Rockland investors try to recoup from real estate setbacks

A bankrupt Rockland real estate investment company that says it lost control of a housing project, because a bidder defaulted on a deal, has sued to keep a $500,000 security deposit.

Diamond Elite Park LLC, Spring Valley, accused a stalking horse bidder, Strategic Real Estate Management LLC, Monsey, of breach of contract, Jan. 6 in U.S. Bankruptcy Court, White Plains.

The object of the dispute is a vacant four-story office building in Phoenix, Arizona that Diamond Elite tried to convert to apartments.

Diamond Elite, which describes itself in court records as a group of New York investors led by Yehoishiah Rubin, of Spring Valley, bought the office building in 2022 for $10 million.

Rezoning the property took longer than anticipated, and the costs of renovations exceeded expectations. In 2023, Okoa Capital, a Utah company that loaned $6.8 million for the project, declared a default and foreclosed on the property.

The foreclosure prompted Diamond Elite to file for Chapter 11 reorganization in White Plains bankruptcy court, automatically stopping the foreclosure. It declared $10 million in assets and $15.4 million in liabilities.

Diamond Elite made a deal with Strategic Real Estate to submit a $7 million stalking horse bid for the Phoenix property. The stalking horse method establishes the opening bid for a property, in effect, encouraging competitors to bid higher.

Strategic Real Estate agreed to make a $500,000 “good faith deposit.” It paid $350,000 right away and was supposed to pay $150,000 when the bankruptcy court approved the contract.

In March 2024, the court approved the contract, but Strategic Real Estate allegedly failed to pay the $150,000 balance.

Then Strategic Real Estate terminated the contract, according to the lawsuit, and Diamond Elite had to turn the property over to Okoa Capital.

Diamond Elite is demanding that the $350,000 deposit be released from an escrow account and that Strategic Real Estate pay the remaining $150,000 pledged for the deposit.

Meanwhile, U.S. Bankruptcy Trustee William Harrington asked the court to convert the Chapter 11 reorganization case to a Chapter 7 liquidation, or to dismiss the case all together.

Diamond Elite had not properly maintained the property, the trustee said, and as of 2023 it was “in a state of extreme disrepair.” The property is not generating revenue, the company has failed to pay quarterly bankruptcy fees, and monthly operating reports have not been filed since July. “Thus, conversion to Chapter 7 is in the best interest of creditors and the estate.”

Diamond Elite objected, stating that it has fixed or will fix the problems the trustee cited. And if it can recover the deposit “it will have the funds to propose a feasible plan of reorganization.”

On Jan. 9, U.S. Bankruptcy Judge Sean H. Lane granted the trustee’s request and converted the case to Chapter 7.