Comment
Rate
Going for Broke
 |
| (l to r) The Brockman Building, the Roosevelt and the Concerto are three of the Downtown housing complexes that have filed for Chapter 11 bankruptcy protection. With at least eight bankrupt projects in the community, developers do not expect new residential construction for years. Photo by Gary Leonard. |
Making Sense of Downtown’s Eight Bankrupt Residential Projects
by Anna Scott
DOWNTOWN LOS ANGELES - In the past decade, Downtown Los Angeles has seen a variety of new housing projects that span the architectural and stylistic spectrum: soaring condominium towers; sprawling, low-rise apartment complexes; and adaptive reuse efforts that transformed turn-of-the-century jewels into hip, modern lofts.
Now, some of the developers of those buildings are hitting hard times, and at least eight Downtown residential projects are in bankruptcy. In additional instances the economic downturn has caused developers to otherwise lose control of their properties, and the Downtown Marriott hotel is also in bankruptcy.
Experts say the rash of bankruptcies will propel a major construction slowdown in Downtown, along with many other parts of the country. Examined separately, however, these projects reflect the messy and complex face of bankruptcy.
Projects that have filed for bankruptcy include Sonny Astani’s partially finished Concerto condominium complex near Staples Center. Although it includes a sold-out, six-story annex, it currently sits empty. At the opposite end of the spectrum is MKT Community Development Corp.’s City West apartment complex The Flat — even a nearly fully leased building could not protect its developer.
The fate of the individual properties could vary greatly, said Jack Kyser, senior vice president and chief economist for the Los Angeles Economic Development Corp. He noted that a bankruptcy filing does not necessarily mean a project will languish.
“We’ll wait and see how the lenders handle the properties,” he said. “Are they going to try to sell them as quickly as possible? What is the market going to be like?”
This One Goes to 11
The vast majority of new housing projects in Downtown have not run into bankruptcy issues, and some developers made significant profits on their original investments. Instead, troubles are more often affecting buildings that have recently been completed or are now finishing construction.
Of the new batch of troubled projects, seven of the eight have filed for Chapter 11 bankruptcy protection, which temporarily stops any collection or foreclosure efforts (one other has moved toward liquidation).
“Everywhere you look Downtown, there’s a foreclosure going on with these condo projects and there’s a developer in bankruptcy trying to protect themselves,” said Ed Rosenthal, a broker with real estate firm Grubb & Ellis. “Typically, they don’t pay on their note to the bank and then, when the bank starts a process of foreclosure, the borrowers go into bankruptcy to protect themselves.”
Some of the developments appear to be moving forward as they reorganize and create plans to pay off their debts.
Developer Milbank Real Estate’s 222-unit Roosevelt, originally planned as condominiums, is now temporarily being leased as apartments. So far about 28 units in the project at 727 W. Seventh St. have been rented, said the project’s sales director, Randelle Green.
Another high-profile project that is in bankruptcy, 705 W. Ninth, is slated to open to tenants Nov. 1, said a spokesman for developer Meruelo Maddux Properties. The company is working on a reorganization plan for the project, which was partly financed by a high-interest, $84 million loan. Leasing is proceeding despite the bankruptcy, said the spokesman.
Even open buildings are not immune. The Title Guarantee Building, which debuted two years ago, went into bankruptcy in February, though leasing continues. Developer Daniel Swartz would not discuss any aspect of the bankruptcy or its impacts.
In the current economic climate, lenders may be more likely to cooperate with borrowers on a reorganization or alternate payment plan than they have been in the past, said Robert Rasmussen, a bankruptcy expert and dean of USC’s Gould School of Law.
“If the bank does foreclose, it has to find a new buyer,” he said, and “the bank isn’t structured to finish the development itself, so it would much prefer a consensual agreement if it can reach one.”
Still, filing Chapter 11 does not guarantee that a project will be able to reorganize and avoid foreclosure.
The Flat, a 90% occupied, 206-unit rental building at 750 S. Garland Ave., which houses Blue Velvet restaurant, filed for Chapter 11 in the spring after defaulting on a $23 million loan from Chinatrust Bank. But the bank took the developer to court and ultimately won the right to foreclose anyway.
“To reorganize, there has to be equity in the property,” meaning the property’s value must exceed its debt, said attorney Helen Frazer of Atkinson, Andelson, Loya, Ruud & Romo, who represents The Flat developer Bret Mosher. “The judge found the property was under water by a significant number.”
The Phoenix, Ariz.-based private equity fund SA Properties bought The Flat from Chinatrust earlier this month for $20 million in cash.
In Limbo
The future is murky for some of Downtown’s bankrupt projects.
Developer West Millennium put the 12-story Brockman Building (which houses the popular Bottega Louie restaurant on the ground floor) in Chapter 7 bankruptcy, a first step toward liquidation, in April, after defaulting on a $35 million loan from Bank of America.
“That’s like throwing in the towel,” Rasmussen said of filing Chapter 7. “When you file a Chapter 11, the developer remains in control of the project… when you file a 7, you’re giving over control of the property. They may be out of money, they may understand that there’s no way the lender will work with them, or they may want to move on to another project.”
The building’s court-appointed trustee, Amy Goldman of Lewis Brisbois Bisgaard & Smith LLP, said that lender Bank of America indicated in recently filed court papers that it plans to foreclose. However, it is unlikely to finish the process or find a buyer until 2010, she said. Until then, the building’s 80 lofts will remain empty.
One of the seven buildings at Santee Village also sits empty.
Developer Santee Village Partners, originally headed by Mark Weinstein, sold the rental portion of the project, made up of three buildings, to a “major state pension fund” about four years ago, said Will Fulton of the Dallas-based asset manager L&B Realty, which handled the deal. They operate independently from the original project, under the name Santee Court Lofts.
Santee Village Partners handed the four remaining condo buildings over to Connecticut-based lender The Patriot Group last year and filed for bankruptcy in April. Currently, one of the condo buildings is sold out, two are about 30% occupied and the fourth never opened, said Andrew Ruiz, the local manager for Santee Court Lofts. Dan Harrington of the Patriot Group’s Real Estate Finance division did not return phone calls.
Two unfinished projects are also in limbo.
Astani filed a Chapter 11 petition for the Concerto complex last month after his lender, Corus Bank, was taken over by the Federal Deposit Insurance Corporation. Bankruptcy protection, Astani said, is necessary to close escrow on the 77 units in the finished six-story tower, which were sold in a recent auction. The proceeds were to fund the project’s next phase, a 30-story tower with 281 residences.
Though a consortium of investors led by Starwood Capital Group has since purchased Corus’ portfolio, the FDIC last week asked the court not to approve the 77 sales because it believes the prices were too low, Astani said. A hearing on the sales was scheduled in bankruptcy court on Thursday, Oct. 22.
The stalled Blossom Plaza project, meanwhile, might not move forward for years. The mixed-use project intended to replace the former site of Little Joe’s Restaurant and connect the heart of Chinatown with the Gold Line light rail station was conceived as a joint effort between the city’s Community Redevelopment Agency and a private developer.
Developer Chinatown Blossom Plaza LLC, headed by Larry Bond of the Bond Companies, filed for Chapter 11 in March but never followed through with a reorganization plan, said CRA Project Manager Lillian Burkenheim. The project is now in the hands of original equity partner Morgan Stanley. Larry Bond, head of the Bond Cos., did not return phone calls.
“They filed, but I don’t know that they ever completed the action,” said Burkenheim. “The equity partner is now in control of the land.”
Morgan Stanley has essentially started from scratch and is looking for a new partner, Burkenheim said.
But that, experts say, could take a while — not just for Blossom Plaza, but for many other area developments.
“We had a tremendous amount of supply, both for-sale and rental, come on the market at once and it sort of overwhelmed the demand, which was already sliding because of the great recession we’re in,” said Kyser. “We’ve bitten off more than we can chew and now we have indigestion, and that indigestion is going to last for a couple of years.”
Contact Anna Scott at anna@downtownnews.com.
page 1, 10/26/2009
©Los Angeles Downtown News. Reprinting items retrieved from the archives are for personal use only. They may not be reproduced or retransmitted without permission of the Los Angeles Downtown News. If you would like to re-distribute anything from the Los Angeles Downtown News Archives, please call our permissions department at (213) 481-1448.
Now, some of the developers of those buildings are hitting hard times, and at least eight Downtown residential projects are in bankruptcy. In additional instances the economic downturn has caused developers to otherwise lose control of their properties, and the Downtown Marriott hotel is also in bankruptcy.
Experts say the rash of bankruptcies will propel a major construction slowdown in Downtown, along with many other parts of the country. Examined separately, however, these projects reflect the messy and complex face of bankruptcy.
Projects that have filed for bankruptcy include Sonny Astani’s partially finished Concerto condominium complex near Staples Center. Although it includes a sold-out, six-story annex, it currently sits empty. At the opposite end of the spectrum is MKT Community Development Corp.’s City West apartment complex The Flat — even a nearly fully leased building could not protect its developer.
The fate of the individual properties could vary greatly, said Jack Kyser, senior vice president and chief economist for the Los Angeles Economic Development Corp. He noted that a bankruptcy filing does not necessarily mean a project will languish.
“We’ll wait and see how the lenders handle the properties,” he said. “Are they going to try to sell them as quickly as possible? What is the market going to be like?”
The vast majority of new housing projects in Downtown have not run into bankruptcy issues, and some developers made significant profits on their original investments. Instead, troubles are more often affecting buildings that have recently been completed or are now finishing construction.
Of the new batch of troubled projects, seven of the eight have filed for Chapter 11 bankruptcy protection, which temporarily stops any collection or foreclosure efforts (one other has moved toward liquidation).
“Everywhere you look Downtown, there’s a foreclosure going on with these condo projects and there’s a developer in bankruptcy trying to protect themselves,” said Ed Rosenthal, a broker with real estate firm Grubb & Ellis. “Typically, they don’t pay on their note to the bank and then, when the bank starts a process of foreclosure, the borrowers go into bankruptcy to protect themselves.”
Some of the developments appear to be moving forward as they reorganize and create plans to pay off their debts.
Developer Milbank Real Estate’s 222-unit Roosevelt, originally planned as condominiums, is now temporarily being leased as apartments. So far about 28 units in the project at 727 W. Seventh St. have been rented, said the project’s sales director, Randelle Green.
Another high-profile project that is in bankruptcy, 705 W. Ninth, is slated to open to tenants Nov. 1, said a spokesman for developer Meruelo Maddux Properties. The company is working on a reorganization plan for the project, which was partly financed by a high-interest, $84 million loan. Leasing is proceeding despite the bankruptcy, said the spokesman.
Even open buildings are not immune. The Title Guarantee Building, which debuted two years ago, went into bankruptcy in February, though leasing continues. Developer Daniel Swartz would not discuss any aspect of the bankruptcy or its impacts.
In the current economic climate, lenders may be more likely to cooperate with borrowers on a reorganization or alternate payment plan than they have been in the past, said Robert Rasmussen, a bankruptcy expert and dean of USC’s Gould School of Law.
“If the bank does foreclose, it has to find a new buyer,” he said, and “the bank isn’t structured to finish the development itself, so it would much prefer a consensual agreement if it can reach one.”
Still, filing Chapter 11 does not guarantee that a project will be able to reorganize and avoid foreclosure.
The Flat, a 90% occupied, 206-unit rental building at 750 S. Garland Ave., which houses Blue Velvet restaurant, filed for Chapter 11 in the spring after defaulting on a $23 million loan from Chinatrust Bank. But the bank took the developer to court and ultimately won the right to foreclose anyway.
“To reorganize, there has to be equity in the property,” meaning the property’s value must exceed its debt, said attorney Helen Frazer of Atkinson, Andelson, Loya, Ruud & Romo, who represents The Flat developer Bret Mosher. “The judge found the property was under water by a significant number.”
The Phoenix, Ariz.-based private equity fund SA Properties bought The Flat from Chinatrust earlier this month for $20 million in cash.
The future is murky for some of Downtown’s bankrupt projects.
Developer West Millennium put the 12-story Brockman Building (which houses the popular Bottega Louie restaurant on the ground floor) in Chapter 7 bankruptcy, a first step toward liquidation, in April, after defaulting on a $35 million loan from Bank of America.
“That’s like throwing in the towel,” Rasmussen said of filing Chapter 7. “When you file a Chapter 11, the developer remains in control of the project… when you file a 7, you’re giving over control of the property. They may be out of money, they may understand that there’s no way the lender will work with them, or they may want to move on to another project.”
The building’s court-appointed trustee, Amy Goldman of Lewis Brisbois Bisgaard & Smith LLP, said that lender Bank of America indicated in recently filed court papers that it plans to foreclose. However, it is unlikely to finish the process or find a buyer until 2010, she said. Until then, the building’s 80 lofts will remain empty.
One of the seven buildings at Santee Village also sits empty.
Developer Santee Village Partners, originally headed by Mark Weinstein, sold the rental portion of the project, made up of three buildings, to a “major state pension fund” about four years ago, said Will Fulton of the Dallas-based asset manager L&B Realty, which handled the deal. They operate independently from the original project, under the name Santee Court Lofts.
Santee Village Partners handed the four remaining condo buildings over to Connecticut-based lender The Patriot Group last year and filed for bankruptcy in April. Currently, one of the condo buildings is sold out, two are about 30% occupied and the fourth never opened, said Andrew Ruiz, the local manager for Santee Court Lofts. Dan Harrington of the Patriot Group’s Real Estate Finance division did not return phone calls.
Two unfinished projects are also in limbo.
Astani filed a Chapter 11 petition for the Concerto complex last month after his lender, Corus Bank, was taken over by the Federal Deposit Insurance Corporation. Bankruptcy protection, Astani said, is necessary to close escrow on the 77 units in the finished six-story tower, which were sold in a recent auction. The proceeds were to fund the project’s next phase, a 30-story tower with 281 residences.
Though a consortium of investors led by Starwood Capital Group has since purchased Corus’ portfolio, the FDIC last week asked the court not to approve the 77 sales because it believes the prices were too low, Astani said. A hearing on the sales was scheduled in bankruptcy court on Thursday, Oct. 22.
The stalled Blossom Plaza project, meanwhile, might not move forward for years. The mixed-use project intended to replace the former site of Little Joe’s Restaurant and connect the heart of Chinatown with the Gold Line light rail station was conceived as a joint effort between the city’s Community Redevelopment Agency and a private developer.
Developer Chinatown Blossom Plaza LLC, headed by Larry Bond of the Bond Companies, filed for Chapter 11 in March but never followed through with a reorganization plan, said CRA Project Manager Lillian Burkenheim. The project is now in the hands of original equity partner Morgan Stanley. Larry Bond, head of the Bond Cos., did not return phone calls.
“They filed, but I don’t know that they ever completed the action,” said Burkenheim. “The equity partner is now in control of the land.”
Morgan Stanley has essentially started from scratch and is looking for a new partner, Burkenheim said.
But that, experts say, could take a while — not just for Blossom Plaza, but for many other area developments.
“We had a tremendous amount of supply, both for-sale and rental, come on the market at once and it sort of overwhelmed the demand, which was already sliding because of the great recession we’re in,” said Kyser. “We’ve bitten off more than we can chew and now we have indigestion, and that indigestion is going to last for a couple of years.”
Contact Anna Scott at anna@downtownnews.com.
page 1, 10/26/2009
©Los Angeles Downtown News. Reprinting items retrieved from the archives are for personal use only. They may not be reproduced or retransmitted without permission of the Los Angeles Downtown News. If you would like to re-distribute anything from the Los Angeles Downtown News Archives, please call our permissions department at (213) 481-1448.
 |
 |
|
| More Than Just a Game, Part III | Uproar About Trutanich and His Threats Continues |
Reader Comments
The following are comments from the readers. In no way do they represent the view of ladowntownnews.com.
Popular Searches
Stephen Seiferheld May wrote on Oct 24, 2009 8:28 AM: