A dispute with a longtime partner has brought billionaire residential developer Alan Casden to the brink of foreclosure on six properties, including his prized Palazzo mixed-used complex in Westwood Village.
Lenders led by Comerica Bank say that Casden has been missing payments since November and have filed foreclosure lawsuits on the six properties, including development sites in Los Angeles and Ventura counties.
Representatives of Casden, whose privately held Casden Properties LLC is one of the region’s largest apartment builders, blame the missed payments not on financial troubles but on a dispute with Cerberus Partners LP, a division of New York private-equity firm Cerberus Capital Management LP.
“Unfortunately, there is a partnership dispute that has caused this occurrence,” said a statement by Robert Platt of West L.A. law firm Manatt Phelps & Phillips LLP. “Casden Properties is ready, willing and able to cure any default and will do so as soon as the dispute is resolved, which is expected to occur shortly.”
Any overdue payments will be made as soon as Casden dissolves the partnership, said a Casden spokeswoman, who declined to comment on the nature of the dispute.
The Business Journal estimated in May that Casden had a net worth of $2.63 billion, placing him at No. 12 on the list of Wealthiest Angelenos.
The foreclosure lawsuits were filed last month by Comerica, which is acting as an administrative agent for a group of six banks, against Casden Properties, Cerberus Partners and several limited liability companies attached to the specific properties. Aside from Westwood, the properties are in West Hollywood, Santa Clarita, Oxnard, Ventura and Simi Valley.
The banks state that they are owed $199 million, including $4.6 million in unpaid interest and more than $700,000 in late fees. Casden Properties took out $223 million in loans to develop the six properties, with Cerberus acting as a guarantor, according to the lawsuits.
In addition to Comerica, the other five banks are U.S. Bank National Association, Bank of the West, PNC Bank, JP Morgan Chase Bank and Compass Bank.
Known as one of the biggest and most aggressive private-equity firms, Cerberus made headlines for losing billions after purchasing majority stakes in Chrysler LLC and GMAC LLC.
Cerberus did not provide a comment. Attorneys representing Comerica declined to comment for this article.
Officials in some of the cities said that they had heard things were not going well between Casden and Cerberus.
“If the property is having problems with foreclosure, that doesn’t take us completely by surprise. We knew there were issues with some of Casden’s partners,” said Brian Gabler, assistant city manager of Simi Valley, where a 266-unit development was approved in 2007 but never broke ground.
Unexpected delays
The two companies partnered during the housing boom to develop the properties. Only the Palazzo Westwood, which opened in 2008, and features 350 apartment units and 50,000 square feet of retail, had even reached the construction phase.
One other, the mixed-use Movietown Plaza development in West Hollywood, is ready to break ground, though it’s unclear now when that might happen. The project would feature 370 condos and apartments and 32,000 square feet of retail space.
“They were going to get demolition permits and start tearing things down,” said David DeGrazia, a senior planner. “But all of a sudden it got very quiet, and we haven’t heard much from them.”
In Santa Clarita, Casden and Cerberus had been working since 2005 on a proposal to build up to 850 apartments, condos and detached single-family residences. But six months ago all applications for the project were abruptly pulled, said Paul Brotzman, the city’s community development director. About the same time, officials were told that the partners were splitting up.
In Ventura, a 300-unit development proposed by Casden initially had trouble getting approvals in 2008. It finally passed the conceptual design stage a year ago, but officials there haven’t heard much from the developer since.
“Casden has the green light in a sense to go ahead,” said Principal Planner Brian Randall. “We’re waiting for them to resubmit.”
Officials in Oxnard also haven’t heard much from Casden since a 201-unit proposal there stalled a year ago, said Community Development Director Curtis Cannon.
For the five undeveloped properties, the lenders are owed some $32 million. However, the lion’s share of outstanding debts is tied up in financing for the Palazzo project. Casden borrowed $173 million of the $206 million it cost to complete the Palazzo, and still owes $166 million, according to the lawsuits.
Sara Dineen Harris, a real estate attorney at Rutter Hobbs & Davidoff Inc., who reviewed the lawsuits for the Business Journal, noted that the complaints show the lenders had agreed to amend the loans several times since their 2005 origination.
“It appears from these complaints as if the lender held off for quite some time before bringing an action,” she said.
Longstanding partnership
Ties between Casden and Cerberus appear to go back at least nine years. A division of Cerberus reportedly had an ownership stake in Casden Properties when Casden Properties sold its apartment portfolio to Apartment Investment & Management Co. in 2002 for about $1.5 billion. That was the billionaire’s biggest payday.
Cerberus has a roster that includes former Vice President Dan Quayle and former Treasury Secretary John W. Snow. It has raked in big profits over the years, with a portfolio now valued at $23 billion. But it stumbled in Detroit.
Cerberus spent $7.4 billion for a 51 percent stake of GMAC, General Motors’ financing arm, in 2006, and an additional $7.4 billion for an 80 percent stake of Chrysler in 2007. Chrysler’s ensuing bankruptcy and the government bailout of GMAC erased much of Cerberus’ stakes in both. It got back much of its bet on Chrysler in December when Chrysler’s financing arm, which Cerberus had retained control of, sold for $6.3 billion.
It also partnered with Miami-based homebuilder Lennar Corp. in a Santa Clarita Valley venture, LandSource Communities Development LLC, which filed for bankruptcy in 2008. It’s unclear if those losses fed into its dispute with Casden.
Despite the legal headaches, Casden himself appears to be doing OK financially. A source told the Business Journal that he inquired within the past two months about buying a Beverly Hills home worth more than $20 million.
And he has still proved successful at finishing projects. Last August, he opened the 276-unit Empire Landing complex in Burbank, the first major luxury apartment complex in the city in decades.
