New York Condo Owner banktupcy and payment dispute

Gateway Kensington, LLC filed for bankruptcy on May 14, 2021 — following an arbitration petition that resulted in a loss of over $14.3 million for the Bronxville, New York developer.

The Chapter 11 bankruptcy filing listed 15 creditors alongside between $10 million and $50 million in estimated liabilities, while also claiming only between $1 million and $10 million in estimated assets.

Gateway Kensington’s filing points to a restructuring of its business — Chapter 11 bankruptcy is often known as “reorganization” bankruptcy. Under this section of the bankruptcy code, debtors are allowed to develop a plan of reorganization so that they can pay their creditors over time and maintain their business operations.

A significant portion of the company’s liabilities stem from a payment dispute with parent construction management firm Gateway Development Group, Inc. — a dispute that dates back to May 5, 2014, according to petition documents.

Per the case’s arbitration documents, Gateway Kensington was formed by Gateway Development with the sole purpose of developing plots of land in Bronxville after real estate development company Fareri Associates was selected by the town of Brownsville to do so.

Documents note that at the time of the dispute, Fareri Associates owner John Fareri served as the majority shareholder of both Gateway Development and Gateway Kensington. The remainder of Gateway Development was owned by James Carnicelli, Jr.

Tax credit and subsequent audit led to inadequate payment, dispute

The arbitration petition states that the Bronxville project allowed for Fareri to personally gain income tax credit for the site’s development. The amount of this credit was connected to the cost of the site’s cleanup and the cost of any above-ground construction, which Gateway Kensington proposed to do as part of the New York State Department of Environmental Conservation’s Brownfield Cleanup Program. The agreement that stemmed from this program’s participation provided for the aforementioned tax credits.

After completing its brownfield cleanup work in 2017, Gateway Kensington applied for the project’s applicable tax credits — however, a lack of correct documentation led to a December 30, 2017, audit by the New York State Department of Finance.

As part of this process, Fareri Associates prepared new invoices for the work done between Gateway Development and Gateway Kensington in order to ensure that the tax credits would be received — an amount which ultimately came to $6,284,540.

However, this led to a 2019 dispute between Gateway Development (as represented by Carnicelli) and Fareri Associates. Gateway Development claimed that it was not actually paid the amounts shown on the amended invoices — amounts which had facilitated Fareri’s significant tax credit — and further claimed that the terms of its contract were manipulated by Fareri Associates to increase the tax credit.

Carnicelli claimed that in response he was discharged from the project, locked out of its offices, and project development ended on October 18, 2019.

Following this dispute, Fareri Associates chief financial officer Chris Sheskier contacted the New York State Audit Bureau on December 30, 2019, noting that certain “discrepancies” had been found in the tax filings from its 2017 audit. Eventually, the company submitted a disclosure application to New York State on November 25, 2020, noting that its tax credit had been overstated.

The conflict and ensuing involvement of New York State led to Gateway Development requesting arbitration. The arbitration process found that the contract and invoices between Gateway Development and Gateway Kensington were valid, awarding Gateway Development $12,717,357 as owed by the contract.

The inclusion of interest and arbitration compensation brought the total amount awarded to Gateway Development to $14,333,446.38 — which, the arbitration decision notes, is due to be paid by May 23, 2021.

Likely as a result of this, James Carnicelli Jr. is listed as the representative of three creditors in Gateway Kensington’s bankruptcy notice.

Disputes in prior years have had significant impact on Gateway Kensington

Gateway Kensington has become embroiled in a handful of controversies in recent years, with possible impacts to its business operations.

In December 2018, the buyer of a $1.5 million condominium developed by Gateway Kensington for the Villa BXV complex in Bronxville, New York sued the company in Westchester Supreme Court over defects in the building.

According to the buyer’s complaint, a number of issues arose following the October 2017 condo purchase. Allegedly, a private patio and bedroom became “unusable” due to building defects, and Gateway Kensington “botched” multiple attempts to repair wood floors in the unit. The lawsuit requested that the buyer’s purchase agreement be overturned and that they be reimbursed for at least $600,000.

Despite the complaint, Fareri Associates maintained the quality of its developments, stating: “Our reputation as a high-quality home builder comes first…We take the responsibility that comes with it very seriously.”

“We can…unequivocally state that we remain committed to working with all of our owners and residents to assure that the Villa BXV experience is all that we have promised and that they should expect,” the company’s statement continued.

On January 15, 2015, Westchester Residential Opportunities, Inc. sued Gateway Kensington alleging “illegal housing discrimination against families with children” at its Kensington Road condo project.

A statement at the time by Westchester Residental’s executive director Geoffrey Anderson noted that “[the city of] Bronxville and its developer have deliberately set out to design and market new condominiums to deter families with children from moving into the Village.”

Westchester Residential director of Fair Housing, Marlene Zarfes, added that “Such discrimination is not only wrong, but illegal.”

According to a separate statement by Westchester Residential at the time of the case’s September 21, 2015, settlement, Bronxville had given Gateway Kensington an “age-targeted” special permit for the development’s condos so that they could be designed specifically to appeal to individuals and couples with no children — actions which Westchester Residential alleged violated housing discrimination laws.

As part of the settlement, Gateway Kensington agreed to offer condo purchasers options that appeal to families with children, and Bronxville agreed to remove the “age-targeted” permit from the property’s zoning code. Despite this, both parties continued to deny the allegations.