Fortress Investment Group LLC won the bidding Thursday for a $640 million Manhattan condominium conversion project called Sheffield57, wresting control from New York developer Kent Swig after he defaulted on loans.

Fortress made the only bid for the building at 322 West 57th St. and is to invest additional money to finish remaking the 58-story apartment tower overlooking Central Park into luxury condos.

The auction, conducted in the New York office of the Allen & Overy LLP law firm, was the third high-profile mezzanine foreclosure in the United States this year, after the sales of Boston's John Hancock Tower and 1330 Avenue of the Americas in New York.

The credit crisis and recession have slowed condo sales, reducing income for developers to repay debt.

Apartment sales in Manhattan fell 48% in the first quarter, the appraisal firm Miller Samuel Inc. said in an April report.

Swig defaulted on the project's $400 million first mortgage when it matured in April and on the mezzanine debt when it matured in May, a person with knowledge of the situation said in June.

He got the mortgage in 2006 from Column Financial Inc., a unit of Credit Suisse Group AG that has since stopped lending. The Zurich banking company then securitized the loan.

Swig borrowed an additional $240 million in mezzanine debt.

Guggenheim Structured Real Estate Partners LLC had held the most senior mezzanine loan, as well as an unspecified piece of the first mortgage, before selling to Fortress in June, a person with knowledge of the sale said at the time.

Fortress later paid the $32 million outstanding principal on the mortgage, the person said.

Swig has developed $3 billion worth of properties, including seven buildings in lower Manhattan.

Earlier this year, his firm was fighting default proceedings on a suspended condo conversion project financed by Lehman Brothers at 25 Broad St. in Manhattan.

Lehman claimed Swig and his partners owed $273.7 million of unpaid principal on that project, plus interest and fees.

Swig is an owner of Terra Holdings LLC, which owns the brokerages Halstead Property and Brown Harris Stevens Co., according to the Halstead Web site.

He also is on the board of Swig Co., the family-owned real estate and hotel company based in San Francisco that oversees 9 million square feet of office space in the United States.

The Sheffield57 project has endured disputes with tenants, and Swig has been named as a defendant in several lawsuits.

Construction stopped in late 2008 after the contractor was not paid on time. In May, Moody's Investors Service Inc. downgraded about $13.4 million of bonds tied to the project.

The Sheffield57 building is about 80% complete, a person with knowledge of the project said in June. It has sold 47% of the condo units, according to this person.

In the first quarter, the median price of Manhattan condos climbed 5.8%, to $1.23 million, according to the Miller Samuel report.

Concierge service, a pet spa, high-end appliances and daily cocktails are among the planned amenities, according to the project's Web site.

The auction took place under New York state rules that govern foreclosures by mezzanine lenders, according to the mandatory notice of sale from the brokerage Eastdil Secured LLC, a unit of Wells Fargo & Co.

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