Companies tied to Jeff Yass have taken over Divine Lorraine amid Philly developer’s financial crisis

For much of the last 20 years, North Broad Street has been the focal point for Philadelphia developer Eric Blumenfeld’s ambitions: a vision of restoring the once-grand boulevard to its former glory by redeveloping a string of landmark buildings at great expense.

He now says that one of his proudest accomplishments — the successful refurbishment of the Divine Lorraine, an iconic but long-vacant Victorian hotel — has been taken over by companies tied to Pennsylvania’s richest man, Jeff Yass, amid a financing dispute.

“They took over the Divine Lorraine four or five months ago,” Blumenfeld said. “Jeff Yass is now invested in North Broad Street.”

Court records show Blumenfeld owes real estate companies owned by the Susquehanna International Group (SIG), an investment firm cofounded by Yass, in excess of $100 million in debts linked to his North Broad developments.

This money helped fund Blumenfeld’s redevelopment of the Divine Lorraine and other properties along North Broad Street, including the renovation of the nearby Metropolitan Opera House, now a Live Nation concert venue known as “the Met.”

SIG lawyers say the developer has been in default for years, so their firms are seeking to recoup their debts by foreclosing on some of these holdings.

A representative for SIG declined to comment for this article.

In addition to transforming the Divine Lorraine into a mixed-use apartment building-turned hotel, Blumenfeld is also known for his involvement with the redevelopment of the nearby Loft 640 apartments and prominent residential buildings such as South Philly’s Marine Club and the block-long Abbotts Square condos on Headhouse Square.

Financial woes linked to these other properties have led other creditors to seek another $100 million in combined debts. One such investment firm recently foreclosed on Abbotts Square, while some of his other buildings are embroiled in years-long disputes tied to multimillion-dollar defaults.

Blumenfeld contends that he is the victim of predatory lenders and has filed his own lawsuits in response. But as his disputes wind their way through court, Blumenfeld said he is trying to appeal to Yass to partner with him so the developer can get back to his long-standing mission: rejuvenating North Broad Street.

“I think litigation is a huge waste of time,” Blumenfeld said. “Yass is the richest guy in Pennsylvania. … I’m the guy who got these projects done. When you walk to the Divine Lorraine and the Met, we need to get these [nearby] vacant buildings filled. We have to get life in them. And here’s a guy who could help us dramatically.”

While Blumenfeld’s current troubles are broad and deep, many neighborhood stakeholders say that he had an undeniably positive impact on an area for years marred by vacancy and blight.

“Eric and his vision for the Divine Lorraine and the Met was definitely beneficial for North Broad’s overall development,” said Shalimar Thomas, executive director of the North Broad Renaissance, an economic development agency with a board that includes Blumenfeld. “Eric was instrumental in restoring historical buildings on North Broad. He took that to another level.”

The developer’s troubles with SIG unfolded over the last few years in a series of tit-for-tat legal actions between Blumenfeld and lenders at two SIG-linked firms — Susquehanna Structured Capital and Finch Property Holdings — that invested in the Met and Divine Lorraine projects.

A lawsuit filed by Blumenfeld last year states that he initially secured $61.6 million in financing from the Guggenheim Life & Annuity Co. and Susquehanna in 2018 to fund the “transformation of Philadelphia’s North Broad Street from a crime-infested corridor to a vibrant economic and social center.”

These funds primarily helped fuel the Divine Lorraine and the Met redevelopments, as well as renovations at Abbotts Square, a condo developed decades ago by Blumenfeld’s father that he had sought to revamp.

The suit accuses Guggenheim of withholding the release of some funding to Blumenfeld. This, along with the impact of COVID-19, disrupted his redevelopment schedule and prevented him from fully realizing his expected income at both properties, resulting in “decreased cash flow” and financial hardship for the developer, according to the suit.

The complaint goes on to allege that the SIG companies then hatched “a clandestine scheme” to buy out Guggenheim’s share of the project and capitalize on Blumenfeld’s financial distress in order to “steal the millions of dollars in equity in the project properties along North Broad.”

By this account, the plan was to force Blumenfeld to sell off his holdings at a loss to cover his debts, while his former lenders conspired to scoop up the properties for a song at a “rigged” foreclosure sale.

But in March, Finch and Susquehanna Structured Capital filed legal actions against Blumenfeld in New York City courts, recounting a very different version of events.

A legal filing asserts that Blumenfeld fell behind on his debt service and, in June 2019, entered into a forbearance agreement — in which he’d get a break on his payments to solidify his finances — defaulting about three months later. The SIG-linked companies helped refinance the project, allowing the developments to move forward. The companies also later purchased Guggenheim’s mortgage loan and advanced more money to help complete the Divine Lorraine project.

A lawyer for the SIG-linked companies stated, in a court affidavit, that the outstanding balance on those loans exceeded $87 million at that time.

Earlier this year, the companies filed paperwork to formally foreclose on the Divine Lorraine and the Studebaker Building, a partially redeveloped former car showroom on North Broad owned by Blumenfeld, and a rental portion of Abbotts Square, known as Headhouse Flats.

The same affidavit rejected Blumenfeld’s allegations of a “conspiracy” as unsubstantiated, stating that the companies had delayed earlier actions against the developer over the unpaid debts to be “accommodating to Mr. Blumenfeld” who was injured in a car accident in December 2019.

“It is simply untrue that SSC or Finch are ‘trying to take advantage of him,’” lawyer Brian Morris wrote in the lawsuit.

In September, a judge in the New York case issued a $17.7 million personal judgment against Blumenfeld over a third Susquehanna loan, which lawyers are seeking to enforce in Philadelphia courts.

Blumenfeld said the judgment isn’t a problem as his own lawsuit is still pending.

“That’s not enforceable,” he said. “As part of that order, it says it understands that there’s litigation in Philadelphia that preceded their attempts in New York.”

Blumenfeld has made similar claims in connection with previous foreclosure threats.

In 2021, Wells Fargo sought to foreclose on another Blumenfeld property, the Marine Club apartments at Broad and Washington, alleging in court filings that the developer was “plundering the property of its income for unrelated uses, absconding with security deposits, diverting, and converting rents.”

Blumenfeld filed suit against the bank and other lenders a few months later, alleging that they, too, were colluding to “take control of the property and steal the equity” by stymieing his attempts to secure COVID-19 relief funds.

The case is still pending.

Faced with yet another prior foreclosure, in 2019, by lender U.S. Bank N.A. on the Abbotts Square condos, Blumenfeld argued that the terms of the loan were unfair. He told The Inquirer at the time “I sort of feel like I was sold a bill of goods at closing.”

Since then, the Abbotts Square project became further complicated when the Giant supermarket company decided not to open a planned Heirloom grocery store in the building and then sued a company affiliated with Blumenfeld to recoup losses from the much delayed collaboration. Blumenfeld told the Philadelphia Business Journal during the summer that Giant’s refusal to open amounted to a “con job.”

Blumenfeld’s remaining assets in Abbotts Square were also foreclosed on earlier this week to satisfy portions of $27 million more owed to SKW, an investment firm specializing in distressed real estate assets that had taken on financing tied to that condo building.

Blumenfeld said that he’s still involved with the Marine Club, the Met, Loft 640, and Mural Arts Lofts apartments, despite the legal actions involving some of those buildings.

“The only thing I walked away from was Abbotts Square, and it was sort of forced by the Giant [lawsuit],” he said.

His priority now, he said, is drawing public attention to his challenges and ending his legal war with SIG’s companies. Legal experts, however, noted that his strategy of seeking an accord publicly is not the way these affairs are normally conducted.

“It sounds extremely unusual,” said Sally McDonald Henry, a professor of law with expertise in bankruptcy at Texas Tech University. “I haven’t examined the pleadings, but having litigated for many years, I never would have thought of trying to bring it to more public attention.”

Blumenfeld said he wants to personally convince Yass to add renovations of historic buildings to his list of global philanthropies and partner with him to help finish his North Broad developments.

He said the billionaire — a bête noire of progressive movements in Pennsylvania due to his political spending on conservative causes — could become the hero the city needs.

“I don’t think he’s aware of what’s happening on North Broad,” Blumenfeld said. “How great would this guy’s press be, if he comes in and helps North Broad Street? … So maybe this could be an opportunity, maybe it’s a wake-up call. Maybe it’s an invitation. But I’d love to see that happen.”