Volume 74, Number 12 | July 21 - 27, 2004



Lots of litigation, little action at Essex St. building

By Erica Stein

Villager photo by Elisabeth Robert

Henry Rainge Megill in 130-140 Essex St. He was supposed to have the building open for business five years ago.

When Henry Rainge Megill constructed his business plan for 130-140 Essex St. — Building B of the Essex St. Market — in 1998, he planned for his “International House of Good Eats” to be open for business by Aug. 13, 1999, and to have a net profit of $82,625 for July of 2004. Six years later, while the three southern buildings of the Essex St. Market are home to 24 vendors, a restaurant and an art gallery, Building B stands empty and Megill, who incorporated as 130-40 Essex Street Development Corp., has filed for Chapter 11. The city’s Economic Development Corporation, which owns all of the Essex St. Market buildings, has been in litigation with Megill since 1999 over non-payment of rent and, in its ongoing attempt to evict Megill, has argued that he has failed to improve the property.

“That’s crazy,” said Megill, 66, last week. “This project is 90 percent finished.” Megill, a longtime resident of Columbia St. on the Lower East Side, was walking past the building with his daughter in 1997 when he noticed a sign from E.D.C. posted on the door, announcing that Building B was for rent. Megill, who had previously worked as a restaurateur and in the fast-food business, was interested in opening a series of fast-food kiosks in the south end of the building closer to the corner of Rivington St. “They were only offering the whole building,” says Megill, who engaged an architect and drew up a plan for the 11,300-sq.-ft structure that included the kiosks, a family-style restaurant, an 1,800-sq.-ft. daycare center and a 3,000-sq.-ft. banquet hall.

After hiring a real estate broker to research the building and discovering it was part of the Essex St. Revitalization Plan, Megill rewrote his proposal — dispensing with the daycare center and expanding the banquet hall to accommodate 800 people. He submitted the proposal to Community Board 3 and E.D.C., both of which approved it. “My three goals in this project, as promised in my business plan, were to make money, improve the community and employ local people. I didn’t want to run out of money,” said Megill, who had $700,000 available for the project at the time of its approval.

His architect developed a plan that cost $500,000 but which did not, according to Megill, take into account the significant structural work that would have to be done on the building itself. “See this crack here,” said Megill, pointing to a jagged line running through the brick on the outside wall of the Essex St. side of the building. “This is a concrete slab building. The La Guardia administration put it up in ’33 to house the pushcart vendors. It’s set down on what’s called footing; there’s no foundation. When the building shifted, it caused wall separation. When I took the building over there wasn’t even any glass in the windows. It was a shell.”

Megill said that in late 1998, he had about $600,000 left, with the large expenses of the foundation and ceiling repairs still to be paid. Realizing that he could not support the extra costs of structural renovation, Megill fired his original architect, hired Fritz Johnson and brought in G.D.M Development as a partner. Megill said that the original terms of his 20-year lease from E.D.C. allowed him not only the option to purchase the property — which he said he planned to exercise after the first year but as of yet has not — but allowed him to sell up to 49 percent of the shares of the corporation to which E.D.C. had issued the lease: 130-40 Essex Street Development Corp.

“I made a deal with G.D.M that they could purchase 49 percent of the shares if they put $160,000 upfront,” said Megill. “They were to pay for everything but not to spend more than $450,000.” Anything more than that, said Megill, was to be considered a loan from the Essex Street Development Corp. and would be repaid by Megill.

Megill said that G.D.M failed to pay the plumber and the electrician, who threatened a lien against G.D.M. Megill said he paid the plumber and electrician himself to avoid the lien and never gave G.D.M., which he thought was paying the rent to E.D.C., its promised shares.

He said that by 1999, with the exception of the bathrooms, which have since been completed, the building was in its current state: the ceiling and foundation had been repaired and he had installed gas lines, electricity, sinks, drains and internal walls. For six months Megill operated a barbecue shed in one of the kiosks (Megill says the reason he never had the building’s gas hooked up is because the barbecue operated on a wood-burning over.) Megill closed the location despite a favorable review in the New York Times in July of 2000 because, he said, it caused construction to slow while he was otherwise occupied and E.D.C. told him they didn’t consider it to be “upscale” enough.

In October of 1999, he arrived to find a notice from E.D.C. on the door, notifying him of his eviction in 10 days due to his failure to pay $37,381 of his $56,035 yearly rent. In court, Megill was given 15 days to pay $15,000 of the rent. “I got the money and put it in my bank, the Banco Popular,” said Megill. “They confiscated it.” The court then gave E.D.C. permission to evict him if he didn’t continue to pay the rent, with the first installment in December.

The city and Megill have been in litigation ever since. Megill said that in March of 2000, he attempted to pay the entire sum, only to be rebuffed, because he missed making the first payment. Eviction was set for March 13. Megill appealed the ruling to a three-judge panel, which overturned the original decision in May 2001 and returned possession of the building to Megill. During this time, Megill said, he attempted to replace G.D.M. with a local community group, Asian Americans for Equality, but was forced to abandon the idea after E.D.C. informed him that any change in the identity of the lessee would require a reassessment of the property, which, according to Megill, would have raised his rent to $45 per sq. ft. He was also found in violation of the cabaret laws in January of 2001. The Villager reported on Megill’s aborted effort to throw a 1,000-person Year’s dance party on Dec. 31, 2001. At the time, it was reported that the Fire Department had — after The Villager made inquiries about the party to E.D.C. — shut the party down before it started. Megill told The Villager afterwards: “You cost me $120,000.” A condition for Board 3 to give him the lease was that Megill would not turn it into a dance club.

From the panel’s ruling through 2002, Megill said he had obtained building permits and continued with construction until the permit ran out.

The final construction performed on the building, said Megill, was the completion of the bathrooms in 2002. Since then, the building has remained in its current state: interior walls and entryways have been constructed but not completed. Flooring and chairs have been purchased but not installed. Construction material remains piled in the planned banquet hall space and kitchenware is stacked haphazardly over the deli counter. The last wood from the barbecue takeout venture still sits in its pit. The single refrigerator sits empty while the kitchen floor is dotted with eggshells.

After the panel overturned the original decision, the city turned to the Appellate Division, which upheld the original ruling ordering the eviction in 2003. To appeal this decision, Megill was required to file a request with the U.S. Court of Appeals, which was denied. Megill filed for bankruptcy on April 18, 2003, automatically putting a stay on the eviction. Megill says he paid his yearly rent — which, under the terms of the original lease, rose to $89,656 in 2000 — through April 1 of that year.

“The city says we didn’t improve the building at all, and it may look that way if you don’t know what it was like when we started. But I took it to a place of being able to have an affair here in 2002 for 1,151 people. Ticketron sold the tickets. The city found out and gave me a cease and desist letter and ordered Ticketron to refund all the money. The property has a 75,000-ft. air rise and it’s worth $13 million. I bought this flooring but I haven’t put it in,” said Megill. “Why should I do anything so the city can confiscate it? I have creditors. I must owe somewhere near $600,000. I’m still debtor in possession and the court says I owe the city $89,000, but they haven’t ordered me to pay it yet. I’ve got $1.2 million tied up in this building and if I can’t open I can’t pay.”

In March, Judge Prudence Carter Beatty ordered the city to move ahead with the eviction, according to one of Megill’s two attorneys, Michael Schreiber, who explains that the debtor was given 20 days to respond to the city’s petition. Two weeks ago, Beatty informed both sides that she was granting a modification to the automatic stay, which would allow the eviction to proceed. Any action of a bankruptcy court has an automatic 10-day delay. Next Monday, Schreiber has the option to file an action in New York State Supreme Court to vacate the warrant or he can return to state court. “It appears,” said Schreiber, “that under the law there’s no limit to how many times you can appeal. That’s why it’s so hard to evict anyone. These things can stretch out forever. But depending on what happens, this could be done in six months or a year.”

One possible outcome if the city does win the suit is that it will call for the submission of new business plans. One plan, by the Federation of East Village Artists, is to turn the space into a Lower East Side Performing Arts Center. “We’re putting together a business plan,” said FEVA executive director Phil Hartman. “We’re trying to get a rendering. We’ve talked to the borough president’s office and Councilmember Gerson’s office and people seem enthusiastic. But, obviously, the city has to work out its business first.” If FEVA were awarded a lease, Hartman said the plan would include food and drink facilities and he would talk with Megill about operating them. “Yeah. I’m willing to talk to anyone about anything,” Hartman said. “I used to eat there all the time when the barbecue was open.”

Megill, who says that he still intends to open and has identified several “potential backers,” has expressed no interest in such an option. “With all the documentation I have, it seems some court should say what the city is doing is wrong,” he said. “There are so many things I wanted to do. In my business plan I said I wanted to use local housewives as chefs, get the local youth working for me and set up a college fund. This is my whole life. I have nowhere else to go. When I started I was in perfect health, I didn’t have arthritis in my shoulder or glaucoma. If I lose, I’m going to leave the city.”

E.D.C. said the agency does not comment on matters under litigation. A spokesperson said she would look into matters on the public record, but had not returned calls by press time.

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