Herbalife Heir Feels Low About Mountaintop Lot

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Herbalife Heir Feels Low About Mountaintop Lot
Sign outside Vineyard project.

If dirt could talk, the mountaintop at the end of Tower Grove Drive near Beverly Hills would have some character-rich tales to tell. Over the years, the 157-acre residential property has passed undeveloped from the sister of the shah of Iran to media mogul Merv Griffin to late Herbalife founder Mark Hughes.

Now attempting to develop the property is the unlikely duo of Victorino Noval, convicted of perpetrating a $60 million real estate fraud against the U.S. government, and Charles “Chip” Dickens, who has struggled to hold on to the land since buying it in 2004. Dickens once joked during court testimony that his middle name was “Default.”

Noval and Dickens are moving to build and sell six homes on the site for up to $90 million each, but fighting them is Alexander Hughes, the 21-year-old son of Mark Hughes and sole beneficiary of his roughly $400 million trust.

Hughes claims the trust is owed money by Noval and Dickens, and if it does not get paid, he wants to take the property back. The alleged $82 million debt is related to the trust’s sale of the property to Dickens and Hughes has started a legal fight to enforce the claim.

“The trust is going to earn what it’s owed and get paid off,” said Eric V. Rowen, co-chair of the real estate litigation practice at Greenberg Traurig representing Hughes. He added that if Noval and Dickens are unable to pay off the trust, the trust could regain ownership of the land through foreclosure, at which point Hughes “will be very interested in what becomes of the property.”

Hughes convinced a judge to remove and replace the three trustees guiding the Hughes trust in March, successfully arguing they had botched the sale of the Tower Grove property. In their stead, a trustee who had been put forward by Hughes was appointed by the court.

Now that he has someone new running the trust, which he will inherit most of when he turns 35, Hughes is moving to collect on debts he says are owed to it.

As part of that effort, he challenged a January settlement the former trustees made with Noval and Dickens’ Tower Park Properties, which recalculated the debt, lowering it to $58 million from $82 million. Hughes’ attorneys are scheduled to file their first briefs appealing the settlement by November.

Dream site

The property is one of the highest home sites in Los Angeles, boasting a nearly 360-degree view of the city and beyond, and has been the subject of many a development dream. Princess Shams Pahlavi, the sister of Iran’s last shah, Mohammad Reza Pahlavi, bought it in the 1970s and intended to build the shah a $20 million palace in exile after his overthrow in 1979. It never materialized and she sold it in 1987 to Griffin for a reported $6.5 million.

Griffin effectively sliced off the top of the mountain, grading 14 acres and removing about 2 million cubic yards of dirt. He planned an expanse including a 58,000-square-foot house, a helipad and a couple of lakes, but instead found himself busy with other real estate deals, including his 1987 purchase of the Beverly Hilton Hotel and several other hotels. Later, he divided the property into six lots for potential development.

In 1997, Griffin sold it off to Mark Hughes for $8.5 million, reportedly the highest price ever paid for a home site in Southern California at the time. Hughes wanted to build a $50 million, 45,000-square-foot home – bigger than Griffith Observatory and higher than the Hollywood Sign – for his wife, Suzan, and son Alex.

But Hughes died suddenly in 2000 at the age of 44 in what was ruled an accidental overdose of alcohol mixed with antidepressants. He left behind a $330 million trust for then 8-year-old Alex to inherit at age 35, along with a $35 million custodianship to be turned over to Alex at 25 and a $1 million-plus guardianship.

The trust’s largest nonliquid asset was the mountaintop property. The three trustees – Conrad Klein, Christopher Pair and Alex Hughes’ grandfather Jack Reynolds – considered developing the property themselves. But they were denied court approval that would have immunized them from liabilities if things went wrong. Instead, they sold the property to Dickens, a businessman who had previously approached them about the property, for $24 million in 2004.

The sale, financed entirely by a limited liability corporation owned by the trust for no money down, would be the trustees’ downfall. Dickens, who did not have previous real estate experience, struggled to get construction going and repeatedly defaulted; his Tower Park filed for bankruptcy in 2008. The trust has claimed that debts from the sale’s financing as well as loans granted to Dickens for improvements and other penalties total $82 million.

A Los Angeles Superior Court judge in March granted a petition by Hughes to remove the trustees for their mishandling of the sale, calling it a “vivid illustration of imprudence,” and further blamed the trustees for failing to declare defaults when it became apparent Dickens could not make payments. Fiduciary Trust International of California was installed by the judge as a temporary trustee.

Although the judge did not rule on this issue, it’s also possible the trustees could have gotten much more for the property than $24 million. Klein said valuations peaked between $60 million and $120 million; in 2007, the Los Angeles Times reported a group of developers was moving to buy the land for more than $100 million, but that deal never happened.

Hughes’ attorneys have alleged that Klein sold the property to Dickens, an inexperienced developer whom he had previously met, as a way to retain control of the development process. But Klein, who is appealing the ruling, told the Business Journal the move made business sense, saying he was in the process of selling the debt it held on the property for a $25 million profit when he was ousted. Dickens declined to comment.

The removal of the trustees also represents the possible end of one of Los Angeles County’s biggest and most contentious trust battles. For years, Suzan Hughes, who divorced Mark two years before his death, waged a legal fight to remove the trustees, alleging everything from sexual harassment by Pair to Klein’s complicity in her husband’s death. Alex Hughes turned 18 in 2009 and continued his mother’s battle; Klein estimated in 2011 that both sides had spent more than $10 million on the fight. Suzan did not return a call for comment at her business, Suzan Hughes Enterprises, while Alex, whom Klein said is a student at New York University, declined to comment through his attorney.

“It’s terrible being removed. I haven’t had a good night’s sleep in the six months since it occurred,” said the 84-year-old Klein, who was Mark Hughes’ personal counsel for years. “You spend your life doing what you think is right – I never had a complaint to the Bar, never had a discovery sanction by the court until we got into this trust debacle. It’s a terrible way to live.”

Big plans

Tower Park, which emerged from bankruptcy in 2010, remains the owner of the site and is pushing forward with big development plans.

Noval took a controlling share of Tower Park after providing an $8 million loan in 2011. He has since spearheaded a new gated development, dubbed the Vineyard Beverly Hills, featuring six homes and an on-site working vineyard. Millions of dollars in infrastructure, including landscaping, sewers, lighting and a road leading up to the mountain, have been completed.

But lingering overhead is the debt dispute with the Hughes trust. A fight looms in appeals court over exactly how much Tower Park owes – either the $82 million now sought by Alex Hughes on behalf of the trust or the lower $58 million that the previous trustees agreed on. Either way, if the debts are not paid off, the Hughes trust could take back the property, at which point the trust could sell or develop it. With the old trustees gone, the trust also figures not to be as accommodating about granting payment extensions.

An attorney representing Tower Park said the litigation and attempts by Alex Hughes to recover debts would not affect development.

Real estate agent Jeff Hyland, who has a contract to sell the homes, said construction will begin next year and that each house would take a year and a half to complete. Each will be about 30,000 square feet, cost about $18 million to build and could sell for between $60 million to $90 million. The lots range from 2.8 to 12 acres.

But Noval, who was not made available for comment, has a checkered past when it comes to real estate. In the 1990s, he pleaded guilty to mail fraud and tax evasion in connection with a $60 million scheme against the Department of Housing and Urban Development. He was accused with a partner of buying cheap apartments, hiring corrupt appraisers to inflate their value and recruiting low-income people to apply for HUD loans to supposedly buy the properties while actually pocketing the loans and keeping the properties. He was sentenced to federal prison in 2003.

He has become involved in movie financing deals and philanthropy since his release, last year striking a six-picture deal with James Franco’s Rabbit Bandini Productions.

Hyland, who also was the broker who sold the property to Hughes in 1997, said Noval’s past would not prove an obstacle to developing or selling the properties.

“It’s like in show business – it’s about your last movie,” he said. “People don’t care because they’re going to see this (property) for what it is.”

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