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 mission and didn’t account for thousands and thousands in mortgage advances.
Arbitrator Eugene Farber discovered that Stern and his improvement 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 meant functions, in line with Farber.
Stern and his lender SCP have been locked in a combat over the tower since JDS defaulted on its mortgage in 2023 and the lender took management of the property in 2024. Extra just lately, the 2 have been duking it out in arbitration. The dispute acquired so heated that SCP alleged Stern fabricated a household emergency to dip out of a scheduled listening to.
Stern argued it was an “apparent truth” {that a} developer might preserve among the insurance coverage proceeds from the insurance coverage firm CNA to cowl the mission’s “gentle prices” similar to delays. Stern additionally argued that JDS Building — not the borrower entity — was the insured get together and was not a part of the settlement to hand over the mission to SCP.
Stern additional alleged that the lender intentionally underfunded the mission 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 Building and the borrower entity.
“The arbitration ruling is totally mistaken and can’t be reconciled with the plain phrases of the events’ agreements. It ignores each the information and the regulation,” 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 the 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, in the end awarded SCP $46.9 million, plus 9 p.c annual curiosity from September 2024. The award nonetheless must be confirmed by a court docket, the place Stern can have one other likelihood to contest.
“We’ll 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 mission to our residents and tenants by yr’s finish.”
The Darkish Tower
The arbitration stems from the fallout of Stern’s 1,066-foot-tall residential tower referred to as the Brooklyn Tower, 9 DeKalb, or, for Brooklynites, the Tower of Sauron.
SCP, the lending arm of Silverstein Properties, supplied a $240 million mezzanine piece of a $664 million debt bundle towards the development of the mission 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, in search of 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 provided to signal the settlement settlement on Stern’s phrases. Stern failed to supply his insurance coverage file till the arbitrator warned Stern about doable destructive penalties in March 2026, in line with Farber.
When Stern lastly produced the file, it confirmed Stern had “wrongfully diverted and brought” insurance coverage proceeds, Farber wrote.
Farber rejected, nevertheless, thousands and 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 models 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 an alternative spent the day of the scheduled surgical procedure getting espresso, heading to his workplace, consuming sushi for lunch after which buying 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 supplied satisfactory proof of the adjournment or that the surgical procedure ever really happened.”
SCP has claimed the losses from Brooklyn Tower have been monumental.
“In all, SCP will likely be out over a billion {dollars}, for a constructing that isn’t price almost that a lot,” the corporate said in a movement to the arbitrator in late 2025.
SCP’s new mortgage originations have slowed because the Brooklyn Tower. SCP additionally changed Michael Might, who has led the corporate since its launch in 2018, with senior govt 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 mission within the Turks and Caicos.
Stern has focused on constructing in Miami, together with a virtually 800-unit condominium mission branded by Mercedes-Benz Locations and a Dolce & Gabbana-branded supertall. Mercedes-Benz Locations is going through foreclosures, however Stern reportedly has been engaged on bringing in a brand new companion, Jeffrey Soffer’s Fontainebleau Growth, for each initiatives.
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