Halstead Station buyer claims it was duped in $200M deal

The company that paid $200 million for Halstead Station in New Rochelle claims that the seller concealed problems with the parking garage that will cost nearly $2.8 million to fix.

Affiliates of Khosla Capital allegedly discovered after the deal closed that key records that would have diminished the value of the property had been concealed, according to a complaint filed Feb. 16 in Westchester Supreme Court.

The affiliates, 2R Investments and Shearwood Station JV of Engelwood, New Jersey, accused real estate funds operated by Boston-based DSF Group of fraud and breach of contract.

Halstead Station includes a 24-story, 408-unit apartment building and a parking garage with 422 spaces next to the New Rochelle train station.

When AvalonBay Communities opened the high rise around 2001 as the La Rochelle, the high rise was at the forefront of a downtown residential renaissance. It has changed hands several times and now it is called Shearwood Station Apartments.

DSF bought the property in 2016 for $148.5 million and operated it as a real estate investment trust. Last June, Raman Khosla agreed to buy the property for $200 million.

The contract required DSF to disclose governmental notices of property violations, according to the complaint, and provide access to all records about the property, except for appraisals.

But after the transaction closed on Aug. 25, the complaint states, the Khosla companies claim they “began to learn of certain material facts that had been concealed by seller.”

In September, for instance, the City of New Rochelle building department sent a violation notice for not providing a garage conditions assessment report that the city had demanded in February and that was due on Aug. 20, days before the deal closed.

DSF’s property manager, Jessica T. Agostino, allegedly told Khosla that she had been instructed by a DSF official not to disclose any reports to the buyer.

Khosla “came into possession” of a condition appraisal report for the garage,  dated May 27 and revised June 27, that recommended more than $1 million in structural repairs. But despite the title, the complaint states, it contained no appraisal for the garage.

An engineering firm hired by the buyer estimated that the garage will need $2,778,147 in repairs over the next five years.

DSF knew the garage needed extensive repairs and knew that it violated building codes before the deal was struck, the Khosla companies allege, and knew that disclosure of the conditions would have greatly decreased the value of the property.

DSF’s outside publicist, Michelle Micaud, did not reply to an email requesting DSF’s responses to the allegations.

The Khosla companies are represented by Manhattan attorney Samit G. Patel.