Project Stalls In Parking Lot

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Saks Inc., angered that it might lose its parking lot at Wilshire Boulevard and Peck Drive in Beverly Hills due to a joint-venture deal gone south, has begun litigation with its partner in the project, Cerberus Capital Management LP.

Saks sold the site for $10.5 million in 2004 and got a 25 percent interest in the partnership that was to develop the site. The team, which included Cerberus and developer Alan Casden, planned to build a luxury two-building condominium project that would include parking for Saks customers and employees.

Exclusive parking for any upscale retailer in the Golden Triangle of Beverly Hills is prized.

But the deal stalled amid the real estate downturn and, more recently, because of a rancorous split between Casden and Cerberus, a New York private-equity firm that had long been a financial backer of Casden.

Late last year, Saks claims, Cerberus identified a buyer for the property. The upscale retailer is seeking a preliminary injunction that would block the pending sale. Saks also wants a declaration that any future development of the property must include 171 parking spaces, among other things.

A spokeswoman for Casden would only confirm that he no longer had any ownership interest in the Saks site. Representatives of Cerberus and Saks declined to comment. It is unclear whether Cerberus bought out Casden’s stake in the Saks site or took it back in some other manner as part of the breakup.

The Saks lot, in the heart of one of the most exclusive shopping districts in the country, is at least the seventh property Cerberus has taken from Casden and is yet another indication of how the sour real estate market has affected what was once a very profitable relationship.

Casden’s rise to prominence in local real estate circles was capped with the $1.5 billion sale in late 2001 of his 17,000-unit apartment portfolio, built with Cerberus’ backing, to Apartment Investment & Management Co. Casden’s take was reportedly $800 million, with Cerberus taking most of the remainder.

After the sale, Casden, Cerberus and Aimco rode the real estate boom and partnered on new residential developments in Los Angeles and Ventura counties, acquiring a number of properties in 2004 and 2005. Six of the sites – in the Fairfax District, West Hollywood, Simi Valley, Oxnard, Ventura and Santa Clarita – were never developed; Cerberus replaced Casden as managing member of those partnerships in 2011. Since then, the company has been selling off the properties.

Stalled project

Casden’s plans for the Saks site called for two residential buildings on the lot, situated between the Saks and Barneys New York stores on Wilshire. Casden proposed a five-story, 20-condo building with 12,000 square feet of ground-floor shops or restaurants fronting Wilshire, and a six-story, 44-unit building with two levels of subterranean parking to the south.

Previewing his plans to the Los Angeles Times in 2003, Casden boasted it was “the premier location in the city.” It’s unclear whether Cerberus was involved in the project from the beginning.

But the project stalled amid the condo market collapse, never making it through the approval process. The most recent attempt to receive approvals halted in 2011, during the height of the partnership dispute between Cerberus and Casden over their joint investments. Casden told Beverly Hills officials at the time that there was an ownership dispute, and Cerberus informed officials last September that it was the new owner, according to city documents.

According to the suit filed in Los Angeles Superior Court by Saks, Casden agreed to build 171 parking spaces for Saks employees and customers as part of the deal.

Helping facilitate that deal was the close relationship between Saks and Casden. Casden’s wife, socialite and fundraiser Susan, has worked with Saks in the past. Most recently, she and Saks partnered to host a fashion show at the Casdens’ Beverly Hills home in October.

But Saks now asserts that Cerberus has taken control and is refusing to lease parking spaces to the department store or to transfer the parking agreement if it sells the property.

The suit claims Cerberus has a deal to sell the property to a third party, although it does not disclose a price or buyer.

A source close to the situation said Cerberus had recently received an offer for more than $20 million, and that Hollywood developer CIM Group had previously indicated a willingness to buy the property. A CIM spokeswoman declined to comment.

The source added that the cost of building parking for Saks could be up to $10 million, making it difficult to sell the property.

“It doesn’t make sense unless you resolve how the parking gets replaced and how it gets funded,” the source said.

The lawsuit also states that no agreement was hammered out regarding Saks’ parking prior to the condo project’s construction.

“It was almost as if they assumed that the entitlements were a done deal and construction would commence almost imminently,” said Dale Goldsmith, an attorney at Armbruster Goldsmith & Delvac LLP who reviewed the case for the Business Journal. “You look back at the mid-2000s when the market was hot and things were being developed left and right, and perhaps it didn’t occur to them that things would grind to a halt and the site wouldn’t be developed.”

Financial woes

In addition to the battle with Cerberus, Alan Casden, whose wealth was estimated by the Business Journal in May at $1.3 billion – less than half of the estimate of $2.63 billion a year earlier – has shown other signs of financial strain.

In 2011, he put up his personal coin collection, estimated to be worth nearly $40 million, as collateral for loans, and has been hit by lawsuits from former partners over nonpayment of loans. Three Beverly Hills office buildings he controlled, including his headquarters, went into foreclosure in 2012. And in December, he was sued in federal court in the Southern District of New York by Citigroup Inc., which claimed he had defaulted on a $43 million loan for his private jet.

Yet despite his property losses and disputes with lenders and partners, Casden is moving forward in the entitlement process for one of his largest projects, a 638-apartment, 160,000-square-foot retail development next to a planned Metro Expo Line station at Sepulveda and Pico boulevards.

The source familiar with the Saks dispute said real estate investment firm PCCP LLC, which has offices in El Segundo, Sacramento, San Francisco and New York, is the money partner on the West L.A. project. A Delaware corporation called PCCP CSGF Casden West LA LLC was formed in 2007, and PCCP backed Casden’s last completed project, the 276-unit Empire Landing apartment complex in Burbank. A partner in the firm, Nicholas Colonna, serves with Casden on the advisory council of the USC Lusk Center for Real Estate.

Representatives of PCCP did not respond to a request for comment.

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