Developer Sonny Astani was feeling good about his Concerto project on Aug. 29 when he sold all 77 lofts in his 348-unit downtown L.A. condo project.
Despite the soft real estate market, the one-day, heavily advertised event resulted in $31 million in sales. Astani planned to use the money to pay off contractors and a construction loan.
He called his lender, Corus Bank in Chicago, two days later to tell them the good news.
“We thought they’d be so pleased to hear of the sales,” said Astani. “But there was no response.”
Corus, on the brink of failure, failed to respond to several more calls – “I knew something was up,” he said.
So began a whirlwind month for one of the last downtown developers still standing.
Because Corus holds liens on each individual condo unit, all of Astani’s condo sales have been in limbo since the bank was seized by regulators on Sept. 11.
And that’s forced Astani to take an unusual step: He put Concerto in bankruptcy despite its strong sales. He’s counting on a U.S. Bankruptcy Court judge to release the liens.
“A big chunk of my brain power has gone to strategic decision making – basically like a chess game,” said the 55-year-old chief of Astani Enterprises Inc. in Beverly Hills. “You do your best to anticipate a lot of what-ifs and suddenly something like this comes up. It wasn’t in your realm of possibilities.”
Astani’s summer started off relatively calm.
Construction at Concerto was humming along and he was in the midst of a $2 million marketing campaign. But all along Astani was well aware that troubles at Corus loomed.
Then in June, buzz was building that the bank would soon fail, so Astani spoke to his bankers at Corus and floated a proposal.
“I offered to buy the balance of my loan, which is $157 million,” said Astani, adding Corus never funded $33 million of his original loan. “I offered to purchase it at 60 cents on the dollar, about $100 million.”
However, the bank was unresponsive. So with his worry growing that the bank would fail, Astani started preparing for the possibility of his bankruptcy action, working with attorney David Kupetz.
“I think it’s especially unusual and frustrating in the context that you are dealing with something that we haven’t had to deal with since maybe the S&L crisis,” Kupetz said.
At the same time, in an effort to raise money to pay off the Corus loan and contractors, Astani held the sales event.
It attracted hundreds of people, and he was able to sell all 77 units in the project’s loft building in just eight hours. The project’s separate 271-unit, 30-story tower is scheduled to be completed by the end of the year.
And when Corus did not respond to the good news, he worked with attorneys at Parker Milliken Clark O’Hara Samuelian PC to file a breach of contract lawsuit in Los Angeles Superior Court. The Sept. 4 lawsuit contends Corus allowed its own financial state and “intransigence” to hurt Concerto by delaying financing and approvals. It also states that the bank refused to release the liens on the condos sold at the sales event.
But events moved fast when on Sept. 11 the regulators seized Corus, which had been done in by a slew of bad loans made on condo projects during the boom. Astani now he had a new partner to negotiate with: the Federal Deposit Insurance Corp. He contacted the agency with an offer.
“To make it more attractive to the FDIC, I said I would pay 10 percent more than the highest bidder,” he said.
His offer to buy the note was met with what he viewed as an unfavorable response. Astani said he’s been told that he could only buy the note at its full value, which he considers unfair since notes on other real estate projects often trade at “30 to 50 cents on the dollar” these days.
The FDIC did not return calls seeking comment.
Meanwhile, the FDIC set a Sept. 25 deadline on bids for $5 billion in Corus assets. The offering, which includes loans on more than 100 projects, was expected to attract several interested parties from the investment world. The FDIC is said to be interested only in selling off all the assets as a portfolio and Astani fears that a sophisticated investment group would likely take a hard-line approach to dealing with borrowers.
“If these guys get a prized asset at a discount they aren’t going to be nice to me and pass through the discount. They are going to look for every excuse to squeeze us out and make life difficult,” Astani said.
He said that the 600-page loan agreement with Corus could be “picked on” and his sale of units below prices originally outlined in the agreement could be cited by the new note-holder in an effort to throw the limited liability company that owns Concerto into default. Hence, he has thrown the ball into bankruptcy court.
Astani is nothing if not dogged. Despite the inaction by Corus, a lack of dialogue with the FDIC and the bankruptcy action, Astani has remained hopeful.
“It’s been very difficult for him, but the great thing about Sonny is he’s always an optimist, he’s always a fighter,” said Paul Rohrer, a Manatt Phelps & Phillips LLP attorney who helped Astani secure the entitlements for Concerto. “There is never a point where he says, ‘Today’s the day I’ll just give up.’”
That’s part of what has emboldened Astani to continue his efforts to press on with his work. For a man with formal training in tai chi and karate, it is easy to compare the struggle at Concerto to combat. Though his training has taught him to avoid altercations, he’s realized this is one battle that can’t be ducked.
“Suddenly you become a gladiator because your life depends on it,” he said. “You have a warrior mentality. That’s how I feel.”
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