Philadelphia real estate magnates have a falling-out

In Philadelphia real estate, Eric Blumenfeld and Ronald Caplan are masters of finding new purposes for old buildings.

Blumenfeld, 49, has worked his magic on the north-south axis of Broad Street. At a project called 600 North Broad, he put loft apartments in the old Biberman factory, and restaurants by Stephen Starr and Marc Vetri in a former Wilkie Buick showroom. His name often comes up as a potential buyer of the graffiti-scarred Divine Lorraine Hotel at Broad and Fairmount Avenue.

Caplan, 64, has focused his efforts to the east and west of City Hall. Through his company, Philadelphia Management Corp., Caplan has developed more than 100 residential and commercial properties in seven states. Right now, he's transforming the former AAA offices at 2040 Market St. into apartments, having already converted the After Six tuxedo factory into lofts at 2121 Market.

In 2010, their worlds intersected when Blumenfeld, feeling the pinch of the economic downturn and needing to find new backers, reached out to Caplan.

Caplan took a position in two of Blumenfeld's projects - 600 North Broad and the Marine Club apartments at Broad and Washington Avenue. Blumenfeld thought he was getting something in return: Joining Caplan's project for a 14-story building at 1900 Arch St.

Today, the alliance of two of Philadelphia's most important developers, each of whom has continued to build throughout the recession, has collapsed. The partners who used to play weekly tennis are now locked in a legal fight.

In a 91-page complaint filed Monday in Common Pleas Court, Blumenfeld has accused Caplan of siphoning money from his two projects while freezing him out of the 1900 Arch project. Blumenfeld seeks $1.4 million in damages and the right to inspect the books for each of the three projects.

Through a lawyer, Caplan called the allegations unfounded.

Caplan and his company will "defend themselves vigorously in the lawsuit and will not address the matter further in the press," said Robert Silverman, a lawyer with Cozen O'Connor.

Both developers are part of a small corps of entrepreneurs credited with keeping the real estate market here alive during the economic slowdown.

Though Philadelphia suffers from a glut of new office space, keeping many national real estate companies at bay, homegrown developers continue to successfully mine Center City and surrounding neighborhoods for older buildings to convert into apartments or hotels.

Without developers like Caplan and Blumenfeld, "Philadelphia would be a pretty boring place," said one real estate lawyer watching the events from the sidelines.

The picture was much different on Feb. 8, 2011, when Mayor Nutter stood outside the old Biberman building and Wilkie dealership on North Broad Street to tout the launch of Blumenfeld's project with Caplan.

As the lawsuit states, Blumenfeld needed Caplan to get the project going.

With the weak economy, Blumenfeld couldn't secure a construction loan unless he found more backers. At the same time, he was facing a default on a promissory note for his other apartment project, the 12-year-old Marine Club in South Philadelphia.

Blumenfeld saw Caplan as a high-volume developer with deep pockets. Caplan had developed more than five million square feet of space in Philadelphia, including such signature buildings as the former School District of Philadelphia administration building on the Benjamin Franklin Parkway, and the Victory Building at 10th and Chestnut Streets.

At the start of 2010, the idea of collaborating came up often between Blumenfeld and Caplan - over tennis matches at the Riverside Racquet Club in Bala Cynwyd, over lunch at Parc Restaurant, during a joint family vacation to Walt Disney World, at Caplan's home on Nantucket.

Convinced that Caplan could "fix" his projects, Blumenfeld transferred to him an equity interest in 600 North Broad and the Marine Club projects, as well as the authority to manage and control the properties. Caplan, in turn, promised to contribute $1 million to the North Broad Street project.

The lawsuit says Blumenfeld later realized that Caplan was overextended on other projects. Blumenfeld alleges that Caplan did not put up money for North Broad and was using millions in borrowed cash and rents intended for Blumenfeld's projects to fund his other ventures.

Blumenfeld also charges in his lawsuit that he'd been frozen out of Caplan's project at 19th and Arch after working to win community support for the development.

Blumenfeld says that for about a year starting in summer 2010, he met with neighborhood groups and appeared before the Zoning Board and Planning Commission to advocate for the project, known as 1900 Arch.

The lawsuit said that when Caplan recently broke ground on construction, Blumenfeld didn't know about it. "Caplan has recently denied that Blumenfeld is a partner," the lawsuit said.

With operations in seven states, Caplan's reach is far broader than Blumenfeld's. But on North Broad - an area of intense redevelopment interest for Nutter that has recently drawn heavy hitters like developer Bart Blatstein - Blumenfeld is seen as a catalyst for change.

Though he won't discuss the lawsuit, Blumenfeld said in an interview he remained passionate about improving North Broad.

"There is nothing that Ron Caplan or anyone else can do that will stop me," he said.