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March 8, 2022 – The Debtor's filed a motion seeking approval of the sale of its real property located at 944 Airole Way, Los Angeles, CA 90077 (the “Property”) to Richard Saghian who was the winning bidder ($141.0mn consideration comprised of a $126.0mn purchase price plus a $15.0mn commission*) at an auction which concluded on March 4th [Docket No. 142]. A hearing to consider approval of the sale is scheduled for March 17th.
* The Debtor will receive a total of $137.97mn in consideration comprised of the purchase price of $126.0mn plus a $11.97mn rebate from the auctioneer
The Property is the famous/infamous Los Angeles mega mansion “The One” and Richard Saghian is the CEO of fast fashion retail company Fashion Nova.
The result was clearly disappointing for the Debtor who has insisted throughout its stay in Chapter 11 that it had a comfortable "equity cushion," notwithstanding almost $200.0mn in claims secured by the property (counting "Petition Date [debt], plus the DIP Loan, the Debtor had approximately $195.771 million in claims allegedly secured by liens on Debtor’s Property). Developer Nile Niami will not be the only stakeholder sitting uncomfortably at the end of the auction. The lion's share (or all depending on the resolution of an objection, see a waterfall/claims list on page 13 of the Debtor's motion) of the sale proceeds are going to prepetition ($122.6mn) and DIP ($12.1mn) lender Hankey Capital LLC. That result will leave Inferno Investment Inc.'s $20.9mn claim (w/o interest) and YOGI Securities Holdings, LLC's $27.2mn claim (w/o interest) completely out of the money.
The Debtor's bidding procedures motion reminds as to the Debtor's expectations: "The Property requires some work to be fully completed, which the Debtor believes will cost approximately $5-$10 million. However, even in its current state of near-completion, the Property can be and has been marketed for sale. The Debtor believes that the Property has a current fair market value of approximately $325 million in its ‘as-is’ nearly complete condition [this number subsequently falling to $200.0mn in subsequent, pre-invasion filings], but understands that the market will ultimately dictate the price."
The Debtor's real estate agent Branden Williams now suggests that the poor result may be Putin's fault: "the already limited pool of buyers with the means to purchase the Property may have been further reduced due to the conflict in Ukraine and related sanctions against Russia, which may have taken potential Russian, Ukrainian, Chinese and other international buyers out of the market. It is unfortunate that the Purchase Price will not generate sufficient funds to pay all allowed claims in full and likely not to pay allowed Secured Claims in full."
Mr. Williams ["My wife, Rayni, and I are recognized as L.A.’s highest-performing real estate team based on our sales record, including a career totaling over $8.7 billion in sales"] will share a 2% commission with a second broker.
According to an article published by CNBC, Nile Niami and his Crestlloyd limited liability company, "have borrowed more than $165 million to build and sell 'The One' [over the past four years], according to property documents."
The article further states, "The largest lender is Hankey Capital, founded by Los Angeles billionaire Don Hankey, which has over $115 million in loans on the property. Yogi Securities Holdings, led by doctor-turned-real-estate-investor Joseph Englanoff, has loaned 'The One' over $36 million. Two other entities, Inferno Realty and Maybach Corporation Holdings, have provided loans of $7 million each."
Hankey Capital touts itself as "a private direct lender originating bridge financing in the 3 million to 100+ million dollar range secured by real estate located in California. We specialize in time-sensitive and value-added deals underserved by banks and other traditional capital sources. In addition, Hankey Capital offers structured finance solutions (including Debtor in Possession financing), totaling over $500 million in recent deals. Currently, Hankey Capital has over $850 million in loans on its balance sheet."
In March 2021, Hankey issued a notice of default on the property. The Los Angeles County Superior Court placed the property into receivership in July and appointed Ted Lanes of Lanes Management as the receiver.
Auction Pushed Back
An October 14, 2021 Los Angeles Times article published on Bakersfield.com notes the the foreclosure auction scheduled for "The One" was postponed by the Los Angeles County Superior Court until October 27th after "Englanoff alleged that Hankey reneged on an agreement to have the house completed and sold by real estate brokers, and instead was using the auction process to unfairly take ownership of the mansion or hog the proceeds if it is sold to a third party.
Englanoff, a Los Angeles-area physician and real estate investor who lent $30.2 million to Crestlloyd in 2018 through his Yogi Securities Holdings, states in legal filings that he is still owed $22 million.
He said in a declaration that he had agreed to Hankey's proposal to appoint a receiver in July to finish the house so it could get a certificate of occupancy and be sold through a traditional listing… However, he accused Hankey of pushing ahead with the auction for the billionaire's own benefit even after two brokers last month agreed to list the property for $225 million."
According to the LA Times report, Hankey initially provided an $82.5mn loan to the Debtor in October 2018. Hankey subsequently lent an additional $23.5mn to Crestlloyd, and Yogi Securities provided $30.2mn.
Now, the report explains "Yogi also says the subsequent loans and a change to the original profit-sharing agreement invalidated the first priority position for Hankey’s entire debt. In other words, should the house sell, Englanoff argues, Hankey should not see a penny until Englanoff’s own debt is repaid in full."
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