Jay-Z Lawsuit for Costs on Foreclosed Hotel Loan Futile

(MoneyWatch)  Back in 2008, BNET wrote about rap mogul Jay-Z having problems creating his vision, the J Hotel in New York City. The $66 million hotel was axed because his partner, Charles Blaichman, couldn't get a loan to finish the project. At that time in New York, $5 billion of projects were broken down or put on hold.

Fast forward almost two years and Jay-Z is losing the property to foreclosure, namely to Highland Capital Management, the holder of his $52 million note. When the two agreed on a deed in lieu of foreclosure, or giving back the property for no more financial liability, Jay-Z, also known as Shawn Carter, alleges that Highland dragged its feet on the deal, costing him millions in carrying costs. Carter filed the $3.7 million lawsuit against Highland Capital and its servicer, NexBank, claiming bad faith earlier this week in U.S. District Court in Manhattan.

So far, only Highland has released a statement saying that Carter's group failed to repay the loan, which was due August 2009 and is in default. "Highland Capital Management believes the claims asserted by Mr. Carter are meritless and will vigorously defend itself and intends to pursue the obligations owed to Highland's investors," the company said.

The end result is that it took a while to negotiate the deed in lieu of foreclosure and Carter isn't happy about having to pay the carrying costs while Highland was in no hurry to change the title. According to Dow Jones, Carter and his other investors were personally liable for carrying costs and other fees for the loan, but not the principal. While I'm sure it would be ideal to be rid of a property without another penny spent, a loan for $52 million accumulates a lot of interest and Carter, known as a businessman with several companies ranging from clothing to a record label, isn't dense. He knows how business works, but he's not above trying to see if he can weasel out of it.

Perhaps it's a negotiating tactic for Highland to knock off a couple of million dollars, or maybe he's hoping the publicity will get the investment firm to cave under the scrutiny. Either way, I think he will be unsuccessful. I don't think Carter is going to get out of his responsibilities and not owe millions.