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News

Landlord Spat Offers Peek Into LLC Deals

Adam Haston by Thomas Breen New Haven Independent.jpg
Thomas Breen
/
New Haven Independent
New Haven-area landlord Adam Haston at a city planning commission meeting.

A court battle over a local landlord’s alleged theft of roughly $200,000 from his erstwhile business partner offers a glimpse into how internationally backed, multi-million-dollar real estate deals take shape in the city’s investor-laden housing market.

That state court case is LH Residential LLC v. Levi Hecht.

The lawsuit was first filed in November 2019 by Adam Haston against Hecht, a fellow local landlord and Haston’s former business partner in the venture LH Residential LLC.

The outcome of the case itself still remains very much in flux; a recent two-and-a-half-hour-long damages hearing led to promises by both sides to try to come to a resolution before the next scheduled court hearing in October.

LH Residential v. Hecht offers up a case study in the raising of large amounts of money from a diversity of sources in order to facilitate a large-scale local property deal.

The details presented so far offer an unusual glimpse into behind-the-scenes fundraising, negotiating, investor courting, house hunting, and legal work that go into the kind of real estate deals that have been remaking New Haven’s rental market in recent years.

Such deals have become an increasingly popular vehicle for local landlords, large property management companies, and out-of-town-investors to team up to acquire and own rental properties in New Haven’s increasingly LLC-ified housing market. LLCs, or limited liability companies, protect individual owners from business liabilities and shield individual landlord names from public view.

By virtue of ending up in court with accusations of theft and foul play, the case also shows just how much is at stake when business partnerships crack and other people’s money is on the table.

During an Aug. 13 virtual court hearing before state Superior Court Judge Robin Wilson, Haston and his attorney Hugh Hughes argued that Hecht misappropriated funds that were supposed to go towards the purchase and maintenance of 12 rental properties in the downtown, Dwight, and Hill neighborhoods.

Some of that alleged theft is borne out by the $120,000 difference between the amount of money LH Residential raised that summer to acquire a dozen properties — on Crown Street, Howe Street, Park Street, Dwight Street, Edgewood Avenue, Dewitt Street, and Portsea Street — and the final numbers laid out in the closing statement for the deal executed by Hecht and the properties’ previous owners.

The rest of the damages, Haston contended, come from unexplained transactions. The transaction — related to Netflix subscriptions, auto insurance payments, Home Depot purchases, and multi-thousand-dollar online transfers — took place after the closing as documented in a LH Residential bank account set up and controlled by Hecht.

“He’s been dishonest for a long time,” Haston said about Hecht during the August court hearing.

“During this whole time period [in the summer and fall of 2018], we asked Levi repeatedly and several times to explain all of these things. He simply did not. That’s how we find ourselves here today.”

Hecht responded that Haston and his attorney were disingenuous in how they presented LH Residential’s bank account records.

He accused Haston of attributing all unexplained debits to Hecht’s alleged theft, but attributing none of the unexplained deposits in that same account to Hecht putting money back in. He said that Haston has no proof that some of that money didn’t go towards the company’s $25,000 monthly mortgage payments at that time.

“He shows me stealing, but you don’t show money coming in,” Hecht said.

At the end of the marathon virtual hearing, Judge Wilson continued the matter to October. She also urged both parties to put their heads together and try to come to some resolution.

The court has already defaulted Hecht on the underlying liability — that is, on the civil theft and breach of fiduciary claims — because of Hecht’s failure to appear and respond on the record for months and months after the suit was initially filed, Wilson said.

Nevertheless, she emphasized during the Aug. 13 hearing, the ultimate amount in damages owed by Hecht is yet to be determined.

“We’re talking about a lot of money,” Wilson said.

“I’m not an accountant, and I shouldn’t have to be an accountant to figure out your damages,” she continued. While it’s clear that Hecht will not be able to reduce the damages all the way down to $0, she added, the final amount is still up in the air.

“The three of you should put your smart heads together and come up with a resolution,” she said to Haston, Hughes, and Hecht.

Hecht agreed.

“I have no intention of coming back to court,” he said at the end of the hearing.

He said he plans to retain a lawyer and reach some kind of resolution with Haston before the next October hearing date.

Hughes said that he is always open to resolving cases, and that he and his client will talk with Hecht in the intervening months in an effort to strike an accord.

Citing ongoing litigation, Haston declined to comment for this story. Hecht did not respond to a request for comment by the publication time of this story.

This is not the first time that Hecht has been sued by a former business partner or lender for alleged misappropriation of funds. See here for details about another recent case. In that case, 942 State LLC — a holding company controlled by local landlord Yonah Schwartz — alleges that Hecht and two of Hecht’s holding companies owe damages in excess of $90,500. In an affidavit of debt in that case, Schwartz describes Hecht as “a sophisticated investor in real estate and manager of real estate with superior knowledge, skill, experience, and expertise in the fields of real estate investment and management.”

Hecht has yet to file an appearance or any responses in that state court case, which dates back to August 2020.

That story took shape primarily through Hughes asking Haston questions to lay a foundation for how much Hecht allegedly stole from the business.

In the process, the testimony revealed what kind of business legwork goes into a local real estate venture juggling international investors and millions of dollars.

“Mr. Haston, could you tell the court about the origins of LH Residential LLC?” Hughes asked.

Haston said that the story of LH Residential actually starts with a different company, called Atwater Wooster, and with a different property deal that partially fell through.

In that earlier deal, Haston said, he and Hecht planned to buy eight residential rental properties in the Wooster Square and downtown areas.

That Atwater Wooster deal had two different primary sets of funders: Haston and his Texas-based investor-partner Yair Moskowitz; and Hecht and a group of childhood friends-investors from South Africa.

“The two investors —the group of people from South African who were friends of Levi, as well as my person — they could not agree on the legal terms of the operating agreement,” Haston said about Atwater Wooster. “So the deal essentially fell apart.”

Moskowitz decided to invest in purchasing half the original deal, or four properties in Wooster Square, while the money contributed by the South Africans for that Atwater Wooster deal didn’t go anywhere. “Yet.”

Soon thereafter, Haston said, Hecht came across a new deal — involving eight properties in downtown and Dwight — through his network in the city’s real estate world.

“We were both going to fundraise for the equity to be able to buy the deal and do the remodeling on it, to raise the value of it,” Haston said about this new deal, which would be done under an LLC called LH Residential.

On his side, Haston said, he brought in several family members as investors. He also put in $100,000 of his own “earnest money” to help cover the up-front cost of the purchase. Ultimately, those family-sourced investments came to $500,000 from Joe Mezistrano, $100,000 from Michelle Mezistrano, and $400,000 from the Washington-based Mezistrano Investments, a fund managed by the couple’s children.

For his part, Haston said, Hecht tried to get the same South African investors from the Atwater Wooster deal to invest in the new LH Residential deal. “They were not interested in any of the properties that composed the LH Residential deal,” Haston said about Hecht’s South African investors. “They refused to take part in it. They specifically said they did not want to do that deal three times.”

So Hecht continued to look for new investors to make up his share of the equity needed to close on the properties, Haston said.

“He had somebody that I was told by him was committed to do the deal.”

By then, the two local business partners had raised a total of $2.25 million for the LH Residential deal: $1.1 million from Haston’s side, $1.15 million from Hecht’s

At that point in the summer of 2018, Haston was out of the country visiting family on vacation.

The newly formed and capitalized LH Residential LLC partnership was scheduled to close on the property purchase while Haston was away.

“Levi said he was going to take care of everything, and the deal closed in the summertime while I was away,” Haston said.

And so he did.

The city land records database shows that on June 28, 2018, LH Residential LLC paid $8 million to the Ornato Associates Limited Partnership for the acquisition of 67 Edgewood Ave., 73 Edgewood Ave., 87 Howe St., 131-135 Howe St., 110 Dewitt St., 174 Park St., 229 Dwight St., 235 Dwight St., 279 Portsea St., 371 Crown St., 378 Crown St., and 397 Crown St.

The very next day, LH Residential LLC borrowed $6 million from the Ornato partnership for those same 12 properties — with Hecht signing the mortgage document on behalf of the properties’ new owners.

That is: the backup investor he said he had lined up had in fact dropped off and was no longer interested in the LH Residential properties.

“He closed nevertheless,” Haston said about Hecht. And the money he used to foot his share of the up-front cost was the $1.15 million provided by his South African friends-investors for the aborted Atwater Wooster deal.

Haston said he asked Hecht why he didn’t talk with Haston about how his other investor had backed out and he was planning on using the South African money for the deal those investors didn’t want.

“He said he took the money intended for the Atwater Wooster deal ... and used their money to fund the difference to buy the properties that became LH Residential. ... When I asked him why he didn’t just ask me, he told me that he knew that had he asked me, I would have told him not to do that. Which was pretty shocking to me.”

Haston said Hecht was convinced of the LH Residential acquisition was “such a good deal that he would be able to find somebody else to replace that money he had used” from the South African investors.

Hecht was never able to find anyone to replace the investor money used during the closing, Haston said.

When Hecht went back to South Africa later in that fall to have lunch with his friends-investors in Johannesburg, Haston continued, he didn’t mention anything about the LH Residential deal.

Haston recalled getting a phone call from one of the chief South African investors, Linden Khan, on Thanksgiving Day 2018.

“He asked me to send the money, and I said to him, ‘There is no money.’ I proceeded to tell him what Levi had done.”

Roughly a week later, Haston said, Khan flew out to the United States to visit with Haston. The two sat together going through LH Residential’s bank account records.

Ultimately, Haston said, the South African investors decided to ratify the purchases of the LH Residential property.

“They wanted to have it certified that they were actually in the operating agreements,” Haston said. That’s because their money had already been spent, and they were desperate to find some way to recover some value from their inadvertent investment.

“There was never actually a completed operating agreement,” Haston concluded.

Hughes and Haston directed the judge’s attention to the closing statement for the 12-property LH Residential deal to flesh out their allegations against Hecht.

Hughes pointed out that the section of the closing statement for “cash from borrower” shows the number $2,029,923.05. A nearby section for “earnest money”—that is, money contributed by Haston himself—shows $100,000.

Combined, those two numbers add up to $2,129,923.05. That includes money from Haston, Haston’s family-investors, and Hecht’s South African friends-investors.

Wait a minute, Judge Wilson said:That’s not the same as the $2.25 million that Haston said LH Residential raised in full for the property purchase.

“That’s precisely the problem,” Hughes said. “That’s the damages we’re seeking, the difference,” around $120,000.

Haston and Hughes then spent the better part of an hour parsing through bank records and business ledgers to try to tally up unexplained debits from LH Residential’s bank account that they thought should also be included in Hecht’s damages. The total, they said, tops $200,000 stolen and owed.

During his brief time towards the end of the hearing to cross-examine Haston, Hecht was pressed on the money he allegedly returned to LH Residential’s bank account.

While there are a whole bunch of debits in the bank account records, Hecht said, “there’s also a lot of deposits and credits. What happened to those on the damages sheet? Why not show those? Money I contributed to the entity. ... Where in your statement of theft do you show all the monies that I put into the entity?”

Haston said that, to the best of his knowledge, none of that money deposited into the LH Residential bank account came from Hecht.

Hecht replied that it’s unfair to assume that the debits are due to him, but the deposits are not.

At the end of the two-and-a-half-hour hearing, Wilson had heard enough for the day. She continued the matter to October, and implored the two sides to work together in the interim to find a resolution.

“At this juncture, it’s not going to be reduced to $0,” she said. “I also don’t know that all the damages claimed are necessarily substantiated. ... The three of you: Get together, and try to work something out.”