly moved to foreclose on smaller borrowers, many of whom lack the financial means for long, drawn-out legal fights. The most notable exception was another big New York retail mogul, Midtown Equities’ Joseph Cayre.
In February, Rialto filed to foreclose on a Brooklyn Heights property at 205 Montague Street, claiming Midtown Equities had defaulted on a $45 million loan. Cayre’s company fought back, though, and alleged Rialto maliciously schemed to engineer a default.
Midtown Equities filed a class-action lawsuit against Rialto; 10 days later, the two sides settled their dispute.
Sutton acquired the ground lease on 144 5th Avenue in 2016 and financed it with an $8 million loan from Signature Bank. Rialto took over servicing Signature’s $17 billion loan book when the bank failed in 2023.
Rialto’s lawsuit claims Sutton defaulted when he failed to repay the loan upon its February 2024 maturity. The servicer is also trying to go after Sutton for a personal guarantee.
The company argues that once a default was declared, Sutton was required to forward the rents he collected to Rialto. Sutton failed to do that, according to the lawsuit, triggering a bad boy guarantee that makes him liable for any losses Rialto may suffer on the loan.
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