Casden Loses HQ Building

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Prominent developer Alan Casden, who has had several key properties taken away in the last year, recently lost three more buildings, including his own headquarters, to foreclosure.

The Beverly Hills office buildings owned by Casden Properties, including the company’s headquarters on Wilshire Boulevard and Doheny Drive, have been bought out of foreclosure by a Wachovia Bank Commercial Mortgage Trust.

The lender seized the buildings – at 9090, 9150 and 8942 Wilshire – after they fell into default on some $66 million in outstanding debt. The sales mean that Casden has now lost control of at least nine properties since last year.

A spokeswoman acknowledged that the company no longer owns or controls the three office buildings, but said the situation is not indicative of any financial troubles for Casden, whose net worth was estimated at $1.3 billion by the Business Journal in May when he was ranked No. 32 on the newspaper’s list of Wealthiest Angelenos.

Casden lost six properties to a former partner, New York private-equity firm Cerberus Capital Management LP, after a nasty breakup last year. Cerberus and Casden acquired those properties in Los Angeles and Ventura counties near the height of the real estate boom, but didn’t develop them. After they fell into foreclosure, Cerberus seized them and has already resold several, including the site of a Ross Dress for Less store next to the Grove mall. Another, West Hollywood’s Movietown project, entitled for 371 residential units and ground-floor retail, is under contract for sale.

There have been other signs of problems, with Casden putting up personal property as collateral for loans this year and facing a lawsuit for alleged loan nonpayment. But he is proceeding with a large mixed-use development, and it remains unclear whether the lost properties and lender battles actually indicate a larger financial problem, or are just a result of individual business disputes.

In a brief interview, Barbara Casey, a spokeswoman for Casden Properties, said Casden “has no cash problems.”

Losing control

Still, losing the three properties, which total more than 200,000 square feet on a tony, four-block stretch of Wilshire Boulevard, is a blow both to Casden’s portfolio and his reputation.

“Any time a landlord has a history of losing assets, then there are several red flags that go up,” said Mike Catalano, a broker at Studley Inc. “It’s a reputational hit, but it’s also more of a technical hit in that tenants are going to be wary of leasing buildings from owners that have a history of defaulting.”

Casden has held one of the properties since the 1980s and the others since the early 1990s. Particularly noteworthy are 9090 Wilshire, which houses his headquarters on the third floor, and 9150 Wilshire, which is the largest of the buildings and 98 percent leased, according to research firm Costar.

“It does surprise me that he lost them,” said West L.A. office broker Bob Safai. “You always would think when high-net-worth guys own buildings they would keep them forever, but situations change.”

In June 2006, near the height of the market, three Casden companies took out $47 million in loans collateralized by the properties. The loans were packaged with others by Wachovia Bank and issued as commercial mortgage backed securities.

About two years ago there were signs that Casden was not willing to invest any more in the properties. Catalano, who specializes in Westside real estate, said he brought prospective tenants to 8942 Wilshire but Casden was unwilling to pay for improvements or split up floors for smaller tenants.

“There have been signs of trouble for some time,” he said. “Most landlords don’t hesitate to put work into a building to secure a transaction.”

According to lenders, Casden stopped making payments on the loans in August of last year. LNR Partners LLC, acting as the loan’s servicer, foreclosed on the properties. The lenders purchased the property back out of foreclosure for $25.2 million, according to a deed of trust recorded on Aug. 1. Jones Lang LaSalle Inc. has been retained as property manager.

It’s unclear whether Casden was unable to hold onto the properties because of cash flow issues, or simply decided to let them go. Casden’s representatives declined to comment on the reasons for the foreclosures.

The properties may simply have been more trouble than they were worth. Two of the buildings, 8942 and 9150 Wilshire, must pay ground leases, which can be costly. This, combined with high debt and falling rents due to the downturn, made it tougher to turn a profit.

What’s more, 8942 Wilshire, on the corner of Wilshire and La Peer Drive, has long been an underperforming property. Its largest tenant, International Creative Management Inc., moved out of the building in 2007, and since then the building has remained more than half-vacant. There are currently no long-term tenants, according to filings.

A source close to Casden said it no longer made financial sense for him to keep the properties.

“He chose to walk away,” the source said. “It was really a business decision. He had his empties and realized he’s not going to get the rents he projected.”

Casey confirmed that the company’s headquarters were still at 9090 Wilshire, but declined to comment on any further plans. But the Business Journal previously reported that the company laid off dozens of employees last year following the breakup of the Cerberus partnership, which could make a move to a smaller space a possibility.

There could be high demand for the properties should the lender resell, considering the relative strength of the Beverly Hills office market, experts said.

Safai said it was difficult to determine what they would go for due to the ground leases, but was bullish on their value. He estimated that the headquarters building might sell at a premium, for $500 to $600 a square foot, while the other two might sell for $250 to $350 a square foot. That would put the total value in the $70 million to $80 million range.

Steve Donell, a receiver in West Los Angeles who reviewed the case for the Business Journal, said that had Casden wanted to keep the properties, he theoretically would have only had to bid more than $25.2 million at the foreclosure sale. Before the sale, the company stated it was in negotiations to restructure the loan.

Donell said that either Casden didn’t want to keep the buildings, or he wanted to keep them but was unable to.

“Casden’s stomach for the asset was such that he didn’t want to step up to the plate – but maybe (his company) couldn’t and didn’t have the cash,” Donell said.

Cash flow concerns

Before losing the six properties last year, Casden was said to have attempted to buy the Ross and Movietown properties back from estranged partner Cerberus, but was unable to. Sources close to the situation disagreed at the time as to whether Casden was hindered by cash flow issues, or because Cerberus refused to sell them back due to bad blood.

Cerberus did not respond to a request for comment.

There have been other signs of cash flow problems. In an unusual move for a wealthy investor, Casden put up his personal coin collection, valued at more than $40 million, and his Beverly Hills home as collateral for personal and business loans earlier this year, records show. Cerberus has also sued Casden this year for $25 million in unpaid loans.

But there are also signs implying relative normality. Casden reportedly bid for the Los Angeles Dodgers this year. He is also pushing forward on what would be one of his largest projects ever, the Casden Sepulveda mixed-use project. The plans call for 538 residential units and 267,000 square feet of retail next to the site of a future Expo Line rail station on Pico and Sepulveda boulevards.

The city of Los Angeles is on the verge of releasing a final environmental impact report for that project, and a first hearing is currently scheduled for December. The City Council could vote on approvals as soon as early next year.

The source close to Casden said that he had found a new money partner that has committed to fund that project at least through the entitlement process. At that point, the money partner could decide to stay in, or Casden could open up the project to other investors. Casden currently is only footing a small percentage of the project’s costs, which could run into the hundreds of millions of dollars.

“He has funding, and he’s moving forward,” the source said.

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