Katerra, a Silicon Valley startup backed by SoftBank, has closed a large factory in Phoenix, weeks after one of its co-founders left the firm.

The Menlo Park–based firm, which is valued at more than $4 billion, says it uses tech to deliver construction projects inexpensively. But it has a history of delaying or abandoning projects and in recent months has laid off hundreds of employees.

The Phoenix factory, which was the company’s first, had been used to prefabricate building components for Katerra’s construction projects. In an email sent to staff Tuesday and obtained by The Real Deal, Katerra’s CEO Michael Marks wrote that the factory would close at the end of the month and its employees would be let go.

“We learned a lot from that factory,” Marks wrote. “We learned what we were doing right, and we also learned about lots of improvements that could be made.”

Bloomberg, which first reported the closure, said the company lay off 200 employees. Katerra did not return messages seeking comment.

The Phoenix factory had a series of hiccups. Soon after opening in 2016 it was closed for a week, reportedly for lacking proper building permits.

Katerra has since opened a mass-timber factory in Spokane, Washington, and is in the process of building a facility in Tracy, California.

The Tracy factory will be used to build added lines of prefabricated components, including windows, steel walls, and bathroom and kitchen kits, Marks wrote in his email.

He also announced that Katerra would begin building a second factory in Texas.

“It’s natural for a growing company like Katerra to make some changes in strategy,” Marks wrote. “But I want to thank our employees at the Phoenix factory for their participation in this journey.”

Following a $700 million funding round earlier this year led by SoftBank, the firm is valued at more than $4 billion, with some estimates closer to $5 billion. It has made a flurry of acquisitions, primarily of construction and architecture firms, which it has used to build and design projects. Since its founding in 2015, the company has seen considerable executive turnover and been dogged by reports of delays and cost overruns at some of its projects.

Last week TRD reported that its co-founder, Fritz Wolff, had departed the firm. While it remains unclear why Wolff left, his eponymous family construction firm is one of Katerra’s biggest customers. Katerra has indicated that it will continue to work with the Wolff Company.

According to Marks, Katerra is slated to become profitable sometime next year. The company has not yet released specific plans to go public, though the CEO has indicated that an IPO would not happen until at least 2021.

The post Construction startup Katerra closing Phoenix factory appeared first on The Real Deal Los Angeles.

Just before the 2008 crash, developer Young Woo made a big investment in an unlikely venture: South American farmland.

Woo and his partner Margarette Lee bought 2,000-acre plot of farmland less than an hour outside of Mendoza, Argentina, where Woo lived in his teen years. The site is part of a multimillion-dollar investment that’s only just starting to pay off.

“We said things are too good,” Lee recalled and, anticipating a downturn, they decided to buy up South American farmland.More than a decade later, the principals of Youngwoo & Associates have transformed the land in Argentina into a 300-odd lot winery known as Dragonback Estate, where buyers can purchase their own 2.4-acre vineyard for roughly $250,000. The development also includes a winery, hotel and restaurant, known as the Rosell Boher Lodge.

The estate is a textbook example of the firm’s out-of-the-box style of development — with past projects including the redevelopment of Pier 57 and a Chelsea condo with “sky garage” instead of the basement. But a shared vineyard and sprawling hospitality project was not part of their original plan. They had initially set out to run a farm but, after five years bought out their local partners after being “unsatisfied” with how operations were being handled, Lee said.

Looking for alternate land uses, they had the soil tested and realized it was “excellent” for producing wine. From there, they developed the concept of “a gentleman’s farm,” where buyers could own an income-producing vineyard and pay a small annual fee of around $6,500 to have local partners handle the winemaking.

“We feel very lucky,” said Lee. “We’re real estate developers so we’re interested not in selling the wine, but selling the land.”

Each plot can produce up to 8,000 bottles of wine at full capacity, the developers said. Buyers have their choice of what kind of vines they will grow, and whether they want to keep their harvest or sell to nearby wineries. According to the developers, Malbec, Cabernet Sauvignon and Cabernet Franc are the most popular wines owners produce.

Buyers can also build homes on their vineyards, which is what Woo and Lee are doing: They’re constructing a house on a few lots that will be “our little place to go when we get old,” Lee joked.

Argentina is in the midst of a recession. This summer, a rescue package from the International Monetary Fund failed to stabilize the economy, which is facing a budget deficit, high inflation and continued political instability.

According to Lee, the development has sold two thirds of its lots with buyers hailing from Canada, Germany, Brazil, Argentina and the U.S.

In the U.S., Youngwoo recently partnered with EquityMultiple to launch a $500 million Opportunity Zone fund. Through the tax program, the developer is looking to invest in New York, Oakland, Seattle, Detroit, Los Angeles and Portland.

Write to Erin Hudson at ekh@therealdeal.com

The post Youngwoo’s latest development play is a vineyard in Argentina appeared first on The Real Deal Los Angeles.

Multifamily developer WS Communities is rolling out new affordable housing plans in Santa Monica.

WS has at least eight projects in various stages of development in the city that fall under a new agreement with Santa Monica to boost affordable housing. On Monday evening at an architectural review board meeting, the developer said it now planned to more than double the number of overall units at one of those multifamily projects.

The mixed-use development in the city’s downtown was previously approved as a six-story building with 64 apartments. On Tuesday, WS Communities principal Adam Shekhter said the city got its first glimpse of WS’s new plans for the structure at 1415 5th St., which show an eight-story structure containing 41 apartments, 93 single-room occupancy units, and roughly 2,500-square-feet of ground floor commercial space.

The proposed development at 1415 5th St., comes as a result of a recent agreement between WS Communities and Santa Monica housing planners regarding single-room occupancy housing developments aimed at low-income renters, according to Shekhter and Scott Walker, the CEO of WS.

KFA Architecture is designing the 5th Street mid-rise development.

WS Communities also has similar developments in the works that fall under the agreement with the city on nearby properties at 1437 5th St. (63 units and 8 floors); 1437 6th St. (57 units and 6 floors); 1323 5th St. (57 units and 6 floors), 1557 7th St. (units and floors not provided); and 1338 5th St. (74 units and 4 floors).

Specifics on how many units will be classified as affordable haven’t yet been defined as the projects are in various stages of development, according to Shekhter and Walker.

Since the projects are largely in an “early conceptual design” phase, construction financing has not yet been arranged, Shekhter said.

Two other proposed WS projects, located at 1543 7th St. (100 units and 8 floors) and 1425 5th St. (92 units and 8 floors), do not fall under the agreement with the city that requires an increase of single-room occupancy units for low income renters.

WS also has several other multifamily projects under development in Santa Monica.

In September, WS lined up a $44 million loan to refinance two projects: 1650 Lincoln Blvd. and 1543 – 1547 7th St. The project on Lincoln Boulevard will include 98 residential units and about 6,400 square-feet of retail, spread across a five-story building. On 7th Street, the firm is planning a 100-unit building, 4,440 square feet of ground floor retail space.

WS was started as a spinoff firm of NMS Properties, one of the largest multifamily owners and developers in Santa Monica, which is headed by Adam’s father, Neil Shekhter.

The post WS Communities boosts affordable housing plans in Santa Monica appeared first on The Real Deal Los Angeles.

Can you find something in common with a stranger and get his or her contact info? If not, this “Million Dollar Listing New York” star can’t work with you.

Nestseekers International agent Ryan Serhant runs a 60-person team covering New York City, Miami and Los Angeles. Over that time, he’s hired quite a few brokers.

And while you could first try playing his mobile app game “Agent Empire: New York” to get a taste for life with Serhant, the agent was willing to share a few tips on what you could say to impress him in an interview. Here’s a hint: Be prepared to get personal.

The post Ryan Serhant’s must-have “three E’s” for every broker he hires appeared first on The Real Deal Los Angeles.

The Los Angeles City Council is scheduled to vote Wednesday on whether to ban development companies and their executives from contributing to city officials’ election campaigns. Sort of.

As the Los Angeles Times reports, the legislation being voted on would not go into effect until after the March 2022 primary elections. The implementation delay would let candidates for mayor, controller, city attorney and the majority of the 15 city council seats collect money from developers in the next election cycle.

And even after the bill goes into effect, developers may continue to make unlimited donations to independent expenditure committees, the local and state government version in California of national political action committees.

Additionally, the proposed legislation does not alter the practice of elected officials soliciting donations from developers toward officials hand-picked charities.

Government watchdog nonprofits including California Common Cause have criticized the bill for letting incumbent council members accumulate developer money in the next election cycle before only partly turning the spigot off.

Even councilmember David Ryu, who spearheaded the legislation, is not satisfied with what the Council is set to vote on, according to the Times.

Ryu has been working on banning developer money in City Hall since he came into office in 2015. (It should be noted that last month opponents criticized him for accepting donations from two developers, though Ryu said it slipped through the cracks and pledged to refund a dozen donations.)

Ryu’s initial legislative effort seemed to sputter in 2017, but it was revived last year when FBI officials raided the office of Ryu’s City Council colleague Jose Huizar.

An FBI warrant requested that some developers with new projects turn over gifts, vacations, and other perks they provided the Council member, who headed the Council’s Planning Land Use and Management committee, before then Council President Herb Wesson stripped him of that post following the raid.

Developers the FBI is seeking information on include Shenzhen New World Group, a China-based company with planned high-rise projects downtown and near Universal Studios, and Shenzhen Hazens, another Chinese company with a proposed downtown skyscraper. [LAT] — Matthew Blake

The post LA City Council might scale back ban on developer money appeared first on The Real Deal Los Angeles.

The real estate industry — much like the rest of the world — is still trying to figure out exactly how its connection to cryptocurrency should work.

Since virtual money first broke through a decade ago, with the launch of Bitcoin, buyers and sellers of property are increasingly using crypto as a form of payment. And the range of digital coins has exploded in recent years, with about 3,000 different types being traded as of October, some specific to real estate.

It’s a roller coaster ride for big-time crypto owners, to say the least. The entire cryptocurrency market was worth an estimated $222 billion as of mid-November, down dramatically from its market cap of about $830 billion at the beginning of last year.

The digital currency units are decentralized and encrypted — and bypass standard financial institutions — which has been a big part of their draw, despite that drop.

Some of the biggest crypto advocates in the real estate business are developer Ben Shaoul, who recently closed a Bitcoin retail condo sale, and former Purplebricks CEO Eric Eckardt, who is trying to use crypto to grow a cloud-based brokerage.

But concerns about the unpredictable digital currency market abound, from Bitcoin’s volatile value to multiple cases of fraud involving property trades. In turn, a handful of sellers in big cities like New York and Miami have had to walk back commitments to accept decentralized coins.

And despite the seemingly endless hype, the use of crypto is still far from standard practice in U.S. real estate deals, since all parties need to be on board with it (including lenders and lawyers), and many still want to avoid the hassle.

Here’s a closer look at some of the numbers behind the chaotic crypto scene and its ties to real estate.

265

The number of North American listings, as of mid-November, on bitcoin-realestate.com — a site that launched in 2013 to service buyers and sellers interested in trading properties in crypto. Listings included about 37 acres of undeveloped land in Canada seeking $32.9 million and a condo at 146 West 57th Street in Manhattan asking $19.5 million.

$7,142.73

The value of one Bitcoin as of Nov. 25. Put another way, $1 was equal to 0.00014 Bitcoin. The cryptocurrency reached a peak of about $20,000 a coin in late 2017 and remains volatile, as evidenced by Bitcoin’s frequent rises and falls in October. It hit a monthly low of $7,307.39 on Oct. 23 before rising about 40 percent in just one day to more than $10,300, according to Forbes.

455

The number of Bitcoin that investor Michael Komaransky sold his Miami mansion for in February 2018. It took him about six months to find a crypto buyer for the home at 7350 Southwest 47th Court, which he sold for the equivalent of about $6 million — the most expensive Bitcoin-to-Bitcoin real estate sale at the time.

2008

The year Bitcoin was invented by a still unknown person (or group of people) under the name Satoshi Nakamoto. The currency’s source code was released as open-source software the next year. There were about 27 million Bitcoin users in the U.S. as of 2019, according to the crypto exchange Coinbase.

$7M+

The amount former Purplebricks CEO Eckardt wants to raise using a security token offering (STO) to help grow his cloud-based brokerage Dwellowner. The offering would give investors crypto representing their investment stakes, and Eckardt said in a video posted on the company’s site in September that one unnamed investor has already pledged to chip in $3 million.

10,000

The approximate number of people the IRS sent out letters to in late July warning that they might not be complying with tax rules for virtual currencies. Determining the proper regulations for paying taxes on crypto can be one of the bigger complications, and several investors got hit with much higher tax bills than they expected following Bitcoin’s big year in 2017.

$15.3M

The amount of money in Bitcoin that Magnum Real Estate’s Shaoul traded an Upper East Side retail condo at 389 East 89th Street for this fall. He sold the 11,400-square-foot property to a Taiwanese firm called Affluent Silver International LLC, and the parties used Bitpay and Starr to close the deal.

$4.26B

The amount obtained via cryptocurrency thefts and scams during the first half of 2019, according to a report from CipherTrace. The biggest offenders were people on the “inside,” the report said, while one alleged Ponzi scheme potentially defrauded millions of users out of $2.9 billion in assets.

The post Is real estate’s Bitcoin buzz just getting started? appeared first on The Real Deal Los Angeles.

Less than a month after the new EB-5 rules came out, a Florida regional center has filed a motion in federal court, seeking a temporary restraining order to halt enforcement. The company, Florida EB5 Investments, alleges the new requirements — which took effect Nov. 21 — violate the U.S. Constitution, were not properly reviewed for potential fallout and will end up killing business.

The case could have far-reaching implications, with dozens of regional centers across the country similarly affected, and likely closely watching the case. Regional centers act as intermediaries between EB-5 development projects and foreign investors, and their business depends on a steady flow of foreign investors who want U.S. green cards

Under the new regulations, investors must contribute $900,000 to a project in a so-called low employment zone, up from $500,000. The investment amount also climbed to $1.8 million in all other areas, up from $1 million.

The rules prohibit developers from tacking a sliver of a targeted employment area on to a project in a wealthier area in order to qualify for the lower investment amount. That kind of abuse of the program is one of the reasons for the new regulations, federal officials have said. Others include modernizing the 30-year-old federal program having it keep up with inflation.

But in its court case filed late last month, Central Florida-based Florida EB5 Investments accuses the Department of Homeland Security of ignoring the economic impact the new regulations would have on investors and affiliated businesses.

The defendants in the case are Chad Wolf, acting Secretary of the Department of Homeland Security; Kenneth Cucinelli, acting director of U.S. Citizenship & Immigration Services; and Edie Pearson, policy branch chief of Immigrant Investor Program Office.

An attorney for the Department of Justice who represents the did not immediately return a request for comment.

The new regulations may have the biggest impact in places like Miami Beach or Palm Beach, which will no longer be designated targeted employment areas. Developers who want to solicit EB-5 investment in those areas would be required to solicit at least $1.8 million per investor.

The lawsuit, filed by Florida EB Investments’ Marty Cummins, argues the increased amounts will deter foreign investors from the program. It also alleges that many EB-5 developers “will simply walk away from their pending EB-5 projects, refund existing investors’ money, and pull out of the program entirely.”

As “investors lose interest in the program, EB5 Investments will not have the revenue to continue operations,” the complaint says.

The court complaint also alleges the new regulations violate the 10th Amendment by infringing on state’s rights not enumerated in the Constitution, namely the right to conduct their own government and foster economic development.

The federal government created the EB-5 program in 1990 to spur investment in distressed and rural areas across the country by tapping foreign investors. But developers looking to build in more affluent neighborhoods soon found a loophole, enabling them to take advantage of the lower investment threshold.

Developers in Miami Beach, for example, combined multiple census tracts to connect sites with high-unemployment areas. And in New York City, the Empire State Development Corporation used the method to fashion the Hudson Yards megadevelopment in Midtown to West Harlem — which qualified for the targeted employment area — via a thin strip running along the Hudson River on the Far West Side.

In recent years, developers have backed away from using EB-5 to finance projects as Chinese investment in the program has slowed. The main reason is due to visa backlogs, where the demand for visas has outstripped supply. That has led to average wait times for Chinese investors for a visa rising to 16 years.

The post Lawsuit seeks to halt new EB-5 regulations appeared first on The Real Deal Los Angeles.

A community development firm that operates in underserved neighborhoods will develop a multifamily complex in Koreatown, part of its initial push into designated Opportunity Zones in Southern California.

Clearinghouse Community Development Financial Institution is paying $13.8 million for the property, where it intends to build a 31-unit apartment complex, The Real Deal has learned.

The project, which is located at 744 S. Mariposa Ave., represents one of the Lake Forest-based institution’s first forays into Opportunity Zones. The federal program provides tax incentives for long-term investors for projects in low-income neighborhoods. Doug Bystry, president and CEO of Clearinghouse, said it plans to develop similar projects in designated Opportunity Zones throughout the U.S.

The vacant parcel along Mariposa Avenue will be developed into new studio and one- bedroom apartment units over two levels of parking. Public records show that Clearinghouse CDFI purchased the lot from the Lee Leo Family Trust for $3.1 million in January.

Lee Leo is the owner of Majestic Towers, a hotel group that includes the Wilshire Hotel in Koreatown.

The main investment in the Koreatown property came from real estate investor APEX Pacific Partners Advisors. Part of the financing to buy the lot and build the complex also included two unnamed companies.

Some of the largest investors in Clearinghouse CDFI include Cathay Bank, CIT Bank, Wells Fargo and Western Alliance Bank.

Clearinghouse CDFI has previously worked to develop new guidelines to incentivize affordable housing development in Los Angeles.

Koreatown has seen a flood of multifamily development in recent years, with firms like Jameson leading the way.

The post Koreatown resi complex marks firm’s entry into Opportunity Zones appeared first on The Real Deal Los Angeles.

Rich Sarkis’ office has no imposing mahogany table or wall of photos featuring him with celebrities or industry powerbrokers. 

His white desk is largely barren, save for a few essentials. But Sarkis’ Midtown office is a long way from the tiny Chelsea space where he co-founded his company, Reonomy, back in 2013.

The real estate data and analytics firm has grown massively since then. That growth has been fueled by some of the largest investors in real estate venture capital, including SoftBank, Bain Capital Ventures and Sapphire Ventures.

Last month, the startup — which has intel on 50 million commercial properties across the U.S. and claims to covers 99 percent of the market — closed on a $60 million series D funding round, backed by Citi Ventures and Wells Fargo. 

That round brought its total cash raised up to $128 million and is going to be used for international expansion to Canada and the U.K. The firm, which counts the likes of CBRE and Brookfield as clients, will also use the capital to build additional products for financial services clients. 

Sarkis, who is 40, grew up in London, where he went to a French school, then moved to the U.S. to attend Williams College in Massachusetts, where he majored in economics and psychology. Before graduating in 2001, he launched a series of businesses, including an online platform that imported textbooks and sold them to college students at a discount. But he largely abandoned it after big U.S. book retailers allegedly threatened to take action against his European suppliers. The experiment provided good fodder for his application to the Wharton School of the University of Pennsylvania, which admitted him in 2005. 

From there, Sarkis joined the global consulting firm McKinsey & Company, where he became an associate partner, focusing on financial services. In 2012, he quit and went back to his entrepreneurial roots. It was then that he met Charlie Oshman, a data engineer with experience in commercial real estate. Together, the pair co-founded Reonomy, which now occupies the top two floors at 767 Third Avenue and has about 120 employees. Sarkis lives with his wife and two kids in Manhattan.

Planter box
Reonomy started out at 247 West 30th Street in an office that Sarkis equated to the size of a supply closet. His wife, Stephanie, whom he met at Williams, wanted to celebrate the fact that the company had opened its own office, and she gave him this planter box. “It was ours,” Sarkis said. “And so, my wife’s like, ‘Here you go, office warming.’”

Calculator
Sarkis still uses his Hewlett Packard 48G high school calculator (which has his former nickname “Rick” carved into its shell) to do quick math. While the calculator still comes in handy, it is a far cry from the calculations Reonomy does. The firm’s database pulls info from hundreds of sources and uses algorithms and artificial intelligence to generate property information for investors, developers and other real estate players. 

Mug
This mug was molded (with help) by Sarkis’ daughter when she was two (she’s now eight). But it’s been through the ringer. It was glued back together after one of his employees borrowed (and broke) it. Sarkis, who attends investor meetings in jeans and a hoodie, by no means cuts an intimidating figure. But the employees were “all scared to tell me.” 

Poker Chips
Sarkis tinkers with these poker chips, but they also come in handy for the company’s monthly poker nights. Games are always No-Limit Texas Hold’em, and buy-ins rarely exceed $20. Pizza and sandwiches are usually served. Outside of the office, Sarkis steers clear of gambling. “I have enough risk in my life overseeing a venture-backed thing,” he said.

BobbleHead
Sarkis has played in a fantasy football league with college friends for 20 years. This purple bobblehead was sent by Yahoo! (which previously hosted the league) after Sarkis’ team, dubbed Eurotrash, won the season. He’s held onto it because the colors remind him of Williams and the college’s mascot: the purple cow.

Soccer Jersey
Like many of his English brethren, Sarkis is an avid soccer fan. He grew up backing the Tottenham Hotspurs. To recognize Reonomy’s sixth anniversary, his staff gave him this jersey, which was from the club’s 1991 FA Cup Final win — its most famous game. It was also signed by Sarkis’ favorite player, Paul Gascoigne. “I’m very rarely surprised by gifts or anything like that in my life,” he said.

The post At the desk of: Reonomy co-founder Rich Sarkis appeared first on The Real Deal Los Angeles.

Breather, an on-demand workspace company, fired at least 10 percent of its staff Thursday.

The Montreal-based firm, which provides office space across 10 different cities and has more than 100 employees, laid off at least 16 staffers, The Real Deal has learned. In a post on LinkedIn, Breather’s director of research, Anja Jamrozik shared that she and others were leaving the company.

“Today, along with so many talented, creative and resourceful coworkers, I got laid off,” Otto wrote.

Breather would not disclose how many staffers it had laid off, or confirm that layoffs had occurred. A statement attributed to CEO Bryan Murphy said that the company had grown 250 percent in the past year.

“We have made changes to make sure that resources are aligned with our mission of providing customers with frictionless access to private, productive space as a service and to achieve profitability by the end of next year,” the statement said.

According to a spreadsheet Otto shared, the layoffs include software developers, customer service representatives and account managers. At the time of writing, 16 people had provided information indicating they were laid off.

It’s an uneasy time for the co-working industry, as firms big and small face challenges. After shelving plans to go public and narrowly avoiding bankruptcy, WeWork is still trying to chart a path toward profitability. The co-working giant let go of roughly 4,000 of its 12,000 employees last month. Also last month, New York-based firm Corporate Suites was briefly evicted from its location at 1001 Avenue of the Americas after a payment dispute.

Breather has raised a total $122 million in funding rounds led by Menlo Venture and RRE Ventures. Across 300 buildings across 10 cities, including New York, Los Angeles, Chicago and San Francisco. The company says its clients include Pandora, Spotify, Anheuser-Busch, Apple, Uber, Google and Facebook.

The company has experienced its own growing pains and has replaced some of its top executives in the past year. After its co-founder Julien Smith stepped aside from his role as CEO last year, he was replaced by former eBay executive Bryan Murphy in January. Last month, the firm hired a new head of real estate, former Regus executive Dan Suozzi.

This story is breaking. Return to this page for updates.

The post Breather bloodbath: Flex-office startup fires at least 10% of staff appeared first on The Real Deal Los Angeles.

Prominent real estate investor Stanley Black has filed yet another lawsuit against his business partner of 34 years, this time claiming that Robert Barth stole nearly $2 million from their joint account.

Black, the founder of Black Equities Group, filed an explosive lawsuit in Los Angeles County Superior Court last month that claimed Barth swindled him out of $8.1 million on a Beverly Hills home sale.

Black has also filed a second potentially damning lawsuit against Barth, per state court records, with further charges of fraud and breach of fiduciary duty. The litigation alleges that Barth dramatically turned on Black after the pair spent decades making millions of dollars together on property sales and management.

According to the complaint, Barth and Black were friends and business partners – Barth was chief executive at Black Equities, one of the country’s biggest real estate investors – when they decided to form property management company Brighton Properties in 1994. The company, doing business as SB Management Corporation, grew to manage over 200 properties nationwide, owned by 160 different clients, and company shares were owned equally by Black and Barth.

However, Black claims that in October 2019 he discovered that Barth withdrew $1.8 million from the partnership’s joint line of credit in 2014 and diverted the money to a girlfriend (who is now his wife). Barth later put $800,000 back into the joint account, the lawsuit states, meaning $1 million is still missing.

Also, Barth allegedly diverted $5.6 million in fees that Brighton Properties collected from clients to an entity, Eastwind Financial, wholly owned by Barth.

Besides his wish to be repaid for the alleged lost funds, Black is seeking punitive damages arguing that his business partner behaved with “fraud, malice, and oppression.” Black also wants a judge to appoint a receivership for Brighton to manage its assets and take custody and control of its books and records.

Black declined comment through his lawyer, Howard King, of King, Holmes & Paterno.

Attempts to reach Barth were unsuccessful. In a call last week to Brighton Properties, a company representative noted that the business is private and would not comment.

Barth also has not responded to the lawsuits, or hired a lawyer to defend himself against the charges, according to the Los Angeles County Superior Court docket.

Besides his work with Black, Barth was co-founder of California Republic Bank, which Mechanics Bank purchased in 2016 for $330 million. He is also listed as director of financial institutions at San Diego holding company Brutten Global, another real estate investor.

The post The Black vs Barth saga continues: RE mogul files another suit against ex-partner appeared first on The Real Deal Los Angeles.

A flexible office space firm is entering the London co-working market, at a time when others are shuttering operations there.

Serendipity Labs, a company that provides on-demand office space in primary and secondary markets, said Friday that it has entered an agreement to license 25 locations in the U.K., including 12 in London.

The New York-based firm, which uses franchise and management partnership agreements with its landlords, will partner with U.K.-based firm Newable Flexible Workspace, a subsidiary of consulting firm Newable Limited.

“Through licensing arrangements, it’s a way for us to grow in an asset-light brand approach to this industry,” said John Arenas, a former executive at Regus, who launched Serendipity Labs in 2011.

London is considered among the most crowded co-working markets in the world, with close to a dozen major companies operating in the city, and a multitude of smaller firms. Nearly 5 percent of the city’s office stock is co-working, according to a Cushman & Wakefield report from April. The competitive landscape has prompted some firms to reevaluate their strategy there.

WeWork, the world’s largest coworking firm, is currently assessing whether to proceed on 28 new leases in the city, Bloomberg reported, as it plans massive job cuts in the city. Recently, San Francisco-based RocketSpace, told employees it would close its 1,500 seat London location by the end of the year.

“I dont think its a harbinger of things to come,” Arenas said of RocketSpace’s closure. “It really was an accelerator helping businesses.”

Serendipity Labs expansion to the U.K. overshadows the challenges facing other office space firms in the U.S. Aside from WeWork, which in recent months has taken drastic steps to salvage its business, smaller firms have also encountered disruptions.

Last month, New York-based Corporate Suites was briefly evicted from a Manhattan office building due to a payment dispute. And on Thursday, The Real Deal reported that Montreal-based firm Breather had laid off 17 percent of its staff.

In the meantime, Arenas said his firm is discussing similar licensing agreements with operators in Australia and Canada. He previously has said he plans to open as many as 300 locations.

Last year, Serendipity Labs entered an agreement with China’s largest co-working firm, UCommune, to serve as its U.S. partner, and open a location at 28 Liberty Street in Manhattan. In the U.S., Serendipity Labs currently has 37 locations in 29 cities.

The post As co-working firms leave London, a new arriver plans to make a splash appeared first on The Real Deal Los Angeles.

Developer KOAR International will spend $70 million on what is being billed as the first luxury condominium complex in Southern California to focus on lesbian, gay, bisexual, transgender and queer senior citizens.

Construction on Living Out Palm Springs will break ground in January in an area that has been considered a popular retirement community for gay men, according to the Los Angeles Times. KOAR announced the 105-unit project in September, saying it would begin taking refundable reservations the following month.

KOAR said it intends to develop other Living Out communities around the country.

L.A.-based Koar — led by Loren Ostrow and Paul Alanis — will sell units starting at $699,000, which is about 15 percent below the average rate for luxury condos in downtown L.A.

The firm believes it can sell the complex based on the promise of a community, according to the report. The vast majority of LGBTQ Americans worry about having adequate social supports as they age, the Times notes, citing an AARP study.

Living Out advertises itself as featuring a card room, restaurant, bocce ball, and pickleball court among other amenities to encourage interaction among the condo dwellers. There is also a retail space with pet hotel and full-serving grooming.

KOAR said it has developed $3 billion worth of real estate projects including condos, shopping centers, hotels and casinos over the past four decades. [LAT] — Matthew Blake

The post KOAR will spend $70M on condo complex for LGBTQ seniors in Palm Springs appeared first on The Real Deal Los Angeles.

Wall Street wants your rent.

Redwood Trust, one of Wall Street’s largest securitizers of mortgage bonds, is now packaging bonds backed by rent payments. The move marks a broader interest by Wall Street in rental properties amid of rise of home purchased by institutional landlords, rather than families or individual owners.

Doubling down on this bet, in October, Redwood paid $490 million to purchase CoreVest American Finance LLC, which is a lender to landlords. And the company recently sold a $376 million bond package backed by rent payments.

With its acquisitions, Redwood could originate more than $3 billion of loans to landlords and house flippers in 2020, according to the Wall Street Journal.

Investors are increasingly making up a larger part of the homeownership market. Purchases by such investors looking to flip or act as landlords accounted for more than 11 percent of U.S. home sales in 2018, their highest share on record, according to the Journal.

The first to try to take advantage of this trend was in 2013 when Blackstone Group’s Invitation Homes Inc. and American Homes 4 Rent, had begun to sell bonds backed by rent payments for thousands of homes they bought and leased out. [WSJ] — Keith Larsen

The post Wall Street is collecting rent payments appeared first on The Real Deal Los Angeles.

An artist collective is suing Fifteen Group, a month after the real estate investment firm jacked up prices on their rent-restricted Boyle Heights apartment building.

The Santa Fe Art Colony Tenants Association filed the suit Monday, claiming Fifteen Group illegally refused its effort to buy the property outright after switching the building to market-rate and dramatically raising rents.

The tenants association is part of the Santa Fe Art Colony, which was established in 1986 with city funding. It calls itself L.A.’s only rent-restricted artist-in-residence complex.

Miami-based Fifteen Group purchased the building at 2345 South Santa Fe Avenue last year. The resulting rent hikes took effect Nov. 1, and in some units went as high as three times their previous amount. For example, one unit went from $,1,400 per month to $4,500.

The lawsuit escalates a public battle pitting developer against artists. The Santa Fe Art Colony wants to preserve a piece of a neighborhood that has served as a hub of art studios. The lawsuit also makes use of an arguably obscure part of the state housing code.

According to the lawsuit, Fifteen Group, led by brothers Mark and Ian Sanders, purchased the property for $15 million in June 2018 from the city’s Community Development Agency. It had a 30-year agreement with tenants that expired in 2016, which had set rent restrictions on 85 percent of the units.

After Fifteen Group purchased the property, tenants made an offer to acquire it themselves for $16.8 million.

The tenants association alleges that Fifteen Group demanded $22 million, then did not negotiate in good faith with tenants over finding an agreeable purchase price.

By not negotiating, Fifteen Group allegedly violated state housing law saying that for rent-restricted properties, landlords must negotiate in good faith with “certain entities” who are interested in buying the property and retaining rent controls.

The tenants association is represented by Sheppard, Mullin Richter & Hampton. The white shoe firm usually represents developers and investors in real estate disputes.

Messages left Friday with Fifteen Group, which has a satellite office in Downtown L.A., were not returned.

The real estate investment firm has grabbed headlines for its Miami deals, including making a $20 million profit in 2014 from flipping a FedEx building.

The post Developer sued by DTLA artist collective over rent-restricted building appeared first on The Real Deal Los Angeles.

When Zillow Group pivoted from an advertising-based business model to algorithm-based home-flipping in 2018, its executives knew this day would come.

Zillow and other tech-driven companies were able to refine their technology enough to make tiny profits on cookie-cutter houses in deserts and small metropolitan areas.

But to make $20 billion a year in revenue from Zillow Offers within five years as executives boldly projected, Zillow would need to crack major coastal markets, where homes are at least twice as expensive, and prices can change dramatically from one block to the next. To not do iBuying would represent an “existential threat” to the $8.5 billion company, CEO Rich Barton said in October.

On Monday, Zillow announced that it would make its biggest play yet, launching an iBuying business in Los Angeles with field staff and two veteran brokers.

In L.A., Zillow plans to hire a significantly larger staff to accommodate the growth — more than double the size of any of the other 21 markets where it already operates, including San Diego, Sacramento, Houston, San Antonio, and Atlanta. Traditionally, it has hired a dozen staffers in local markets, but in L.A. it will hire about 24, though much depends on consumer demand, Zillow president Jeremy Wacksman told The Real Deal.

The company also will establish two offices to cover the city, including one in highly urbanized Irvine in Orange County to the south, according to Wacksman.

“L.A. is easily the biggest and most complex market that we are going into,” said Wacksman. “It is not a market, but a whole bunch of markets. Of the ones that we’ve opened in, it’s the biggest geographically, population and the average home price.”

The iBuying model offers sellers a chance to quickly offload their property, giving them fast access to cash to buy other homes. It’s a business with extremely thin margins, and requires Zillow to set aside large pools of money to make the purchases, perform simple updates to the property, and sell it again, with the ultimate goal of financing the buyer’s purchase through its new mortgage arm.

Zillow lost an average of $4,826 on each home sale in the third quarter, after interest expenses — up from $2,916 in the second quarter, the company revealed last month. Still, Zillow does make money on the transaction fee, which runs between 6 and 9 percent. And that’s the focus.

“We’re looking to move it as quickly as possible and earn our money off the transaction fee,” Barton said last month. “And ultimately because this transaction sits at the nexus of all of these adjacent markets that we know so well, that are big businesses in and of itself, they’re dying to be integrated into one thing.”

For Zillow, the L.A. launch will be a defining test on how far its Zestimate technology has come, and whether it can gain an edge in higher-stakes markets.

The median home price in L.A. for October was $640,000, where homes sat on the market for an average 47 days, two days longer than a year ago, according to the nonprofit listing service, California Real Estate Technology Services. That’s more than double what Zillow averaged in terms of gross revenue of $317,610 per home sold. Some observers believe that the metric is expected to grow now that it has entered Southern California in a big way.

The region is so gargantuan, according to Wacksman, that Zillow plans to open one office in Glendale and the other in Irvine, to handle newly hired field staff who will fan out across the region to snap photos of homes, and generally kick the tires to see what’s under the hood before Zillow makes an offer.

Zillow Offers also has brought on two broker partners to help: John Maseredjian, vice president of JohnHart Real Estate, who will run Zillow Offers in Los Angeles; and Suzanne Seini, partner and chief operating officer with Active Realty, who is leading the Orange County expansion.

The plans to scale are daunting.

“To be honest, it’s an unknown, given that this is a considerably larger market than all others, Maseredjian said. “All we have are these submarkets and neighborhoods with different nuances. It’ll be interesting. We are prepared for everything.”

Zillow is initially targeting certain zip codes and neighborhoods in San Gabriel Valley, Pasadena, Monrovia, Glendale, Burbank, parts of Hollywood, Long Beach, Culver City and West Hollywood, according to Wacksman.

Wacksman declined to state how much capital Zillow has set aside for its L.A. operations. However, Zillow secured an additional $500 million undrawn credit line in October, bringing its total credit capacity to $1.5 billion to support its Zillow Offers business, he said. Its total liquidity with cash and other investments is double that amount.

“We are comfortable that we have the equity and debt to handle all of this,” said Wacksman, of its L.A. gambit.

Still, its iBuying business has struggled to become profitable, as it juggles big changes to its business model, using advertising sales from its online marketing business Premier Agent — which has been in L.A. for a decade — to fund its push into buying and selling homes. Last month, the company said it sold 1,211 of the 2,291 homes bought in the third quarter, generating $385 million, up from just $11 million in the same period last year.

The rapid growth of Zillow Offers has come with mounting losses. The company reported a net loss of $65 million, with the results weighed down by the new business, which has bought and sold more than $800 million in total home sales since its inception.

Wacksman declined to say when Zillow Offers might hit break-even.

Zillow is still casting an eye over its shoulder on its iBuying rivals. That includes the likes of virtual brokerage eXp Realty, Redfin, Realogy and Keller Williams and Softbank-backed Opendoor, which just last month opened its first L.A. office in Silver Lake. The Wall Street Journal reported that OpenDoor would spend up to $800,000 for a home in L.A., and Redfin would pay up to $900,000.

Zillow Offers also plans to open in Cincinnati; Jacksonville, Florida; Oklahoma City and Tucson, Arizona, by mid-2020.

The post Zillow launches its high-stakes home-flipping business in LA appeared first on The Real Deal Los Angeles.

The Gambino crime family bought off a top executive at HFZ Capital Group, federal prosecutors allege.

Feds say that 50-year-old HFZ managing director John Simonlacaj let the mob skim hundreds of thousands of dollars from the company’s High Line development, the XI, and other Manhattan projects. The City first reported news of the charges.

Simonlacaj, who oversaw construction of the 950,000-square-foot condo and hotel project, surrendered on Friday and pled not guilty to tax fraud and wire fraud conspiracy charges. He was released after posting $250,000 bail.

Simonlacaj’s cousin Mark “Chippy” Kocaj and alleged members of the Gambino family operated the Mount Vernon carpentry firm CWC Contracting and gave HFZ employees hundreds of thousands of dollars in kickbacks and bribes between June 2018 and this past June to get on the inside track with the firm, according to prosecutors. This included providing free labor and materials for renovations at Simonlacaj’s home in Scarsdale, court papers say.

The XI is still under construction along the High Line. The pair of towers, designed by Bjarke Ingels, will include a Six Senses Hotel. In June, New Zealand’s richest man Graeme Hart went into contract for a $34 million penthouse at the property. The project has 236 condos with a projected sellout of $1.96 billion.

Thanks to market conditions and slow sales to start, whether or not HFZ chief Ziel Feldman will turn a profit on the project remains a question. Earlier this year, Leonard Steinberg, president of Compass , told The Real Deal, “I can’t imagine Ziel losing money. It would be unusual for him.” [The City]  — Eddie Small

The post Flashy Bjarke Ingels-designed project was ATM for the mob: Feds appeared first on The Real Deal Los Angeles.

Paul Volcker, the former head of the Federal Reserve, who fought a war against inflation and was the driving force behind a rule to stop risky bank lending after the real estate collapse in 2009, has died at age 92.

Volcker was the Federal Reserve chairman in the 1980s at a time when inflation skyrocketed, forcing him to take drastic measures by raising interest rates to 22 percent. It infuriated housing developers.

Most recently, Volcker became known for the “Volcker Rule.” Passed as part of the Dodd-Frank Wall Street Reform Act of 2010, the “Volcker Rule” was designed to keep banks from betting on speculative investments such as mortgage backed securities that contributed to the financial crisis. Banks complain that this has directly impacted their ability to grow and make more real estate loans.

At six-foot seven-inches tall, Volcker was a larger than life type figure in Washington, D.C. with an affinity for cheap cigars and fly fishing. He was appointed to be the Fed Chairman in 1979 under President Jimmy Carter after serving as the president of the New York Federal Reserve. He served two contentious terms during President Reagan’s administration until 1987.

His fight against inflation resulted in immense pushback from the real estate industry since rising interest rates can cause mortgages and home buying to become more expensive. The move caused Americans to stop buying homes and homebuilders mailed pieces of two-by-fours to the Federal Reserve’s headquarters, according to The New York Times. Volcker ultimately was able to win his fight against inflation, keeping the inflation rate below 3 percent.

After serving at the Fed, he worked on various boards and committees, including working to return money to the families of Holocaust victims from Swiss banks. He wrote a memoir last year at age 91. He is survived by his wife Anke Dening and two children from his first wife.

The post Paul Volcker, Fed Chair who infuriated real estate, dies appeared first on The Real Deal Los Angeles.

Ryan Schneider likes to keep Realogy’s eyes on the prize: better agents, better products and better technology that will keep the firm profitable in the long run. The rest — lawsuits, short-term stock price fluctuations, rivals flaunting big signing bonuses — is all noise.

“In an industry where three of the top six-owned brokerages lose money, we like to make a substantial amount of money,” Schneider told Inman in an interview. “We like the fact that the market is looking for that flight to quality and we’re seeing that show up in the competitive environment, also.”

Schneider discussed Realogy’s approach to cost-cutting. The firm, parent company to brands such as Coldwell Banker, Sotheby’s International Realty and the Corcoran Group, has shut several offices this year, combined teams, and even sold off businesses to get costs under control. But all that, he said, has to come hand-in-hand with investment in the firm’s main business.

“I tell my team all the time, ‘you can’t cut your way to greatness,’ he said. “You’ve got to actually drive growth.” During the third quarter, Realogy generated $1.6 billion in revenue, down 2.8 percent year-over-year. The company said it lost $69 million during the quarter, compared with last year’s net income of $104 million, which it attributed to an impairment — or write-down in value — of its NRT business.

Without naming the likes of Compass, which Realogy is engaged in a major lawsuit over the SoftBank-backed brokerage’s competitive practices, Schneider said that six- and seven-figure signing bonuses were “not economic or sustainable.” Compass has said that it was approached by Schneider regarding it potentially buying Realogy, which Realogy has denied.

Schneider also discussed the big trends that Realogy was tracking in 2020, including the instant-homebuying craze known as iBuying that has been taken on by everyone from Zillow to Opendoor to Keller Williams, as well as Realogy. Its approach to iBuying, known as RealSure, gives sellers the “certainty of an offer that they can get for 45 days and we try to sell their house for the best price possible,” he said. [Inman] — TRD Staff

The post Realogy boss on cost-cutting, the competitive landscape and what to look for in 2020 appeared first on The Real Deal Los Angeles.

Los Angeles County’s top five residential sales over the past two weeks totaled $53.7 million, with pop star The Weeknd’s Beverly West condo purchase leading the pack.

The other homes include estates in Brentwood, a new mega-mansion in Encino, and a rehabbed oceanside property in the Pacific Palisades.

Information was compiled from Redfin, Zillow, and the Multiple Listings Services from Nov. 27 to Dec. 9.

1200 Club View Drive | Beverly West | $21 million

The Weeknd’s purchase of this penthouse condo made it to the MLS two weeks after the sale was announced. The condo was marketed as “The Mogul,” and is 7,950 square feet. That pegs the sales price at $2,642 per square foot.

Jeff Hyland and William Simpson of Hilton & Hyland are sales agents for the ultra-luxury, 22-story property that Dubai-based developer Emaar Properties completed in 2009. Real estate mogul Richard Lewis also put down $21 million for one of the 35 units earlier this year.

4425 Haskell Avenue | Encino | $10.5 million

This 13,000-square-foot mansion was completed in 2017. The sale comes after a few other eight-figure deals, including purchases by both Jonas Brothers last month. Dennis Chernov of Keller Williams and Marc Noah of Sotheby’s International represented the seller, and Brian Pane of Wish Sotheby’s International Realty represented the buyer.

375 N. Saltair Avenue | Brentwood | $8.2 million

The 1948-built Brentwood estate is 6,646 square feet, putting its sale price at $1,230 per square foot. David Offer of Berkshire Hathaway HomeServices California was the listing agent. The home spent less than two months on the market, according to Zillow. It was advertised as a “refreshed” gated Mediterranean abode featuring a terraced sculpture garden with walking path, a library with a built-in bar, and a detached architectural glass tree house.

13224 Old Oak Lane | Brentwood | $7.5 million

A Los Angeles County Superior Court probate judge must approve the sale of the 78-year-old ranch style house, which the listing acknowledges is in “need of work.” But the house includes old-fashioned luxury charms, namely horse stables and other equine accoutrements. Dan Beder of Sotheby’s International Realty represented the seller. The 5,478 square feet sold for $1,369 per square foot. Peter Kimble of Sotheby’s International Realty served as buyer’s agent.

656 Lachman Lane | Pacific Palisades | $6.5 million

The husband/wife design team of David and Eliana Rokach bought the 5,959-square-foot property for $2.1 million or $348 per square foot in 2016. They resold it for $1,091 per square foot, after remodeling the 66-year-old abode into a “beach chic farmhouse.” Santiago Arana of The Agency represented the Rokachs. They are also shopping a 14,000-square-foot Palisades farmhouse has been on the market for $20 million in 2017. Michael Morabito of Compass was buying agent.

The post The Weeknd’s Beverly West condo tops LA County resi sales appeared first on The Real Deal Los Angeles.