Black Spruce’s Josh Gotlib accused of fraud by partner’s widow

As Josh Gotlib built a 4,000-unit portfolio at Black Spruce Management, his capital sources remained a mystery that even New York’s biggest brokers could not crack.

A recent lawsuit attempts to pull back the curtain, claiming Gotlib’s wellspring was a widow’s trust that he exploited.

In a 45-page complaint, Natalia Legg, wife of Gotlib’s late partner Oliver Legg, alleges Gotlib defrauded her and misappropriated assets from her husband’s trust. The suit also claims that Gotlib bought and partially financed Black Spruce’s deals with funds from the trust and has since defaulted on debt payments owed to the trust.

If the court rules in Natalia Legg’s favor, Gotlib could lose control of Black Spruce and its properties.

A spokesperson for Black Spruce characterized the claims as “demonstrably false, contrived, baseless” and “especially sad because Josh Gotlib and Oliver Legg were like brothers.”

“[Gotlib] has remained a close and trusted partner with the Legg family since Mr. Legg’s passing,” the spokesperson added.

Gotlib, previously a 50-50 partner with Oliver Legg, gained full control of Black Spruce when Legg died of brain cancer in 2015. Legg had placed his ownership interest in a trust for the benefit of his wife and daughter, then appointed Gotlib as trustee, the suit claims.

Before partnering with Legg, Gotlib had “no meaningful financial means or funding resources to bring to the table,” according to the suit.

Weeks after his partner’s death, Gotlib told Natalia Legg that Black Spruce and New Amsterdam Property Management, another business in the trust, were losing money, citing that as reason for signing the trust’s ownership in both businesses over to himself.

“On the contrary, Gotlib knew that these companies were valuable assets of the trust and expected both entities to generate growing profits,” Legg’s complaint alleges.

When Gotlib asked Natlia Legg to “ratify” the transfer of both assets, he told her fees from properties Black Spruce had acquired while her husband was still alive would go to the trust. 

Gotlib also said he would be on the hook for loans sponsored by Black Spruce, the suit claims. A previous trust created by Oliver Legg’s father — the Magnolia Trust — was the source of that financing.

Instead, the complaint alleges, Gotlib took “lucrative” fees from Black Spruce and New Amsterdam properties and serviced the so-called Magnolia loans with capital from his former partner’s trust.

“Gotlib had a duty to tell Natalia the truth about the self-dealing transaction that he was asking her to endorse with her signature, but he intentionally failed to do so,” the suit reads. “Gotlib had simply stolen the trust’s valuable assets in BSM and NAPM.”

In time, Gotlib used the trust’s funds to buy real estate through shell companies, including one established in 2018 to acquire a multifamily portfolio on Adam Clayton Powell Jr. Boulevard in Harlem, the suit alleges. Black Spruce spent $76 million on a 21-building Harlem portfolio along the same street in January 2019.

According to the suit, Gotlib, again, told Natalia Legg that income from the properties would flow into the trust, but instead took management fees for himself.

The investor then used the trust’s funds “to provide high-risk unsecured financing” to acquire properties in West Harlem — 470 West 141st Street, among them — and a distressed multifamily portfolio in Brooklyn that includes 3 Sutton Street in Greenpoint, according to property records.

The lawsuit claims that Gotlib defaulted on $1.5 million in loans used to acquire the Brooklyn portfolio, causing equivalent losses to the trust.

Last January, he fell delinquent on a $25 million CMBS loan collateralized by 3 Sutton and seven other Brooklyn properties two months after the debt came due, Morningstar data shows. The loan went to special servicing and Gotlib paid down the principal by $1.2 million to extend the maturity date to December 2023. Morningstar shows the sponsor repaid the loan last month.

It’s unclear how much of the trust funds Gotlib drew on to buy and finance real estate. However, in diverting the income of those property investments to himself, the suit alleges, Gotlib created liquidity problems for Black Spruce and New Amsterdam and pulled more money from the trust “to fill the gap.”

Oliver Legg’s sister Kathrin Legg, a beneficiary of the Magnolia trust, expressed confidence in Gotlib’s choices, telling The Real Deal she is “deeply saddened that Natalia has chosen this course of action.”

Over the past several years, Black Spruce in partnership with Orbach Affordable Housing Solutions spent $1.8 billion on a six-building Upper East Side apartment portfolio and $850 million on the luxury American Copper Buildings in Murray Hill, among other deals.

Legg is seeking over $1 million in damages, restitution of property Gotlib allegedly obtained, and a rescission of the agreements that transferred Black Spruce and New Amsterdam to Gotlib.

Read more

New York

The biggest landlord you don’t know: Meet the 36-year-old behind one of the priciest-ever apartment deals in NYC

New York

Gotlib, Orbach pay $425M for final piece of big Solow deal

New York

Black Spruce snaps up American Copper Buildings for $850M