The mega-mansion “The One” was taken off the auction block on Wednesday, a day after the developer’s limited liability company filed for Chapter 11 bankruptcy protection to stop the sale.
The 105,000-square-foot Bel-Air mansion was due to be turned over to the highest bidder in a trustee’s sale in Los Angeles County Superior Court in Pomona after developer Nile Niami’s Crestlloyd defaulted on $ 106 million in debt to Hankey Capital, the Los Angeles billionaire Don Hankey’s home loan business.
Crestlloyd was placed under bankruptcy protection on Tuesday afternoon in what turned out to be a successful last-minute bid to block the foreclosure sale, shifting – at least temporarily – a high-stakes battle high between the developer and several lenders in dispute in the US bankruptcy court in Los Angeles. .
The divestiture of the nation’s largest modern house – once marketed for $ 500 million and Niami’s magnum opus, dubbed King of LA’s mega-mansion – now goes before bankruptcy judge Deborah Saltzman, a 12 year old bench veteran.
Lawrence Perkins, appointed manager of Crestlloyd this week, said the focus will be on completing the home, marketing it and making it visible to high-profile potential buyers, including whoever ultimately buys it.
The mansion at 944 Airole Way has ultra-luxurious amenities such as several swimming pools; a spa; a beauty salon with washing, haircut and pedicure stations; cigar and candy rooms; a four-lane bowling alley; a putting green on the roof; and a multiplex sized movie theater.
âIt’s not just a regular house for sale, so there are some steps you need to take to be able to manage a house like this,â said Perkins, general manager of the Turnaround Specialist. SierraConstellation Partners. “It starts with money and making a deal to be able to perform [all] that’s probably the top priority right now.
He said the plan would be laid out in detail in the coming weeks in bankruptcy court, where Hankey could seek a halt to the process. The sale of the trustee has been postponed to November 29.
The goal is to get the highest selling price for the home while maximizing the proceeds from creditors, which include not only Hankey, but also other secured construction lenders who owe tens of millions of dollars, as well. as unsecured creditors such as sellers and contractors. .
Attorney John Tedford, a partner at Danning Gill in Los Angeles who worked for a client involved in another foreclosure litigation with Hankey Capital, said the bankruptcy case was unusual because it involved a single-family residential property with more value. typical of commercial real estate. .
This means that the effort to persuade the judge to keep the case in Chapter 11 and not allow the foreclosure sale will focus on convincing her that there is adequate value in the property to ensure that Hankey Capital is reimbursed for what is owed to him.
“If the property is worth less than what is owed to Hankey Capital, the judge is more likely to allow Hankey to proceed with its foreclosure,” he said. “It becomes an expert battle – Crestlloyd’s appraiser versus Hankey Capital’s appraiser – the judge having to sort of decide the value of this unique property.”
If Crestlloyd pays interest on Hankey’s debt – which he may or may not be required to do – that would also be a factor in the judge’s decision, he said.
Perkins said Crestlloyd believed there was “a lot of value” in the house and said his company would try to work with Hankey to sell the house in bankruptcy proceedings.
Crestlloyd, in a bankruptcy filing, values ââthe house at $ 325 million and says it carries a total debt of $ 180 million, of which $ 176 million is supposedly secured – enough to pay creditors even though the house is sold for less.
Hankey did not return the Times emails requesting comment. However, he told Bloomberg News that he was “disappointed” by the bankruptcy filing.
âAll we want is our capital back,â said Hankey, who has made his fortune in subprime auto loans and operates seven businesses through his Hankey group.
Wednesday’s postponement marked the third time that the sale of the trustee has been postponed. A July date was postponed to October 13 by Hankey, who decided to hand the house over to a receiver to finish it and market it for sale. The plan had the backing of Niami, as well as other lenders who committed millions to the project.
This month, the court approved a deal with two brokers to list the house at $ 225 million.
However, Hankey decided to go ahead with the October 13 auction, prompting Yogi Securities Holdings of lender Joseph Englanoff to seek a temporary injunction to block it. Yogi loaned Crestlloyd $ 30.2 million in 2018 and still owes him $ 22 million, according to a statement filed by Englanhoff in support of the case.
Englanoff, a Los Angeles-area doctor and longtime investor in Niami developments, accused Hankey of trying to take over the mansion at a bargain price by buying it himself at auction, or take all the produce if it was sold at a third party.
Superior Court Judge Mitchell Beckloff did not issue a temporary restraining order, but delayed the auction until October 27 to give the two sides time to come to an agreement.
Hankey previously told The Times he tried but failed to come to an agreement with Englanoff. In a separate Superior Court hearing on Tuesday called by the receiver, lawyers for Hankey and Yogi said no deal had been reached.
The mansion’s other main secured debt holder is an entity called Inferno Investment, associated with longtime Niami friend Julien Remillard, who loaned Crestlloyd over $ 10 million in 2015 but struck a deal with Hankey. to be paid second from the proceeds of the sale. .
A Remillard lawyer declined to comment on the bankruptcy action on Wednesday.
There are also several million dollars of unsecured debt attached to the property to contractors and others, according to the bankruptcy filing.
This includes $ 750,000 owed to Creative Art Partners, who supplied art to the home – and whose debt is disputed by Crestlloyd – and $ 275,705 to Vesta, who staged it with furniture and crafts. accessories. An additional $ 400,000 is owed to Branden Williams, a former listing agent for the house, according to the filing.
A crucial question now will be how long would it take to finish the house and make the necessary repairs. The house does not have a certificate of occupancy from the City of Los Angeles, which means it cannot be inhabited.
This is not the first time that Niami has had problems with its specific homes, which are being built without a specific buyer in mind. It’s not Niami’s first bankruptcy house, either.
He was one of LA’s most successful mega-mansion developers before competition arose with other spec builders. Sales have slowed and this year it has offloaded several homes below their original asking price.
In the spring, after Niami defaulted on his debt to Hankey, he offered to live in The One and transform it into an event space with entertainment such as boxing matches and concerts. Hankey refused the plan.