The drama surrounding the 157-acre Mountain of Beverly Hills didn’t end when the land was sold in foreclosure for a fraction of its sky-high asking price.

Now, the interior minister of Kuwait has filed suit, claiming he was defrauded out of a $163 million investment in the property by its former owner.

Khaled Al-Sabah alleges that Victorino Noval — who owned the Mountain before it was seized in foreclosure — duped him into thinking he would get a 50 percent cut from his years-long investment in the property.

That would have meant a windfall for Al-Sabah had the Mountain sold anywhere near its $1 billion July 2018 asking price. Four months later, the ask was slashed to $650 million.

But Noval’s company, Secured Capital Partners, filed for bankruptcy in May and the property went back to its previous owner for $100,000 at a foreclosure auction.

Meanwhile, Noval used Al-Sabah’s money to finance a “lavish and extravagant lifestyle” replete with aircraft, boats, mansions, exotic dancers, gambling and limousine chauffeurs, according to the lawsuit filed last month in Los Angeles County Superior Court. Al-Sabah, who is seeking $488 million in compensatory damages, is charging fraud and deceit, breach of contract and negligent misrepresentation among the 16 counts in the suit.

Al-Sabah, whose lawyer said is a member of the Kuwaiti royal family, invested in the Mountain with family money, he told The Real Deal. The money was not tied to his official role representing the government, he said.

According to the lawsuit, Al-Sabah met Noval at the Montage Beverly Hills in 2010. Noval told Al-Sabah that for a $20 million investment, he would acquire a 50 percent stake in the Mountain, according to the complaint. Noval allegedly claimed he owned a 100 percent in the Mountain when his stake at the time was just 40 percent. The complaint paints a picture of Noval and his family members having strung along Al-Sabah for years, stating it needed yet more money to refurbish the property, which led to additional wire transfers.

Noval, who also runs a holding company called Tower Park Properties, bought the Mountain in 2004 with Atlanta developer Charles “Chip” Dickens. The Hughes Trust — the estate of Herbalife founder Mark Hughes — was the seller.

Three years ago, Secured Capital Partners acquired the land from Tower Park Properties through a title transfer.

Ronald Richards, a Beverly Hills-based attorney representing Noval,  denied all allegations against his client. Noval,

Richards said his client, who pleaded guilty to mail fraud and tax evasion in 1998, did not recall dealing with Al-Sabah.

“I don’t recall that exact name, no,” Richards said in an interview. He added, “My client does business with people from all over the world.”

Al-Sabah’s lawyer of record is La Habra-based Michael Tusken. Bobby Samini, who said he is special counsel to Al-Sabah on the case, dismissed Richards’ claim that there’s no paper trail supporting the allegations.

There “will be no issue in proving Noval received the money from Al-Sabah.” Samini said. His Beverly Hills firm Samini Cohen Spanos has represented clients like former L.A. Clippers owner Donald Sterling and rapper T-Pain.

Al-Sabah sued after he heard about the foreclosure sale, Samini said. The property is now in the hands of the Hughes Trust, which repurchased the Mountain at a foreclosure auction in August following Secured Capital’s bankruptcy filing.

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With a little more than 48 hours before the clock ran out, three of New York’s most powerful landlords made a desperate, last-ditch phone call to Gov. Andrew Cuomo. By that point, the real estate industry had already spent millions of dollars, hired seasoned lobbyists and launched media campaigns in an effort to eliminate the threat of historic tenant protections on 1 million apartments. Cuomo declined to kill the bill, and landlords across the state say billions of dollars in investment were wiped out overnight.

But across the country in Sacramento, a curious thing happened. The legislature on Wednesday passed AB-1482, a statewide rent control measure that will affect an estimated 8 million people, and top industry trade groups barely made a peep.

The California Apartment Association, which represents the owners of around 65,000 rental units in the Greater L.A. area, dropped opposition to the current form of the bill after negotiating to extend an exemption to units older than 15 years (lawmakers first proposed a 10-year limit), limiting vacancy decontrol, and restricting municipalities from instituting rent caps lower than the cap in AB-1482.

The CAA, which has pushed the state to loosen development restrictions in favor of denser residential development, declined to answer questions about AB-1482, which in most cases will limit rent increases to 5 percent plus inflation.

But tenant sources on both coasts say that while the measure dramatically expands a form of rent regulation, the industry’s relative silence may actually be an astute strategy to pacify progressives’ calls for radical change. In other words, a year after soundly defeating Proposition 10, a ballot measure that would have repealed a statewide ban on new rent regulation, they aren’t crying over AB-1482.

“CPI plus five percent is causing most people to breathe a sigh of relief, we can live with that,” said Dean Zander, an executive vice president and multifamily specialist at CBRE. “It’s not unfair, it’s not gouging, and I don’t see it affecting sales or values at all.”

Zander believes the measure could spark even more investment in the state because it provides some certainty to investors.

“There’s no fear of the unknown,” he said. “We have a super strong market in California and knowing that 1482 passed, we know what to expect and we can underwrite for that.”

George Azrt, a lobbyist with Extell Development and a longtime political strategist in New York, said landlords in California made out better than their counterparts on the East Coast.
“There’s no doubt that rent control is the cause of the moment, nationally. Everyone is trying to figure out what to do about the housing crisis. But a statewide rent cap, which passed yesterday, while stringent — is not as stringent as New York.”

Here’s what AB-1482 looks like under the hood, and how it compares to New York’s new rent law:

Regulatory control

• California: AB-1482 does not set up a dedicated agency or department to handle enforcement. A tenant’s first choices for enforcement is the court system. They can also file a complaint with the California Department of Fair Employment and Housing if they feel their landlord is violating the law, according to a spokesperson for the bill author, Assemblymember David Chiu.
• New York: Homes and Community Renewal is the state agency that regulates New York’s rent regulated housing stock. The agency is often a source of frustration for tenant advocates and the real estate industry alike, and has faced budget cuts over the years. The nine-member Rent Guidelines Board, which is appointed by the New York City mayor, also sets yearly rent increases for rent-regulated housing in the five boroughs.

Just cause eviction protections

• California: Once a tenant has occupied a unit for 12 months, the landlord cannot evict the tenant unless certain requirements are met. For example, a landlord can evict a tenant if they fail to pay rent, breach a lease, undertake criminal activity on the property or cause a nuisance as defined by state law. Those are considered “at-fault just cause” evictions. The landlord can also execute a “no fault” eviction if they or immediate family will occupy the unit or convert, if they convert the unit into a condominium, plan to demolish the unit or are required to by law. In those cases, the landlord must pay the tenant for relocation costs.
• New York: Multifamily and small landlords alike breathed a sigh of relief when State Sen. Julia Salazar’s controversial bill, which would have prevented landlords from evicting tenants without “good cause,” was left off the final version of the rent law. Salazar’s bill would have prevented evictions as a result of rent increases at 150 percent of the Consumer Price Index, which in New York City was 1.8 percent as of August, according to the Bureau of Labor Statistics.

Vacancy decontrol

• California: Landlords are allowed to raise rents to market rates when a tenant lawfully vacates a unit regulated under AB-1482. From there, they are limited to rent hikes of 5 percent plus inflation.
• New York: Vacancy decontrol was eliminated with a stroke of Gov. Andrew Cuomo’s pen in June. Now, real estate attorneys say that except under very specific circumstances, there is little incentive for vacancies. Prior to June, landlords of regulated apartments were able to deregulate apartments if certain conditions were met: if the apartment’s rent was over the $2,700 limit and there was a vacancy.

While AB-1482 is a state-level measure, it does not repeal Costa-Hawkins, which barred any municipalities from regulating units built after that year. Tenant advocates tried to repeal Costa-Hawkins through the Proposition 10 ballot measure last year, but 60 percent of voters rejected the measure.

The post The breakdown: How California’s new rent control law compares to New York’s appeared first on The Real Deal Los Angeles.

UPDATED 11:15 a.m., Nov. 11: The National Association of Realtors’ board approved a controversial policy that could drastically cut down on pocket listings, a popular practice in the world of luxe real estate.

A roughly 120-member NAR committee overwhelmingly approved the Clear Cooperation Policy on Saturday morning, sending it to the organization’s Executive Committee for consideration, according to Inman. On Monday, NAR’s board passed the policy 729-70.

The policy would require brokers to submit a listing to the Multiple Listings Service within one business day of marketing a property to the public. NAR argues it will help make the business more transparent.

Bright MLS Chair Jon Coile said pocket listings undermine the “social contract” that Realtors have with each other. Other supporters say it will help the NAR compete with off-MLS services popping up across the country.

Pocket listings are popular in the higher stratas of residential markets in top-tier cities such as New York, L.A., and Miami for a few reasons. They help obscure ownership and listings for high-profile clients and allow agents to be more flexible with asking prices.

They can be extremely lucrative for agents who have them because they essentially cut out outside agents. Those agents often end up representing both parties in deals.

The proposed policy has a cutout allowing brokers to make a listing an office exclusive and keep it off the MLS and platforms that aggregate from the MLS, including Redfin and Zillow, which could alleviate concerns for celebrity clients.

Last year, Pacific Union International launched an online platform that acts as a pre-MLS listing service. Pacific Union properties go on that platform with limited information starting when an agent signs on to represent a seller until it hits the MLS, which can take up to 10 days or so. Pacific Union says that lets agents gauge interest before listings start to accrue “days on the market.” In 2017, The Agency broker Christopher Dyson partnered with the firm’s CEO Mauricio Umansky and “Million Dollar Listing Los Angeles” stars James Harris and David Parnes on a new online platform dubbed “The Pocket Listing Service,” or ThePLS.com, which allows brokers to share and search nationally for off-market properties.

The NAR vote suggests there is strong support for such a policy. If approved by the Executive Committee, the measure would go to NAR’s board of directors for final approval, according to Inman. The policy would come into effect January 1, 2020. [Inman] – Dennis Lynch

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Josh Flagg warned him.

When Bruce Makowsky listed his Bel Air spec mansion for $250 million in 2017, Flagg, a broker at Rodeo Realty not involved in the listing, said that the property would sell for less than $100 million.

“Bruce Makowsky, he then yelled at me,” Flagg said. “He invited me to the house several times, and he swore that I would change my mind after seeing it.”

While they were lounging in the property’s 40-seat movie theater, Makowsky, a handbag entrepreneur, asked Flagg again to value the property, the broker recalled.

Flagg gave Makowsky the same answer – between $80 million and $100 million.

“And I said exactly what it sold for!” Flagg said.

Makowsky sold his 38,000-square-foot mansion at 924 Bel Air for $94 million, or $2,473 per square foot. The Wall Street Journal first reported the sale.

Besides the aforementioned theater, the mansion that Makowsky dubbed “Billionaire” features a helipad, bowling alley, massage studio, 130 works of art, two wine cellars, an 85-foot swimming pool, and $30 million worth of exotic cars.

The particulars of the sale itself remain unknown. The buyer is not identified, and agents on both sides of the deal were mostly mum.

Listing agents Branden Williams and Rayni Williams of Hilton & Hyland said that they could not discuss the particulars of the deal. Ben Bacal, of his newly formed company Revel Real Estate, was listed in the contract as the buyer-side broker.

Shawn Elliott of Nest Seekers International, who was also a listing agent on the property, claimed that he also represented the buyer. Bacal and Branden Williams disputed that Elliott represented the buyer. All three brokers declined to identify the buyer, citing a confidentiality agreement.

The pricing puzzle

The mansion’s sale price illustrates a hard-won lesson, according to some agents: attention-grabbing listing prices are a futile exercise.

“Buyers are quiet now,” said Fran Flanagan, an agent at Compass. “They are sitting on the sidelines, waiting for the next thing to happen.”

The next thing that keeps happening, Flanagan said, is a price chop.

Makowsky first listed his abode at $250 million, garnering attention as the most expensive residential listing in the U.S. at the time. But the fashion entrepreneur cut the price to $188 million. And then he cut the price again to $140 million.

The Spelling Manor in Beverly Hills met a similar fate. Seller Petra Ecclestone listed it for $200 million, only to sell for $120 million in July. However, it was still set a record for the priciest mansion sale in L.A. County history.

And a similar situation is playing out with late media executive Jerrold Perenchio’s Chartwell Estate in Bel Air, listed at $350 million in 2018. By June, after two price chops, the ask dropped to $195 million.

And there are yet more examples, with prices slashed on the Owlwood Estate in Holmby Hills, Paul Allen’s estate in the same neighborhood and Steven Udvar-Hazy’s mansion in Beverly Hills.

All the above properties were listed at over $100 million. None – except the Spelling Manor – actually sold for over $100 million.

“We are going through a period of ego pricing,” said Jonathan London, an agent at Compass. “It is not based on reality or facts and figures but numbers that look good in a press release.”

There is precision to a listing price, even for the ultra-luxury market, London said. It involves measuring sticks like square feet, location, and buyer pool.

“How many people are out there who have $100 million for a house, who A.) want to buy a house B.) want a helipad on their roof and C.) want their artwork picked out for them?” London said.

Some brokers praised Makowsky. Aram Afshar of Coldwell Banker noted it was a “real accomplishment” by the entrepreneur and his agents to sell a spec mansion for $94 million after buying the land for $11 million.

But Afshar agreed with other agents that the ultra-luxury market has cooled to the point that when a property is listed at north of $100 million, buyers will likely just wait for the inevitable price drop.

“I think our job as agents now, is, let these sellers know what we really think – and what the market price really is,” Afshar said.

Updated at 1:55 p.m. on Wednesday, Oct. 30 to include additional information about the brokers on the deal.

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UPDATED, Oct. 15, 11:04 a.m.: When developer Robert Shapiro pleaded guilty in August to leading a $1.3 billion real estate Ponzi scheme, he faced up to 25 years in prison.

On Tuesday, a federal court judge sentenced Shapiro to that maximum, closing the criminal chapter on what has been a two-year-long saga surrounding the massive fraud perpetrated by Shapiro’s now-defunct Sherman Oaks-based investment firm, Woodbridge Group of Companies.

In all, more than 7,000 property investors were defrauded over five years until Woodbridge went under in late 2017 amid a wide-reaching federal investigation into the scheme, the government said in a release announcing the sentencing.

The majority of the prison sentence — 20 years — is for defrauding those investors, and for committing wire and mail fraud. The 61-year-old was sentenced to an additional five years for failing to pay $6 million in taxes owed between 2000 and 2005.

To raise money for the fraud, Woodbridge Group promised investors — many of them elderly — that the cash would go toward building and buying luxury properties that would yield high returns. Instead, Shapiro and the company bought those properties themselves through a web of legal entities to obscure ownership.

Woodbridge bought hundreds of millions of dollars worth of properties and development sites in Los Angeles and across the country. It paid out investors using cash from new investors in a classic Ponzi scheme arrangement. Shapiro himself siphoned off between $25 million and $95 million to fuel his glitzy lifestyle, prosecutors said. The case against him took place in Miami, as did the sentencing.

Lavish lifestyle
At least 2,600 Woodbridge investors put their retirement savings into the firm, totaling $400 million, according prosecutors. Shapiro personally spent at least $3.1 million of that money on travel and charter planes, $6.7 million on a home and another $2.6 million on renovations, $1.8 million paying off personal income taxes, and $672,000 on vehicles., the government said.

Shapiro and his wife agreed to forfeit a massive trove of luxury items they purchased with misappropriated funds, including artworks by Picasso and other artists, a 603-bottle wine collection, and several pieces of diamond jewelry.

While the criminal case against Shapiro is over, independent managers are in charge of selling off the rest of Woodbridge’s assets to recoup money for defrauded investors.

Shapiro is also on the hook to pay the Security and Exchange Commission $120 million as part of a civil settlement with the agency.

Federal law enforcement continues to pursue claims against other Woodbridge executives. Investors have sued for compensation from at least one bank, Comerica Bank, that held Woodbridge accounts.

The post Robert Shapiro gets 25 years in prison for massive Ponzi scheme appeared first on The Real Deal Los Angeles.

Will Los Angeles ever be a luxury condo metropolis? Zoning laws, building costs and buyers’ preference for more space have all conspired to keep L.A. homes close to the ground. But there are signs that the local condo market is gaining some steam.

The $21 million sale of a unit in Beverly West Residences in July made headlines, while actor Matthew Perry listed his Century City condo for $35 million just weeks later. Luxury developments in Beverly Hills and West Hollywood are also pointing to a new era, with Michael Shvo’s 9200 Wilshire project recently launching and the Residences at the West Hollywood Edition opening earlier this year.

Sales data show that there’s a market for this kind of inventory. The Real Deal analyzed condo sales of $2 million and higher in L.A. County that closed between Sept. 1, 2018, and Aug. 31, 2019, and found that 164 units closed during the period, with an average sale price of more than $3 million. But there’s still plenty of room for growth.

“L.A. historically has just never been a vertical town,” said Mike Leipart, managing partner of the Agency Development Group, an arm of the Agency brokerage that works with new properties through the entire development cycle.

Though the brokerage is based in L.A., Leipart said it’s “probably the slowest major market in the U.S. for high-rises.” With clients in Miami and Mexico, the group’s biggest projects aren’t local. But it’s currently working on smaller developments in the city, like Hancock Park’s the Sevens and the eight-unit Meyer at Third in Beverly Center. Leipart said he’s still optimistic about the future of luxury condos in the city, especially when all the right boxes are checked, starting with location.

“There’s great demand for the places you’ve heard of a million times: Beverly Hills, West Hollywood, even Hollywood,” said Leipart. “In Santa Monica, the sky’s the limit. Venice is great. Malibu is great — there’s just nothing new.”

Where this party started

Related Companies developed one of the projects that kicked off the push for luxury high-rises in the city. Its Century City condo project, the Century, opened in 2010, but it took some time to sell out. In 2012, the New York Times reported that the 140-unit building was only 30 percent sold. Compass broker Sally Forster Jones said the timing, in the midst of the financial crisis, and the fact that it was the first of its kind meant it took a while to gain traction. Today, “luxury buyers are really flocking to those types of properties,” she said.

In August, a unit at the Century sold for $9.8 million, and TRD’s analysis showed that four other units in the building sold over the past year, going for between $5.9 million and $6.3 million. Perry’s $35 million listing in the building is currently the most expensive condo on the L.A. market. He purchased it for $20 million in 2017.

“There’s still a great desire for luxury condos because when people move from their big homes, they want to scale down,” said Jade Mills of Coldwell Banker. “They don’t want to move to something where they have to do any work.”

Jim Jacobson, SVP of sales at Douglas Elliman’s Development Marketing Group, echoed the sentiment, adding that luxury buildings provide a perfect way for empty-nesters or people who travel frequently to make sure “their plants are watered, their goldfish is fed, and there’s milk in the fridge when they come home.”

A number of luxury developments are scheduled to hit the market in the next few years, like the 37-unit Harland West Hollywood, which will open in late 2019 or early 2020; the18-unit Gardenhouse, scheduled to open this fall, and the 76-unit 8899 Beverly Boulevard, which doesn’t yet have a launch date. Meanwhile, Emaar Properties’ 35-unit Beverly West finally put its five penthouses on the market this summer, and developer Richard Lewis purchased the first one in the aforementioned $21 million sale.

Jones noted that many of the luxury projects now underway have hotels attached, providing residents with the same full suite of amenities that hotel guests enjoy, like concierge services, wellness offerings and high-end restaurants. The Edition, Four Seasons Private Residences, Fairmont Residences at the Century Plaza and Pendry West Hollywood are all being developed as both hotels and luxury condos.

“I really think the next wave is more personalized service, more service-oriented than ‘Our pool is X amount of feet,’” Leipart said. “A lot of what used to be considered great amenities is outdated.”

Jacobson cited the Edition and the Harland, new buildings that Elliman is exclusively representing, as properties his team worked closely with to make sure the amenities appealed to the potential buyers.

Providing “value” in a slow market

L.A.’s luxury real estate market has seen a slowdown over the past year, but some brokers don’t see it as a downturn, more as a rebalancing as properties are priced closer to what they’re worth.

“As long as you provide a value proposition for buyers in luxury high-rise projects, you’ll find buyers that are out there,” Jacobson said.

Just 10 months after sales launched, Adept Urban’s 105-unit property at 388 Cordova Street in Pasadena is 70 percent sold, according to Robert Montano, vice president of development for the firm. He touted the  nine-story building’s unique composition for the area, where most of the buildings are five-story or single-family.

And while luxury buyers tend to gravitate toward brand-new buildings, Jones said older properties still have cachet if they’re unique. She cited a penthouse in Westwood that she sold for $13.33 million this year. Even though the property was built in 2001, she said the rooftop deck, a 1,800-square-foot terrace and its own elevator made it “very, very special.”

“That’s what the buyer wanted; none of the other properties could offer that,” Jones said.

Units in older luxury buildings may also have strong resale value. TRD’s analysis found that luxury resale condos closed for an average of $954,094 more than what they first closed for. Older buildings also tend to charge lower monthly fees.

“There are people who want to not only scale down in size but scale down in the price of the upkeep,” Mills said. “Newer buildings definitely have all of the amenities, [but] some have higher monthly maintenance fees. So for those, certain people will say they don’t want to pay $4,000 to $5,000 in fees, and maybe they’ll go to an older building because of that.”

Montano said the cost of amenities can be prohibitive for some buyers, so as a developer, Adept Urban tries to focus on what residents actually want.

“Throwing amenities at a project isn’t necessarily best for a project. They’re used infrequently but have to be paid for, and it results in higher HOA fees,” he said.

At 388 Cordova, HOA fees range between $588 and $1,531, depending on the size of the unit, and include access to a pool deck, spa, outdoor BBQ,and firepit. Compare that to Matthew Perry’s condo at the Century, which Curbed reported has HOA fees of $8,814 per month.

The trouble with Downtown

The glut of condo buildings Downtown has caused some people to question whether there’s actually a market for high-rises in L.A. But Leipart said it has more to do with mispriced properties and oversupply in that neighborhood in particular.

“If you look at the volume in Downtown, a lot moves out below $1 million, but it clears out quick above [that],” Leipart said. “With acquisition costs, construction costs, all the product being dumped down there, they need big numbers to make it work, but that’s not where people who can afford $3, $5, $6 million are really thinking.”

To Leipart’s point, a report from NorthMarq found that median condo sales were around $282,000 per unit Downtown and that there were approximately 7,000 units in the development pipeline as of the second quarter of 2019.

TRD’s own analysis, meanwhile, showed just nine condo sales Downtown above $2 million between Sept. 1, 2018, and Aug. 31, 2019, compared to 35 in Santa Monica, 26 in Westwood and 14 in Beverly Hills.

The mass of inventory Downtown isn’t the only thing adding to the negative perception of vertical living in L.A. Leipart said California’s financing regulations can make it difficult to launch projects. Unlike in some other major cities, developers in L.A. can’t use deposits to fund the project, meaning there’s not necessarily an incentive to sell in advance.

And yet lenders often want to see presales to guarantee interest in the project, which means that condos can hit the market years before they’re ready. But L.A. buyers are more likely to want units that are move-in ready, making it seem like there’s dwindling interest in luxury buildings even if that’s not the case.

“Projects are on the market for way too long, and it starts to smell bad when there’s really nothing wrong,” Leipart said. “We don’t sell condos three years before you can move in; there’s not a success story to point to.”

“Million Dollar Listing New York” star and Elliman broker Fredrik Eklund, who moved from New York to Los Angeles this year, is also taking on the new development market. The Eklund|Gomes team has already landed the new project developed by Townscape Partners at 8899 Beverly Boulevard in West Hollywood, which will include 40 condo units and eight single-family homes.

Elliman declined to give specifics on when the building will be completed, if Eklund’s team has already started selling units or what the price points will be. But as far as Eklund goes, competitors aren’t worried.

“Anything that elevates the game, anything that establishes L.A. as a market to be buying in and having successful projects in, I’m all in,” said Leipart. “Whatever Fredrik being in town cuts into my market share, I see way more value in him coming in and delivering successful projects.”

The post Will the condo craze ever kick in? appeared first on The Real Deal Los Angeles.

Millennials in search of more affordable digs are heading west, swapping Brooklyn for Boulder. And institutional investors are taking the hint.

Apartment building rental income nearly doubled between 2004 and 2018 in the eight Mountain States, according to a report from Trepp that examined properties in eight states, as cited in the Wall Street Journal. Net operating income grew by 7.33 percent in 2018 in those states of Arizona, Colorado, Idaho, Montana, New Mexico, Nevada, Utah and Wyoming.

The growth rate outstrips any other region in the country, as millennials hunt for cheaper housing, lower taxes and an escape from the city, according to the report.

The growth in a sector that until recently has been dominated by smaller firms has caught the attention of institutional investors. Kennedy Wilson, a publicly-traded real estate investment firm, made its first buy in Salt Lake City in 2012. Since then, it has grown its apartment portfolio to nearly 8,000 units, the Journal reported.

The Mountain States also saw the fastest home-price growth of any region between June 2018 and June 2019, according to the latest quarterly data from the Federal Housing Finance Agency.

The nationwide housing shortage also means people are willing to rent. A March study by the National Low Income Housing Coalition found Idaho had just 48 affordable units for every 100 extremely low-income households. [WSJ] — Georgia Kromrei

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Harridge Development has swatted away the latest lawsuit against its Crossroads of the World megaproject in Hollywood.

A judge has tossed the lawsuit from the AIDS Healthcare Foundation, which sought to overturn the city-approved residential towers development from beginning work on Sunset Boulevard, according to the Los Angeles Times.

The suit contended that the $1 billion project — which will feature 950 apartments and condos, a hotel, and 190,000 square feet of space — would violate local housing laws. The AIDS Healthcare Foundation said Harridge’s development would lead to higher rents across the neighborhood and displace longtime tenants, many of them black and Latino.

But L.A. County Superior Court Judge Robert Draper sided with the city and Harridge, which has said there will be a net increase of 2,096 housing units from the project, including 180 units for low- or very low-income families.

Draper criticized AHF — whose executive director is Michael Weinstein — for filing multiple housing-related lawsuits against the city.

“California courts have made final decisions in two previous cases, both involving AHF and the city, both not in AHF’s favor,” the judge wrote, according to the Times. “AHF is attempting to circumvent these previous decisions by repeatedly filing similar cases based on different legal theories.”

Some of AHF’s separate cases include developments close to the nonprofit’s Hollywood headquarters. One lawsuit seeks to prevent GPI Companies from building a 26-story residential tower at the site of Amoeba Records on Sunset Boulevard. Another case opposes CIM Group’s 299-unit Sunset Gordon tower project, on Gordon Street by Sunset Boulevard.

Both projects, AHF contends, would accelerate Hollywood gentrification, leading to the displacement of longtime residents. AHF’s most recent court complaint, alleges the city should have set aside money under the Measure HHH bond act toward its construction of a housing project on Skid Row. AHF is also still seeking to get a statewide rent control referendum on next year’s ballot. [LAT] — Matthew Blake

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Disgraced casino mogul and billionaire Steve Wynn is now set to pay $20 million in damages to settle a shareholder lawsuit after alleged sexual misconduct.

The damages that Wynn will pay, with an additional $21 million from insurance carriers for Wynn Resorts employees, must be approved by a Las Vegas judge, according to the Los Angeles Times. Wynn has repeatedly denied any wrongdoing in connection with the allegations.

The founder and former chief executive and chairman of Wynn Resorts Ltd. was pushed out last year, two weeks after the Wall Street Journal published allegations of sexual abuse compiled from interviews with more than 100 women employed at the resorts.

A 2018 Nevada Gaming Control Board investigation followed. Shareholders filed a class-action lawsuit alleging the company failed to disclose the alleged misconduct, leading to a rapid devaluation of their shares. The Nevada Gaming Commission slapped a record $20 million fine on the company in February in a separate action for enabling that alleged misconduct.

In a statement issued late Wednesday, Wynn Resorts denied any wrongdoing connected to the settlement. As part of that settlement, the company agreed to several changes to governance. It has enacted new policies to protect employees and has separated the roles of chairman and chief executive. The company also now has four women on the board of directors, according to the statement.

The plaintiffs in the lawsuit include public pension funds from California, New York and Pennsylvania. New York State’s Common Retirement Fund holds $23 million in Wynn Resorts shares, according to New York Comptroller Thomas DiNapoli. [LAT] — Georgia Kromrei 

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The pace of rising home prices quickened in September and existing home sales ticked up 1.9 percent.

Average home prices in cities across the nation rose 3.2 percent compared with the same period in the previous year, the Wall Street Journal reported. The year-over-year rise in August had been 3.1 percent.

The gains mark a two-month departure from a long period of slowing growth in home prices.

The gains were more moderate — just 2.1 percent — in the large urban areas tracked by the composite S&P CoreLogic Case-Shiller U.S. National Home Price Index.

A separate report released last week by the Federal Housing Finance Agency echoed those findings, while the National Association of Realtors said existing home sales increased by 1.9 percent in October.

Homeowners are choosing to stay in their homes longer, in part because of a dearth of affordable options and tax abatements for older homeowners, according to a Redfin study, the Washington Post reported. Owners in homes where walkable amenities are available are also less likely to move, and houses with higher walkability scores sell faster, the study found.

The number of homes for sale in Washington, D.C., has fallen 38.1 percent since 2010, while the median sale price surged 36.7 percent to $410,000 from $299,900. Washington-area homeowners are also sticking around more — remaining in their homes for a median of 13 years, compared with just nine in 2010.

[WSJ, WaPo] — Georgia Kromrei

The post Home prices accelerate nationally as owners stay longer appeared first on The Real Deal Los Angeles.

The owner of a famed Beverly Hills mansion who has for years tried to sell the massive property, is hoping to avert foreclosure by asking a bankruptcy court to let him relist it.

In a federal court filing, real estate investor Leonard Ross claims he can get $125 million for the Beverly House — once owned by publishing magnate William Randolph Hearst — saying a Saudi prince is looking at the estate.

The court filing, first reported by the Wall Street Journal, asks that Judge Vincent Zurzolo allow Ross to list the home at 1011 N. Beverly Drive, instead of surrendering it to creditors who are owed $67 million. The court filing comes just weeks after Ross filed Chapter 11 for the limited liability company tied to the estate, according to the Journal.

The Spanish Colonial-style mansion has six structures, including a main house that spans 50,000 square feet and 20 bedrooms.

Ross claims Saudi Prince Abdullah bin Mosaad bin Abdulaziz al Saud is among those eyeing the Beverly House, and that a sale would allow Ross to pay off his creditors.

He said the prince will be in Los Angeles in the first two weeks of December, according to the filing. Ross said it was “urgent” that real estate agents Al Ross — his brother — and Wayne Smith of Corona del Mar Properties be allowed to show the compound to the prince.

Ross has owned the mansion since 1976 when he paid less than $2 million for it. He has since renovated it and over the years put the estate on and off the market. Its price climbed to $195 million in 2016. Ross was asking $135 million for it last year.

He has rented out the compound for events and in 2016, tried to secure a $40 million refinance through crowdfunding.

In addition to having been a home of newspaper magnate Hearst, the mansion was also featured in “The Godfather” — the severed horse head scene — and was where then-Sen. John F. Kennedy and Jacqueline Kennedy spent part of their honeymoon.

If the Beverly House sells for $125 million, it would be the highest price paid for a residential property in Los Angeles County. The current record of $120 million was set in July with the sale of Spelling Manor in Holmby Hills.

The post Beverly House owner hopes Saudi prince is his white knight appeared first on The Real Deal Los Angeles.

UPDATED: December 2, 1:42 p.m.: Trulia was slapped with a federal lawsuit assailing its Premier Agent advertising program as “unfair” and “deceptive,” and accusing it of diverting home buyers away from listing agents.

According to the suit, which seeks class-action status, the Zillow Group subsidiary connects buyers with agents who “have no actual connection to the property being advertised, other than having paid defendant to be presented prominently next to the property.”

The lawsuit, filed November 28 in Eastern District Court, compares Premier Agent to a broker who purchases a billboard to advertise a listing already held by a competitor.

The suit says neither Trulia nor its parent Zillow Group requires Premier Agents to obtain consent from the listing agent or firm to advertise alongside their listing. “Defendant’s practices make it less likely that a prospective homebuyer is able to successfully contact the listing agent instead of the Premier Agents,” the suit said.

The suit seeks $5 million in damages on behalf of plaintiffs Andrew Kim, a licensed agent in Queens; John Doe, a broker who oversees six agents; and “all others similarly situated.”

It was filed by Long Island attorney Spencer Sheehan, who has been busy the past year suing food companies over their use of synthetic vanilla flavoring. (In 2019, Sheehan filed at least 27 lawsuits against the makers of ice cream, yogurt and cookies.)

In 2015, Sheehan represented former subway vigilante Bernhard Goetz, who was facing eviction from his apartment for keeping a pet squirrel.

Zillow, which acquired Trulia in a $2.5 billion deal in 2015, said in a statement that the claims in the lawsuit are without merit. “Our site arms consumers with information that helps them make decisions when finding their next home, and that includes convenient and fast tools to connect with real estate professionals,” said Viet Shelton, a company spokesman.

Premier Agent has roiled the real estate industry in New York City since Zillow-owned StreetEasy brought the program here in 2017. That year, the Real Estate Board of New York, having blasted Premier Agent for causing a “maelstrom” of consumer confusion, demanded an investigation into whether it was legal under state advertising laws.

This past January, Zillow launched Agent Spotlight, a program that lets listing agents avoid Premier Agent — for $333 a month.

But in May, New York regulators enacted stricter rules for online ads, requiring third-party sites to make clear when a broker is paying for an ad.

For years, Premier Agent has been responsible for the lion’s share of Zillow Group revenue. During the third quarter of 2019, Premier Agent generated $240.7 million, up 3 percent year-over-year.

But over the past year, Zillow has pivoted toward instant home-buying, which CEO Richard Barton has described as the company’s “moonshot.” During the third quarter, revenue from Zillow’s “Homes” segment surpassed that of agent advertising for the first time.

“It’s the size and strength of Premier Agent that allow us to invest in and expand Zillow Offers so quickly,” Barton said during an earnings call.

The post Trulia hit with lawsuit over Premier Agent appeared first on The Real Deal Los Angeles.

It was two days before Halloween, and for Kimberly Lucero that meant a sales opportunity.

Sporting a gothic dress, princess crown, ruby ring, and spider necklace with blood red paint on her chest and forehead, Greenland USA’s vice president of sales and marketing conducted a condominium tour.

Lucero was showcasing units on the 12th floor of one of four towers that make up the Metropolis project, a 3.3-million-square-foot development three blocks south of the Staples Center that has reshaped the downtown Los Angeles skyline.

Before Lucero came on board in May, Greenland largely sold units to Chinese buyers, but that pool has shrunk dramatically.

“We had a good majority of international buyers,” Lucero said. “Then, it kind of shifted, and we started having a lot of people who are going to school. We have a lot of undergrad buyers who are going to USC, and who are driving their Porsche to school.”

Lucero, a sales veteran who joined Greenland after three years with condo developer CIM Group, was dead serious about this characterization of Metropolis’ new buying pool.

In fact, the condos up for grabs at the Halloween open house seemed targeted to either out of towners’ stereotypes of Angelenos, or college students that appeared in Bret Easton Ellis novels.

Walking through one condo, Lucero remarked, “This unit is for an Instagram influencer.” By another, she said, “This is for a student surfer.”

High prices, and a retreating market

Greenland USA saw itself making a grand Los Angeles imprint through the 1,500 luxury units and opulent hotel that would comprise the four-tower Metropolis project. But slow condo sales, a revolving door of brokers, an unsold hotel, and larger market challenges have complicated that vision.

There are two particular challenges the development team acknowledge they must overcome.

The first is China’s pullback from the U.S. real estate market.

“The Chinese were the biggest buyers at Metropolis,” said Christiano Sampaio, a broker at downtown real estate agency Loftway. “The investment crackdown has definitely taken a toll on the project.”

The second issue is that few believe downtown Los Angeles can absorb the amount of luxury product on the market. Sampaio’s research shows that downtown condo sales are slowing down, and the median unit is selling for about 30 percent less than Metropolis’ typical per square foot listing price.

“The Metropolis development never made sense in the first place,” said Richard Green, director at the USC Lusk Center for Real Estate. “There is a mismatch between the product that is downtown and the demand.”

“A lot of companies don’t even get that far”

Metropolis, which was Greenland’s first investment in the U.S., seemed off to a good start. Greenland purchased the 6.3-acre site at 9th and Francisco streets in 2013 for about $150 million and began construction in February 2014. The company gave itself a five-year timeline to complete the four towers, which range from 19 to 28 stories.

Three of the towers are done, and the fourth is slated to finish by the end of 2019, Lucero said.

Greenland’s ability to get the towers built sharply contrasts with other Chinese megadevelopers in downtown Los Angeles. Most notably, construction has stalled at Shenzhen-based Oceanwide Holdings’ Oceanwide Plaza downtown residential tower, and Shanghai-based Shenglong Group’s residential skyscraper in South Park.

“Listen, here’s a foreign company, they came to the U.S. and California, a place with different guidelines and rules, and they built a massive project,” said The Agency’s Mike Leipart, who served as Metropolis’ lead sales agent before Greenland replaced the brokerage in January. “A lot of companies don’t even get that far.”

The trouble has been the next steps.

Amid sluggish condo sales, Greenland put two of the four Metropolis towers up for sale last year. The firm sought $280 million for the Hotel Indigo, but the tower never sold and a spokesperson said it has been taken off the market. Greenland also tried to sell Metropolis III, the largest of the four towers at 685 units, at an undisclosed asking price, rumored to be $450 million. That too didn’t sell, and Greenland is projected to finish construction this month. Except instead of condos, it’s now slated to be a rental building.

Greenland announced the switch to apartments in October, stating that it would turn over management of the fourth tower to Greystar Real Estate Partners, which is slated to start leasing units this month.

A move to rentals could make profitability a distant goal.

“It could have cost about $600 per square foot to build the units,” USC’s Green said. “Most apartments around there, the entire unit rents for around $2,000 a month, so that could be a pretty big loss.”

Lucero defended the decision to switch to rentals. “You shouldn’t dedicate everything to one type of product,” she said. “To be able to offer a for-sale, and for-rent product just fills the need of what is happening here.”

The tactical change at Metropolis comes amid a bigger strategic shift in the U.S. for Greenland, one of China’s biggest developers. The company, founded in 1992 to create real estate developments within greenspaces around Shanghai, has struggled with its New York megaproject, a 17-tower development now known as Pacific Park (formerly Atlantic Yards). It also abandoned a $2 billion planned biotech building in San Francisco as well as twin residential towers in North Hollywood.

Though it produced $2.5 billion in net income over the first three quarters of 2019, Greenland’s long-term debt stands at $21.6 billion, at a time when the Chinese government is pressuring companies to reduce debt.

Greenland appears to have funded most of the Metropolis project through bond issuances overseas, according to a review of financial statements by The Real Deal. Public filings show that the megaproject has cost $1.26 billion, about $260 million more than first projected. Last year, Natixis and L.A.-based real estate investment firm Cottonwood Group provided Greenland a $310 million loan in order to complete the now rental Metropolis III.

“People attribute the investment decrease to Trump, but it was really the Chinese crackdown on cash outflows.”

The developer also took in about $100 million from the federal EB-5 program, in which foreign investors pour money into job-creating U.S. real estate projects in exchange for a green card. Visa wait times for Chinese investors have swelled to up to about 15 years, and developers these days seldom are able to take advantage of the program.

Greenland flatly dismissed any money concerns at Metropolis. “Financing is not a problem for us,” Lucero said.

The disappearing Chinese buyer

For years, Greenland, like several other developers, banked on Chinese buyers scooping up units at over $1,000 a foot, a premium in a developing submarket like DTLA.

“For a while in L.A.,” one real estate agent said, “when a unit would be priced way over market, sellers would say: ‘Well, someone from China might buy it.’”

Those buyers are long gone, observers said.

“People attribute the investment decrease to Trump, but it was really the Chinese crackdown on cash outflows,” said Jim Butler, a partner at the law firm Jeffer Mangels Butler & Mitchell.

Chinese investment in U.S. residential real estate plunged 56 percent year-over-year to $13.4 billion in 2018, according to a National Association of Realtors report. California was particularly affected, according to Gay Cororaton, an economist with the trade group.

“Geography and family considerations are a factor in these investments,” Cororaton said. “I don’t see a bump again from Chinese buyers, unless maybe the trade relations improve.”

Greenland has not been hit as hard as some developers, according to Lucero, because “we were near completion when the investment slow down started.”

Dwindling Chinese cash is one factor behind a tepid downtown L.A. condo market.

Sampaio of Loftway compiled downtown condo buys over the last three years, with the 110 freeway serving as the northwest endpoint, and the 101 as the southeast barrier. The broker found that 399 residential units sold downtown in 2017 at a sales price of $692 per square foot.

Through Nov. 15, 272 units had sold during 2019, which would come out to 310 units if the sales pace continued until years end. That would be a 22 percent drop from 2017. And prices are stagnant – the average downtown condo in 2019 sold at $697 per square foot, compared to the about $1,000 per square foot listings at Metropolis.

“Downtown is not yet a place where high income people want to live. It’s still a place for people who can’t afford to live on the West Side.”

Richard Green, director at the USC Lusk Center for Real Estate

A report on third-quarter DTLA condo sales is even more pessimistic, with data from appraisal firm Miller Samuel indicating that third-quarter absorption dropped 31 percent year-over-year.

Downtown is generally regarded as a Los Angeles development success story, starting with the Staples Center opening in 1999. But the thousands of units built at Metropolis and other projects over the past five years may represent an overreach.

“There is definitely more supply than demand on the downtown luxury condo side,” Sampaio said. “There has just been this rapid influx of building with developers thinking they need to do luxury to get a return on their investment.”

And while DTLA is becoming more of a destination, it is an odd fit with other luxury neighborhoods characterized by lush green spaces and ocean views.

“Downtown is not yet a place where high income people want to live,” Green said. “It’s still a place for people who can’t afford to live on the West Side.”

A revolving door of brokerages

According to Lucero, construction on the first condo tower was completed in 2017, with 75 percent sold (231 of the 308 units).

But at the second tower, the site of the Halloween open house, just 25 percent, or 130 of its 518 units, are spoken for.

All told, 361 of the 826 units, or 44 percent have sold. The 465 unsold units are listed at a median price of $885,000.

Condos at the Halloween open house were around that price, listed at about $1,000 per square foot.

Lucero said that the company is proud of its sales record, but three different brokerages suggests expectations haven’t been met.

Douglas Elliman was the first brokerage tasked with selling the Metropolis in 2014. It was replaced with The Agency, which was swapped out in early 2019 in favor of Polaris Pacific.

Elliman declined comment, and The Agency said in a statement that Metropolis was “the fastest-selling development in Los Angeles” during its tenure.

Privately, agents who worked on the project accused Greenland of being unreasonable, and not understanding the downtown market.

“We would sell five or six of these and be really proud of ourselves, and they would turn around and say, ‘Why didn’t you sell 20?’” one agent said.

Polaris Pacific has dedicated three agents full-time to the project, brokerage director John Pallante said. Among them is sales manager Mike Brizzolara, whose track record features selling out Trumark Urban’s Ten 50, a 25-story condo tower in downtown Los Angeles best known for its rooftop drone pad.

The San Francisco-headquartered brokerage is following Greenland’s lead.

“Our goals,” Pallante said, “are Greenland’s.”

Meet Maddie, Greenland’s Influencer dreamgirl

Those goals include acknowledging the new buyer pool with a provocative ad campaign, including descriptions of hypothetical buyers more specific than many dating profiles.

Take a $715,000 (or $1,031 per square foot) listing at the Halloween open house that was marketed to a hypothetical millennial buyer named Maddie. “Just a few years out of school and Maddie is maximizing her influence. She has more than 100,000 Instagram followers. A freelance buyer for the hottest new labels, she works from her one-bedroom but is steps away from clients in the Fashion District.”

Or how about a $1.4 million ($1,088 per square foot) listing that hopes to lure “Dianne” and “Jim.”

“Dodger fans Dianne and Jim have season tickets. Their best friends Linda and Gene are longtime Clippers fans. The Staples Premiere entrance is five minutes away. After games they come back to this corner unit with 11-foot ceilings and stunning views.”

But real estate agents provided with the copy were not sure what to make of it, with a few asking if the pitch invited fair housing complaints.

“We just have to be very careful as agents not to be too narrow in who are marketing toward,” said Jonathan Holden, an agent at Compass who is not involved in the Metropolis sales.

Fair housing lawyers said there are no actionable offenses, unless a pattern could be proved showing exclusion of protected races and genders.

Others said Greenland and Polaris are doing what everyone else is doing.

“There is no one who doesn’t do this kind of thing,” The Agency’s Leipart said. “The young, female influencer is a stand-in for someone creative, a stand-in for someone who works from home, it’s a lot of things.”

Some even said the ads were smart. If a potential buyer really is a longtime Clippers fan, the copy could appeal to them. “The target now is people who like basketball,” Sampaio said.

Influencers and season ticket holders, though, can only sell so many units, and Lucero is hoping students are the ones that make a dent in sales, crediting them for being already 10 percent of all condo occupants.

“It has to do with parents feeling that their kids are in a secure place, with 24/7 security people here,” Lucero said.

“Marketing to college students is not a silly marketing tactic,” Leipart said. “It’s a thing.”

But not one that can fill hundreds of condo units unless prices are significantly knocked down, agents said.

Lucero seemed aware of her extraordinary sales challenge ahead, and, with Chinese buyers all but gone, she spoke of experimenting in finding different audiences for the Metropolis condos.

“I’ve been in downtown since the 1970s,” she said. “My parents used to own restaurants here. I’m a dinosaur here. I’ve watched it grow, and I love what developers have done with it. I want people to love downtown as much as I do.”

The post Can influencers and college students save Greenland’s Metropolis? appeared first on The Real Deal Los Angeles.

The Inland Empire has seen one of the biggest increases in industrial and warehouse development in the country, which local governments have allowed to go unchecked, some opponents say.

In Riverside County, Supervisor Kevin Jeffries said the proliferation of distribution centers — more than 150 million square feet of industrial space has been built in the Inland Empire over the past decade — has led to a dramatic rise in truck and vehicle traffic, the Los Angeles Times reported. That has created a health hazard.

Jeffries pushed for a policy of minimum standards for industrial projects, including a buffer of 1,000 feet between large warehouses and homes.

While the countywide measure — called “Good Neighbor Policy” — passed, Jeffries ended up voting against it, claiming it had been too watered down.

In San Bernardino, Amazon is rumored to become an anchor tenant for a new airport logistics center, where some advocates worry that not enough is being done to address environmental and quality of life issues, according to the Times. They have urged project developer, Hillwood Enterprises, to guarantee measures to limit noise and pollution from trucks as well as implement tougher job protections.

Amazon and Hillwood representatives declined to comment.

State Attorney General Xavier Becerra waded into the debate last year when his office required federal aviation and airport officials to conduct further environmental analysis of the project’s impact under the California Environmental Quality Act. [LAT] — Pat Maio

The post Inland Empire industrial strength is health hazard, opponents say appeared first on The Real Deal Los Angeles.

Virtu Investments picked up an under-construction multifamily development in the Warner Center this week for just under $71 million.

The real estate firm, headed by principals Michael Green and Scott McWhorter, bought the 174-unit property at 21425 W. Vanowen Street, from Los Angeles-based real estate firm Cityview.

The apartment project, expected to be completed later this month, traded for just over $408,000 a unit.

According to Cityview CEO Sean Burton, the apartment complex sits in an Opportunity Zone, which will allow Virtu to defer paying capital gains taxes for up to 10 years.

Virtu currently owns five other multifamily rental properties in California, and has sold 15 properties in the state, according to its website.

Cityview originally acquired the Warner Center property, which is called the Mira, in March 2016 for about $8.2 million.

The development firm tapped Ken Stockton Architects to design the six-story building, which features a large mural on one side. Units are priced between $2,100 and $3,275 a month. South Carolina-based Greystar had been selected to manage the property, which also includes 245 parking spaces.

Eastdil Secured’s Joseph Smolen and Mark Peterson represented Cityview in the transaction.
The Warner Center has seen a renaissance of sorts in recent years, benefiting from a rezoning effort in the San Fernando Valley. A number of large projects are in the works there. The biggest is Westfield’s $1.5 billion redevelopment of the Westfield Promenade mall.

In June, an 190-unit proposed complex became the second large retirement home planned in the area.

South Bay Partners and LAMB Properties are also collaborating on a 420,000-square-foot senior living complex at a Variel Avenue development site up the street.

Westfield is now working through the environmental review process for a 320,000-square-foot arena that is part of the Warner Center makeover.

Westfield’s redevelopment also includes 1,430 residential units, more than 600,000 square feet of office space, and almost 600 hotel rooms.

Developers are building smaller projects as well. In late 2018, Bolour & Associates picked up a three-acre development site near the De Soto property with designs in hand for a 380-unit residential project.

The post Virtu pays $71M for Warner Center complex in Opportunity Zone appeared first on The Real Deal Los Angeles.

If there was any doubt that investor enthusiasm for proptech is stronger than ever, let this statistic put it to rest: In the first half of 2019 alone, investment in proptech hit $12.9 billion — eclipsing the previous record of $12.7 billion invested for the entirety of 2017, according to CRETech. With the cash infusion comes an influx of fresh tech talent into the growing space, according to Peter Belisle, Southwest director at JLL.

“People from the tech industry have realized it’s such a huge space that’s been untapped,” said Belisle. “It’s not just capital, it’s tech. That’s a huge change that a lot of people are not really aware of.”

As a result, Belisle expects big changes in the way the local commercial real estate industry functions in the next year and a half. As the software improves, more members of the industry will be relying on tech tools in the course of their everyday business, whether it’s the app a landlord uses to engage tenants or virtual tours that a broker uses to show a space, he said.

Being familiar with proptech software is no longer a bonus, but a necessity, said Sandy Sigal, president and chief executive of Woodland Hills-based shopping center developer NewMark Merrill Companies.

“Brokers have to have tapped into this stuff and be prepared to use it, or be left behind,” said Sigal.

Although iBuying platforms, such as L.A.-based Open Listings and REX, have effectively sought to replace residential brokers, commercial agents for their part aren’t worried about going extinct. Evaluating a restaurant as a potential tenant could include taking into account things like what kind of food it serves and Yelp reviews, said Gabe Kadosh, vice president of retail services at Colliers International.

“You could have all the software in the world, but you still need people on the ground,” said Kadosh.

Belisle believes that the software will increase productivity for commercial leasing brokers.

“Successful brokers who use technology efficiently may be handling more transactions per person than less,” he said.

Here, local professionals nominate the proptech products they’re finding most useful in the line of duty.

Technology: VTS
Who’s it for: Landlords and brokers
What it does: VTS is a leasing and asset management system that allows landlords and brokers to track leasing activity at all their properties in one place. It also develops custom reports that can show, for example, the deal pipeline for a client or availability for a particular property.
User’s experience: Kadosh of Colliers International keeps VTS open on his computer almost all day, using it to keep track of the approximately 25 retail properties — or 2 million square feet — around Los Angeles that he represents, he said.

When using it on behalf of a property owner whose space he’s leasing, Kadosh can enter feedback from a potential tenant after they tour the space that the owner can immediately see. “When paid for by an owner, everything I do they can see word for word, which makes it kind of intense,” said Kadosh.

When using VTS for an asset that he controls, he can generate a PDF report, which he shares with a client ahead of an update call. “Even a few years ago, it used to be Excel. VTS generates fields; it’s very easy to see, for example, when a lease expiration is coming up. It’s very clean.”

He finds it easier to use than Salesforce, which he’s also tried. “Brokers are very good at talking and showing spaces,” Kadosh said. “But when it comes to writing up reports, that’s not our best skill.”

The software isn’t perfect, he notes. Kadosh also represents tenants looking for space, and since VTS is organized by properties, there isn’t a place to keep notes for those transactions. The platform would also benefit from allowing street views of a property and integrating more aspects of a property brochure into its profile in the program, he said.

Tech Support: In May, the valuation of VTS reportedly hit $1 billion thanks to a $90 million investment in the company,  one of the largest venture investments to date in the commercial property software market. The Series D investment round — which was led by landlords that are also VTS customers, Brookfield Asset Management and GLP — will help fund the rollout of an online commercial leasing marketplace called Truva, which will be available in New York this year before expanding to other markets.

Technology: Placer.ai
Who’s it for: Developers, brokers, retail and hospitality tenants
What it does: Placer.ai uses anonymized data from mobile phones to show customer activity within a geographical trade area.
User’s experience: Sigal at NewMark Merrill Companies uses data from
Placer.ai to gather customer foot traffic data in order to entice prospective tenants to lease space at his 80 shopping centers in California, Colorado and Illinois. He also uses it to evaluate potential acquisitions and to pick the ideal locations for shopper-targeted advertising.

Sigal decided to buy the Madison Marketplace shopping center in Sacramento after data from Placer.ai showed that it had the No. 1 grocer in the area. “Some sellers have some sales data, [but] they rarely have foot traffic data,” he said. “It convinced us we should buy the center.”

He’s currently using data to show potential tenants that his shopping center in Orange County has 50 percent more traffic than the competitor across the street. In the past, he would have had to rely on less scientific ways to benchmark a property’s performance, like counting the number of customers or asking a tenant for their impressions of how many people came through the doors.

“In today’s world, the one with the most data wins,” he said. “That’s our goal.”

Placer.ai shows where Sigal’s customers work and live so that he can tailor his advertising accordingly. “If there’s a segment of the trade area that’s not coming to the center, I do marketing to that area, and then I use Placer to see if it made a difference,” he said.

Sigal said he began using Placer about three years ago, when it was geared more toward individual retail tenants. He’s worked with the company to optimize the user experience for shopping centers.

Tech support: Placer.ai, which announced a $4 million funding round last October, plans to keep working with customers to improve its usefulness. “We want to continue leveraging our AI capabilities to bring forecasting into the mix from sales for a new store to trade area projections, cannibalization estimates, ideal tenant combinations and beyond,” a company spokesperson said in an email.

Technology: PadMint
Who’s it for: Brokers, owners and potential investors
What it does: PadMint uses open source data from L.A. County to give real-time estimates of the value of multifamily properties, similar to Zillow, while also showing recent sales of such properties in the area. Users can generate reports for a building showing things like estimated operating expenses and proposed financing amounts, and through the site they can create social-media-like profiles for networking.
User’s experience: Grant Goldman, a broker associate at Lyon Stahl, a real estate brokerage focused on multifamily properties, has used the free software to generate leads. “It’s become a daily tool for me for prospecting and overall knowledge,” said Goldman. “I can hop on the phone and say, ‘Did you know this sold for x?’” Goldman has used the info on the site to create valuations in half the time it ordinarily would take, and mails them out as a form of advertising. He said that PadMint is the only place he can see multifamily property comps for free: “In the office, we use it as a benchmark, a barometer of the market.”

Although Goldman likes being able to generate reports that he can customize with his company’s logo through the site, he wishes he could modify the reports further, for instance by adding more comps (the site selects the ones it includes). He also thinks a mobile app could come in handy.

Tech support: PadMint is currently being beta-tested in Los Angeles County, but the company plans to expand to other major multifamily markets in the next six months. “Zillow and Redfin changed the way people access residential real estate information and the relationships between agents and their clients,” said Elliot Van Nest, PadMint co-chief executive and co-founder, in an email. “PadMint intends to bring the same transparency to the multifamily market.”

Technology: CREXi
Who’s it for: Brokers, buyers and sellers
What it does: CREXi allows users to search commercial properties for sale or lease by use type and location.
User’s experience: Mike James, managing partner at James Capital Advisors, uses CREXi as an alternative to LoopNet. He prefers CREXi’s more specialized search criteria, since his firm specializes in net leases. He also says that the information on CREXi tends to be more accurate and that the brokers using the site are of a higher caliber. 

“The quick ability to look at a property and mentally download the pertinent information quickly — lease terms, guarantee on lease, franchise or corporation, brokerage commission — it’s all in one spot,” he said.

His firm has closed on deals after submitting letters of intent through the website using its pre-made forms.   

James said that doing marketing campaigns on the site allows him to see who has clicked on his listing, so he can then follow up with the buyer if he has a new listing in the same area.

James didn’t have any criticisms of the software, although his associate Nina McGaughy said that occasionally some listings show up on LoopNet that are not on CREXi.
Tech support: The platform has helped facilitate transactions on over 90,000 listings worth more than $450 billion in property value since launching in late 2015, according to the company. CREXi uses machine learning and artificial intelligence to match supply and demand, a spokesperson said in an email. “Essentially, we want to simplify the entire CRE process and arm the brokerage community with a one-stop solution for their business workflow,” the spokesperson said.

The post What new tech products do industry professionals really use? appeared first on The Real Deal Los Angeles.

Adam Hochfelder pulled up to The Real Deal’s New York office in his Bentley on a mission in June.

Prior to that Friday morning, the real estate investor and developer had been calling TRD’s publisher multiple times a day from a rotating cast of phone numbers, worried about reporting on his latest project.

Hochfelder — who went to prison in 2010 for bilking investors and lenders and was back in court on another fraud charge this March — was wearing a tailored suit with his hair slicked back. From his chauffeured car, he phoned again to ask whether the publisher could meet him immediately.

That day, Hochfelder claimed to have dirt on an editorial staffer: unsubstantiated allegations he said were provided by his sources. His threat: If TRD published “false claims” about him and one of his latest projects, an unnamed publication would run a story about the staffer.

Over a period of several weeks, Hochfelder sought to kill this story by threatening legal action and other consequences.

Since his release from prison in 2012, Hochfelder’s career has been marked by lawsuits, a criminal court appearance and multiple efforts to rebuild his reputation with real estate and nightclub ventures in the city.

Hochfelder’s threats came as TRD was investigating his latest hotel and entertainment project, involving the Playboy Club New York. When the pricey, members-only club opened last fall, it was the first time in years that Playboy Enterprises had licensed its iconic brand to a venue in the U.S.

But the timing was sensitive, as Playboy has been struggling for years to identify a business strategy that resonates with Americans following its heyday. Its New York location on West 42nd Street proved not to be the answer: Playboy cut ties with the club last month after a slew of issues with Hochfelder and his partners.

“What transpired with the New York club — both in concept and execution — was not what we had originally agreed upon,” Playboy’s CEO, Ben Kohn, said in a statement after his company terminated its licensing deal.

The Playboy Club’s debut in New York drew a decidedly mixed reception, coming on the heels of the #MeToo movement. But bad timing was far from the only problem.

Property and court records — including three lawsuits tied to the project — show a trail of unpaid bills that ran for two years and allegations of misused funds, “unconscionable fraud” and sexual harassment. Those claims, which have since been settled, were largely aimed at Hochfelder, the lead representative for one of the project’s owners, Merchants Hospitality.

The documents and interviews with many of the people involved provide an inside look at how the deal fell apart after Playboy lent its name to a precarious partnership that controls the club’s operations and underlying real estate.

Of the more than 30 people interviewed for this article over the past 10 months, many spoke on the condition of anonymity, citing confidentiality agreements or fear of being targeted by Hochfelder.

“I don’t want him fixating on me,” said one person with ties to the project about why anonymity seemed best.

Hochfelder, a 48-year-old father of two, later said his behavior in June was spurred on by TRD’s “crazy” questions about the project. “I was so nuts for that whole week,” he said, adding that he believes people were trying to damage his reputation under the cover of anonymity.

“Look, I made mistakes in the past. I’ll have to live with those mistakes,” Hochfelder said. “But unfortunately, sometimes people will use the past against me and there’s nothing I can do about it.”

A risky venture

Within the Playboy Club’s red, black and gold interior, vintage photos of the brand’s glory days were prominently displayed throughout the low-lit, windowless venue. The only other sights to speak of were women dressed in the classic bunny outfit and a massive, luminescent fish tank.

For Hochfelder and his firm, the project presented a chance to bring glory back to a fading gentlemen’s club scene and profit from a well-known brand.

The original vision for the site had been a chic restaurant and cocktail lounge patronized by an exclusive roster of members, according to Playboy executives. The company agreed to lend its trademark to what it believed would be a sophisticated dining concept — and its first club in the U.S. since its Palms Casino Resort nightclub in Paradise, Nevada, ended a six-year run in 2012.

When the Manhattan venue opened in September 2018, Playboy promised that it would not be “the sort of place where investment bankers hurl bottles of liquor at each other,” the New York Times reported.

One year later, however, police responded to an incident involving a large group of patrons throwing bottles during a fight in the back of the club. Two people sustained head wounds and one required stitches, according to the NYPD report. No arrests were made.

But behind the scenes, another struggle was unfolding — one that ended with Playboy’s exit. The club is now to become a steakhouse that hosts events booked by Live Nation, which has a month-to-month arrangement.

Merchants Hospitality, which owns and manages a handful of New York City restaurants and bars including Industry Kitchen and Treadwell Park, laid the groundwork for the project in 2016. And Hochfelder was running the show, he and other sources say.

Merchants’ founding partners, CEO Abraham Merchant and general counsel Richard Cohn, had hired Hochfelder during his prison stint to spearhead acquisitions and development for the firm.

Hochfelder was incarcerated after pleading guilty to 15 counts of grand larceny and three counts of scheming to defraud his uncle and in-laws, among others. He was charged with stealing more than $18 million and agreed to pay $9.5 million in restitution. When he was released from prison two years later, he went to work at Merchants’ office in Manhattan.

On the West 42nd Street project, Hochfelder brought in many of the parties and was an active presence at the club early on, according to several sources. Merchants and its partner Cachet Hotels & Resorts, which runs the project’s hotel, claimed in a press release this summer that they had put in $45 million in equity as of June 2019.

But accounts from people involved and several people who used to work at the club described a struggling business plagued by mismanagement and misconduct.

And a lawsuit by Cachet’s former CEO in October 2017 claimed three female Cachet employees accused Hochfelder of sexual harassment and gender discrimination. One of the women alleged that he made sexual overtures and grabbed her, according to a related document provided to TRD. Hochfelder, however, was not a party to the suit —which was later dismissed — and the claims in the suit went no further.

Separately, Playboy contends that Merchants failed to provide required financial reporting and payment for use of the company’s assets, resulting in breaches of contract.

A Merchants spokesperson denied any financial troubles and maintained the firm “needed” to end its relationship with Playboy to make way for its deal with Live Nation. “The club was successful, but Merchants expects the new programming to be more so,” the spokesperson said.

A spokesperson for Live Nation called the partnership a “short-term booking agreement.”

Tangled ties

Hochfelder’s behavior and criminal record were sources of tension for the project from the start, according to several people with direct ties to it. As the Playboy Club struggled to gain traction, Hochfelder was accused of overspending and fraud in court filings.

Mikhail Gurevich, a minority investor in the club and hotel, said that while his firm, Dominion Capital, was running its due diligence, “Adam’s history came up,” prompting pause.

But Hochfelder’s name was “not anywhere on the documents,” Gurevich claimed, so Dominion proceeded with the deal.

“What gave us comfort was the other two partners that were involved,” Gurevich said in an interview this March. He later got into a legal spat with Merchants and Cachet over what he alleged was the dilution of Dominion’s stake and a lack of financial reporting.

In court filings, Merchants denied sidelining Dominion and claimed it gave its partner necessary access to the project’s records. Merchants’ Cohn contended in a sworn affidavit that Gurevich had “adamantly refused” to invest $1 million more when the project faced a “shortfall” in the lead-up to the maturity date of a $30 million construction loan from hard-money lender Silver Arch Capital Partners.

Cohn attributed the shortfall to “various problems in construction, operation and management.” The club’s owners fronted $18 million, but it wasn’t enough.

“As expected, the Silver Arch Loan matured, and the Project defaulted on the loan,” Cohn wrote in the affidavit, noting that Merchants signed a forbearance agreement with the lender to stave off foreclosure while it sought to refinance.

Merchants told TRD that it paid off the Silver Arch loan in May, and Silver Arch confirmed it was no longer involved in the project. Merchants and Dominion settled in June.

Leon Katselnik of Katselnik & Katselnik Group, the project’s first general contractor, also had initial concerns about Hochfelder’s past. But he said he was touched by Hochfelder’s contrition and decided to take the job.

“He seemed like the biggest sweetheart,” said Katselnik, who had met Hochfelder through their kids’ activities.

Still, Katselnik took precautions. His contract with Merchants included a rider noting that only Merchant or Cohn could make financial decisions for the project. Hochfelder “wasn’t financially capable of hurting us,” Katselnik said. “He was the guy who was going to grow their hotel branch.”

The contractor ultimately sued, however, accusing Merchants of misusing its construction funds and “falsely representing” Hochfelder’s role in the project. K&K alleged that Hochfelder had been put in charge of approving spending and had “dramatically” increased costs. K&K and 15 of its subcontractors filed mechanic’s liens against the project, and the general contractor claimed it was owed $1.1 million.

Merchants claimed construction payments stopped because of shoddy and untimely work and, in court filings, denied owing K&K money. That case also was settled in June.

As Hochfelder was battling the suits this year, he appeared in Manhattan Criminal Court on an unrelated charge of scheming to defraud people in three separate incidents, TRD reported at the time.

Hochfelder was charged with collecting money for Knicks season tickets that he never purchased, getting paid for a distressed Manhattan property that was never for sale and receiving money for a “pending order from a large fashion retailer” by his now-wife that was never made, court records show.

His attorney at the time, Marc Agnifilo, told the Daily News in late February that Hochfelder had borrowed money from acquaintances “under circumstances that were less than honest and then paid them back.”

Hochfelder pleaded guilty in March to a misdemeanor and was sentenced to a one-year conditional discharge. As part of the deal, he paid $1 million in restitution.

A familiar face

Hochfelder, a University of Pennsylvania Wharton School graduate, is one of just a few New York real estate players to serve prison time.

The Long Island native began his career in his 20s as a commercial broker at Newmark Knight Frank before teaming up with N. Richard Kalikow, chair and CEO of Gamma Real Estate, to launch their own company, Max Capital. Together, they traded Midtown properties, including the Helmsley Building.

Real estate attorney Robert Ivanhoe, of Greenberg Traurig, recalled that Hochfelder “came out of nowhere” and was suddenly “doing billion-dollar deals with major counterparties.”

But after Hochfelder bought Kalikow out of Max Capital, things went off the rails. In court, Hochfelder’s attorneys claimed a combination of financial strain and rampant cocaine addiction led him to forge documents and steal money from banks, investors, family and friends, according to reports at the time. TRD and DNAinfo stories from 2010 also cite a bipolar disorder that led Hochfelder to defraud. A spokesperson for Merchants disputed the accuracy of those accounts.

After serving two years in Manhattan’s Lincoln Correctional Facility, Hochfelder walked out in late 2012 with a job offer in hand and a Downtown corner office awaiting him, courtesy of Merchants.

As news of Hochfelder’s return traveled, “a lot of people commented to me at the time that it seemed like a risk,” Ivanhoe recalled.

“Some people love a redemption story and some people don’t care,” said Ivanhoe, who along with several others had asked the judge in writing to give Hochfelder a lenient sentence, calling him “a changed person.”

The veteran attorney said he’s only spoken to Hochfelder once since his release, when Hochfelder called him for help retaining counsel from Greenberg Traurig. “He was very nice and very friendly,” the attorney recalled, noting that “hopefully he’s learned his lesson and he’ll stay more in the straight and narrow.”

Hochfelder told TRD that many of his professional connections predating his felony endure to this day.

“The mistakes I made were personal in nature,” he said.

A battered brand

Hochfelder isn’t the only one trying to move beyond a troubled past.

Playboy is looking to recast itself as a modern lifestyle brand for a wider audience. This spring, the company relaunched its magazine under editors with burnished feminist credentials and rolled out an events series with such speakers as Roxane Gay, author of the bestseller “Bad Feminist.”

Playboy has been aiming to regain its clout from decades ago — minus the misogyny and other problems that came to define it. At its peak in the 1970s, its magazine was read by millions and membership in its clubs were a status symbol. In 1971, the company went public at $23.50 a share.

Four decades later, its founder, Hugh Hefner, and the private equity firm Rizvi Traverse Management took Playboy private in a buyout deal that diminished Hefner’s personal fortune. He paid $6.15 a share to minority shareholders in 2011, and the company sought to reinvent itself. Hefner died at his Los Angeles home in September 2017 at age 91.

Playboy briefly stopped publishing nude photos, and licensing became its main business. It also dropped U.S. club branding deals in favor of more lucrative overseas projects. Asia emerged as its biggest market.

But in 2016, Playboy was reportedly looking to sell for $500 million and, though no deal was reached, a series of other changes occurred: Kohn, Rizvi’s managing partner, took over as CEO, and Hefner’s then 24-year-old son, Cooper, became chief creative officer.

Later that year, the company inked a licensing agreement for what would become the Playboy Club New York. Its opening event featured singer Robin Thicke performing “Blurred Lines.” Critics called it tone-deaf.

Six months later, programming had been transformed. Nights at the club included spoken-word performances, magic shows, a fundraiser for a dog-rescue nonprofit and panel discussions about blockchain. One chilly evening in February, Cooper even hosted an “exclusive backgammon night” that was also open to the public and coincided with a summit of Playboy’s global licensees.

But several insiders said the change was too little, too late and didn’t address the real problem — lack of cash. (Hefner’s son, who could not be reached, left Playboy a few months later to launch a news and adult-content website.)

“Cooper Hefner hosting a backgammon night on a Tuesday … What are they going to do, play Clue on Wednesday?” said one person who was previously involved in the project. “You can’t make money in this industry doing things like that.”

Several people with access to the club’s records said complimentary memberships far outweighed paid ones. One insider counted 41 paying members out of 267 on a July 2019 list provided to TRD and corroborated by two other sources. Merchants declined to comment on membership numbers.

Two former Playboy Bunnies and other club employees said scant tips and wages routinely came up at staff meetings, as the venue was sparsely attended and patrons who did show were often not charged.

The exclusive, members-only concept soon faded as the club’s management upped the mix of events and eventually opened a more traditional nightclub in one part of the venue, according to sources who previously worked there.

Playboy said its involvement had been limited to ensuring its brand standards were adhered to and, in rare cases, recommending collaborations.

“This situation was an anomaly,” said Jared Dougherty, head of Playboy Licensing. The company — which claims its licensed products and services do $3 billion in consumer sales — has hundreds of partnerships globally, and branded hospitality projects will be “a big part of our future,” he added.

Ambitious plans

For Merchants, the Playboy Club was a key part of a bigger play.

In July 2016, the company signed a $40 million contract to buy the leasehold of Ian Reisner’s gay-themed OUT Hotel and reposition the property, according to reports. Hotelier Richard Born, who owns the land, said Merchants and its partners pay their rent, but declined to comment further.

Cachet, an Asia-based hotel management company run by Chicago- born entrepreneur Robert Roche, became an equity partner in the project. The owners landed the $30 million construction loan from Silver Arch in spring 2017.

Accounts differ on how Playboy got involved. Hochfelder attributed it to his personal connections. Playboy said it had signed a licensing agreement with Cachet for a Shanghai club and had no knowledge of Merchants or Hochfelder until Cachet asked to move the club to New York.

“We only met Adam well after the licensing agreement was signed,” said Kohn.

The location change would allow Cachet to promote the U.S. venue in Asia, according to several sources. Playboy agreed to play along, so Roche introduced the entertainment company to Merchants, the sources said.

Playboy executives visited the real estate firm’s other New York restaurants and decided to move forward, but soon had misgivings about the project.

With Playboy on board, Merchants began to tout the West 42nd Street venue’s ties to the famed brand. Sources said their target was at least $12 million in annual revenue.

By comparison, chef Daniel Rose and restaurateur Stephen Starr’s French restaurant and lounge Le Coucou reported $13 million in revenue last year, while Mario Batali’s now-shuttered La Sirena reported $16 million, according to Restaurant Business’ annual survey.

Reisner joked that his former asset went “from dicks to chicks,” but expressed confidence in Merchants. “They’re good people,” he told TRD in July. “They get stuff done.”

Others, however, thought the idea was flawed from the outset. Hospitality consultant Stanley Turkel called it “old-fashioned and antiquated,” and several former employees said the venue was frequently mistaken for a strip club.

“Originally it was supposed to be this very high-end, private club,” said Scott Gerber of Gerber Group, which owns and operates restaurants and cocktail bars in several cities. “I don’t think they got very many takers on that.”

Gerber wasn’t involved in the deal and hasn’t visited the Playboy Club, but said he knew several people who worked there when it opened. “I never understood it from the beginning — why they were doing it or who thought it was going to have legs,” he said. The idea of dressing women in Bunny costumes, he added, “just doesn’t feel right.” 

Even Reisner, who said he liked the concept, conceded that “the #MeToo movement hit them in the head.”

“It’s on Adam”

Behind closed doors, more than a half dozen people involved in the project said trouble was brewing nearly a year before the club’s debut.

The first legal fight came in late 2017 when Cachet’s former CEO, Alexander Mirza, sued his former employer. Mirza claimed he was wrongfully fired for trying to investigate the accusations of sexual harassment and gender discrimination made against Hochfelder that summer. Cachet counterclaimed, alleging Mirza was let go for breaching his fiduciary and contractual duties.

Mirza said in his complaint that he learned of the women’s accusations that summer and informed a human resources adviser, who began an investigation. Mirza claimed Roche attempted to intervene. The adviser protested and ultimately resigned over the alleged interference, according to emails included in the court filing.

An external workplace investigator hired by Cachet later “exonerated” Hochfelder and reported that one woman’s claims were falsified to “direct attention away from her own incompetence,” according to a confidential document prepared by the company. The claims from the other two women were not addressed in that document, and the suit in which those allegations were made was dismissed in February.

Mirza declined to comment. A lawyer for Cachet said  in an email that the company highly values its relationship with Hochfelder and Merchants, but would not comment further.

Other disputes quickly piled up, including the legal actions from minority partner Dominion and general contractor K&K and a handful of liens filed by other contractors citing lack of payment.

Then in June, seemingly out of the blue, Merchants settled all pending litigation and closed on a $42 million loan from hedge fund Taconic Capital Advisors to refinance the project. At the same time, Merchants announced it would construct a giant billboard and observation deck at the property.

In an effort to show that his firm’s legal problems were over, Hochfelder arranged a three-way call in June with Leon Katselnik’s father, Arkadi, and this reporter.

“Everything is under the bridge,” the senior Katselnik maintained during the call. “Leave Adam Hochfelder alone. He’s a nice man … All right? Thank you.”

Several people familiar with the matter, however, say Cachet’s Roche has taken a more dominant role in the club’s day-to-day operations. On the Taconic loan documents, a company tied to Roche, rather than Merchants, is listed as the point of contact.

One contractor who said he had prior payment issues with Merchants recalled a running joke about Hochfelder on the jobsite. Once the club opened, he said, construction workers would come in to order drinks and food, rack up a bill and say, “It’s on Adam.”

Merchants denied that its role has been reduced and claimed to be “even more active at the property now than it was last year.”

Standard fare?

For Playboy, the two-year saga has been a harsh lesson about control. And it’s not over. As of Nov. 21, a source familiar with the matter said Merchants was still using the company’s branding at the club.

Playboy said in a statement that it’s monitoring the situation and “looking at all our options, including legal action.”

As for the relationship between Roche and Merchants, Hochfelder denied the project’s legal tangles caused any strain, suggesting it was not unusual in his industry.

“Hotels average five to seven disputes,” he said. “That’s just what happens when you develop something. It doesn’t have to mean that it’s a fight … you’re just working through things.”

Real estate attorney Todd Soloway, who runs the hospitality group at Pryor Cashman, called that portrayal “somewhat far-fetched,” and Dominion’s Gurevich said the problem was Hochfelder — not the industry in general.

“He gets involved with people and, for one reason or another, lawyers get involved and the court system gets involved,” the investor said. “That’s the byproduct of being in business with Adam.”

The post The Playboy Club was a chance at redemption for Adam Hochfelder — here’s what went wrong appeared first on The Real Deal Los Angeles.

Streaming services like Netflix and Amazon have upended the traditional movie-watching experience, and their emergence likely contributed to the change of plans for the $1 billion mixed-used development rising in DTLA.

Developers Related and China-based CORE USA are building The Grand, a hotel, condo, apartment and retail complex designed by starchitect Frank Gehry.

Now, the partners appear to be dumping the 44,000-square-foot movie theater, citing a “lack of interest by theater operators” and a shift in market demand.

Their latest design changes seek approval for retail or office space where the planned multiplex was going to rise. The Community Redevelopment Agency of Los Angeles will consider the proposed changes at its Thursday meeting.

“We want to negotiate with other potential tenants beyond the cinema,” said a Related spokesperson, who confirmed the filing.

The Grand — whose construction began in February — will include a residential tower with over 300 market-rate and affordable rentals, over 100 condo units, a 309-key Equinox hotel, along with 176,000 square feet of retail space, 12,000 square feet of restaurant space and a public plaza.

Instead of building a cinema at the corner of West 1st and South Olive streets, the developers are weighing two other options.

A retail and food and beverage component could be expanded, or office space could be added, said Rick Vogel at Related Urban, a division of the larger company. Both areas have shown interest from prospective tenants, including co-working companies, he said.

Related declined to identify potential tenants for the new space.

The post Related may cut movieplex from its DTLA megaproject appeared first on The Real Deal Los Angeles.

Mohamed Hadid said that fighting City Hall and a judge’s order to tear down his 30,000-square-foot Bel Air spec mansion is his only financially feasible option, as the entity that owns the mansion is in debt for $28 million.

901 Strada LLC, the Hadid-managed company behind the 901 Strada Vecchia Rd. project, filed for Chapter 11 bankruptcy on Nov. 28 in California federal court.

The move for bankruptcy protection came one week after Los Angeles County Superior Court Judge Craig Karlan sided with neighbors suing Hadid and ordered the mansion demolished to its foundational slab. Earlier last month, Los Angeles city attorney Mike Feuer filed a motion in a separate criminal proceeding against Hadid, which also called for the mansion’s destruction.

But in an interview with The Real Deal Monday, Hadid said he must persist with constructing the mansion because he owes creditors about $28 million on the property, which critics have dubbed “Starship Enterprise” for its saucer-shaped house. First Credit Bank, which specializes in bridge loans, is the primary debt holder. The bank, which had $454 million in assets as of Sept. 30, is owed around $17 million, according to Hadid. The only way to pay that money back, he said, is to see the project through, and eventually sell the mansion to cover his costs.

“You always can borrow the money to build,” Hadid said. “But I can’t borrow more money to demolish it.”

Hadid said that the LLC does not have the $500,000 to put the mansion into receivership, as Karlan has ordered, much less the approximately $5 million it would cost to demolish the building.

“It’s not part of the LLC’s budget to knock the house down,” he said. “There’s not $500,000 in the budget that can go to demolishing the house.”

Hadid suggested it was a non-starter he bankroll the demolition through his own personal fortune.

“I wouldn’t be legally required,” he said. “The LLC operates on its own.”

The LLC’s bankruptcy filing papers have yet to provide a list of secured creditors.

A handful of unsecured creditors such as construction, plumbing and welding companies are listed in the initial bankruptcy filing with debt holdings totaling less than $1 million (the largest such unsecured creditor listed is Rail Design & Management of Chatsworth, which has a $387,000 unsecured claim).

The Daily Mail reported last week that Hadid personally guaranteed the $17 million loan.

A longtime developer of Los Angeles megamansions, Hadid constructed much of his Strada Vecchia mansion by the end of 2015 amid complaints from the city and neighbors. In 2017, he pleaded no contest to misdemeanor charges of violating the city’s building code, and he served 200 hours of community service.

Hadid has subsequently argued that the mansion is salvageable, but the city attorney and Department of Buildings say part of the structure could roll down the hill it was built on.

Hadid has appeared on multiple reality television shows, and his daughters Bella and Gigi Hadid are internationally known fashion models.

The post Hadid: I must continue building Bel Air mansion to satisfy creditors appeared first on The Real Deal Los Angeles.

Here are some upcoming real estate events in Los Angeles next week.

Host: CREW Los Angeles
Date: Dec. 10
Time: 5:30 p.m. to 8 p.m.

CREW LA is hosting its Annual Holiday Wine Tasting and Networking event at 350 South Grand from 5:30 p.m. to 8 p.m. Attend this event to enjoy an evening of drinks, food, and connecting with fellow professionals.

Host: Bisnow
Date: Dec. 12
Time: 8 a.m. to noon

Bisnow is hosting its Los Angeles Power Women event at the JW Marriott Los Angeles L.A. Live, 900 West Olympic Boulevard. Come to this event for chances to network, roundtable discussions, and award ceremonies honoring the most influential women in the commercial real estate industry. Barbara Bouza of Gensler and Amalia Paliobeis of Common will be among the speakers at the event.

To submit more industry events, please reach out to events@therealdeal.com.

The post Mark your calendars: These are LA’s top real estate events next week appeared first on The Real Deal Los Angeles.