Will the Russian invasion of Ukraine block the sale of The One?
Although Fashion Nova founder Richard Saghian’s $ 141 million bid for the mega-mansion known as “The One” was the highest bid in a bankruptcy auction this month, it may not be enough to close the deal. deal.
The event was held within a week of the Russian invasion of Ukraine, and creditors disappointed that the winning bid was less than half the house’s $ 295 million list price, asked US bankruptcy judge Deborah Saltzman. a rematch.
“It can’t be that the fear of this war and the potential for World War III… didn’t have an impact [the] auction process, “Hamid Rafatjoo, the attorney for The One developer Nile Niami, said in a hearing on Friday.” That scared everyone.
Niami, who claims to have $ 44.4 million in loans to the project, was hoping to raise a $ 250 million last-minute offer for the home that she considers the pinnacle of her development career, but went on pieces.
Saltzman was expected to make a decision on Friday whether to approve Saghian’s $ 126 million offer, which amounted to $ 141 million with auction fees. But like most other things associated with the 10,000-square-foot Bel-Air estate – still unfinished after nearly a decade of construction – things went slower than expected. What attendees thought would be a brief hearing turned into more than five hours of discussions and testimony from attorneys, house brokers, Saghian and others.
Saltzman, who cited case law that might allow her to cancel a bid if it was found to be “grossly inadequate,” said there was too much at stake for her to make a decision on the spot and instead scheduled concluding discussions for Monday, when he promised a decision.
“There was a lot of discussion about the law. Many facts have been discussed. I need some time to think, “she said.
The online auction opened on February 28, just four days after Russian forces invaded Ukraine, rocking the world and disrupting the stock and currency markets. It closed on March 3, as the Russian offensive raged.
On the one hand are Saghian, the owner of the Crestlloyd property, a handful of creditors and others who would benefit from the deal – and who say the war is far from the only reason the mansion got a so low price. On the other hand, there are additional creditors, a couple of whom could lose $ 10 million or more each and want a chance in a second auction. The house carries claimed debts that exceed $ 250 million.
Lawyers for the creditors opposing the sale complained of irregularities in the bidding procedures and put forward other legal arguments, but appeared to view the Russian invasion as their trump card, although they admitted that the conflict was unlikely to end anytime soon.
Kyra Andrassy, a lawyer with Inferno Investment, who filed about $ 31 million in claims against the property, likened the war to the coronavirus outbreak, arguing that although the world was stunned in the early days of the pandemic, people at the eventually they learned to live with it.
“Things tend to normalize,” he told Saltzman. “I think people fit in.”
The prevailing argument was simple: that the situation in Ukraine could continue or worsen further, which means that there is a possibility that a new auction will lead to an even lower price.
“It’s all speculation about what will happen tomorrow, next week. World War III will happen in two months and we are involved for God only knows how long, “said Thomas Geher, attorney at Hankey Capital, the real estate lending arm of Los Angeles billionaire Don Hankey, who has lent more than $ 100 million. to Crestlloyd but is first among the lenders to be at least partially repaid and supports the sale.
There has been talk of a new auction to be held in the coming months, given the cost of keeping the house bankrupt, which involves expenses such as maintenance and paying for lawyers and other professionals.
Supporters of the sale noted that no other bona fide bids had come forward in the weeks following the auction, though Crestlloyd had said after the auction ended on March 3 that he would welcome further bids.
But opponents said that despite a worldwide marketing effort – one broker tested flying to London and Paris to meet potential buyers – only five bidders attended the auction, evidence they said bidders were scared. However, that figure was roughly the number of long-awaited bidders from Concierge Auctions, the online luxury auction house that ran the event, according to lawyers in support of Saghian.
Those wanting to cancel the offer also pointed out that Crestlloyd had argued in court documents that the 944 Airole Way property was worth $ 325 million. They also highlighted an appraisal conducted in 2019 while the home was under construction that valued the property at $ 228 million, evidence they said the high supply was grossly inadequate. Supporters argued that the valuation was inflated to increase the prestige of the house.
Rayni Williams, one of the house brokers who will share commissions totaling around $ 2.5 million if the sale is approved, acknowledged that she was disappointed with the final offer and said she hoped it would set a record, apparently. alluding to the $ 238 million a Hedge Fund Tycoon spent in 2019 on a penthouse overlooking New York’s Central Park, a landmark in the United States.
As it was, the sale didn’t even break the California record set by venture capitalist Marc Andreessen, who bought a Malibu estate for $ 177 million in October.
Williams testified that she learned when she met potential buyers that the lack of an unfinished home occupancy certificate was an impediment to a sale, which she says likely reduced the number of buyers for a home she already had. a small pool of buyers.
“Buyers usually want, especially at this purchase price, to get in right away,” said Williams, who added that a second auction could be “very damaging” as “optically … it would look like an open market failure.” .
One obstacle to obtaining an occupancy certificate is the position of Bel-Air Assn., A group of homeowners who sent a letter to Crestlloyd and construction officials promising to investigate the villa’s alleged construction defects and on possible zoning violations surfaced when the property was in receivership last year.
The group has already filed an appeal for permits granted to two other homes in Niami and has argued residents who are suing developer Mohamed Hadid over an illegally built Bel-Air mansion. now it is being demolished. Fred Rosen, a board member of the homeowners group, attempted to speak at the hearing but was not allowed to do so after objections that he was not standing.
However, Concierge Auctions chairman Chad Roffers appeared to confirm some of the group’s concerns when he tested that the mansion had been damaged by record rains in late December, forcing Crestlloyd to scramble to make corrections so it could be shown.
He also said the lack of an occupation certificate and the association’s involvement in the demolition of the Hadid house was a red flag for “highly skilled buyers.”
“When they started peeling off the layer, you know, of the onion and they started understanding the complexity and uncertainty in terms of the path to a C of O, it became an ever greater headwind,” Roffers said. “I was on the phone with a potential bidder on auction day in London who was interested, however, in the end, he was totally freaked out by the lack of C of O and then by the publicity around Hadid’s property.”
He also noted, however, that the $ 141 million offer was 48% of the list price, which he said was exactly the same discount at which Niami’s last three homes were sold. He said. “It’s disturbing.”
If the offer is not approved, Saghian’s attorney, Sam Newman, warned that the fashion mogul could “lose interest and move on to the next thing.” Saghiano recently considered a billionaire by ForbesHe already owns two homes in the area, one in the Hollywood Hills that he bought for $ 17.5 million in 2018 and another on a Malibu beach that he bought for $ 14.7 million last year.
Newman said his client was recently notified of a notice from the Los Angeles Department of Construction and Security potentially ordering the removal of The One’s roof.
The Times viewed a copy of the notice, which states that the projections of the building and stair and elevator towers exceed height limits and need to be rectified. It is also stated that the owner of the property can apply for a permit to allow the facilities.
Saghian’s attorney warned that his client was facing a more complex situation than he expected when he made the winning bid. “Nobody knows how much more money will have to be poured into this property,” Newman said.
Even so, when Saghian was sworn in to testify, he seemed almost stunned by the prospect of owning the house. Saltzman asked him about a peculiarity of the auction that aroused some wonder: Why, after making a winning bid of $ 120 million that no one had surpassed, did he bid again for $ 126 million?
Roffers tested the move was not uncommon and was called a “power offer” intended to further scare away the competition. Saghian had another answer.
“I took a couple of seconds to think about it and picked my lucky number,” he said. “I’m 26. He Sounds pretty crazy. But when I got the house I thought it was meant to be. “