MANHATTAN (CN) - Coventry Real Estate Advisors claims it suffered $500 million in damages from Developers Diversified Realty Corp.'s inadequate management services. Coventry claims DDR's "mismanagement" led to cost overruns of more than $200 million, and that it "charge(d) purposely inflated fees ... to give credence to even greater fees."
In its complaint in New York County Court, Coventry claims it "provides opportunities to investors in commercial real estate projects." It says it entered a co-venture agreement with DDR in 2003 that "encompassed a dozen properties" across the United States. Coventry joined with DDR to take advantage of its supposedly "'first-class' management ... services."
But Coventry claims DDR failed to "commit adequate ... resources to the properties," and its management style was characterized by a "refusal to act."
According to the complaint: "DDR did little or nothing to control its subcontractors' development work and their pervasive cost overruns, and it provided Coventry with little information, if any, about its performance and results.
"Furthermore, DDR did little or nothing to lease the properties ... and failed to adequately staff [them]."
Coventry claims DDR "shirked its duties as property manager by effectively delegating its property maintenance management duties" to another building services company "without Coventry's review or approval."
It claims that "DDR's mismanagement ... has caused cost overruns in seven of the properties, totaling more than $203 million."
The complaint states that "DDR's design was to allow the properties to flounder and ultimately fail, while focusing on its real goal: collect as much in fees as possible while making only the most cursory effort to perform its responsibilities. DDR has collected to date $28 million in identifiable fees from Coventry."
The 46-page complaint continues: "(T)he deterioration of this relationship was a conscious plan on DDR's part to render poor performance, so as to exploit Coventry, maximize its fee payments and to ultimately force Coventry to abandon its equity in the properties."
Coventry insists that "this action does not arise because of the decline in the national economy. ... (I)f the defendants had fulfilled their ... duties in a timely manner, the underlying projects would have been completed, sold, or refinanced before the financial crisis came to affect commercial real estate."
It adds: "(A)s a result of DDR's breaches of its ... fiduciary duties, DDR has destroyed the value of Coventry's investments, while enhancing the value of its own stock, and placing itself in position to acquire at distressed prices some of the same properties DDR recommended that Coventry acquire, and which it promised to develop ... for Coventry.
Coventry is represented by Brian Gallagher with Gallagher Harnett. It demands $500 million for breach of co-investment agreement, breach of fiduciary duty, and fraud.
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