Newly indicted Westside businessman Ezri Namvar’s creditors, who had hoped to be made whole despite his huge bankruptcy, are likely to get only a fraction of what they are owed, according to confidential trustee documents obtained by the Business Journal.

The documents show that 10 property sales conducted by bankruptcy trustees will net only $39 million. Those properties constitute the bulk of what the creditors are likely to get in the near term. That’s much less than the $866 million that the 464 creditors of Namvar and his Namco Capital Group Inc. claim they are owed.

Those sales would result in a payout to creditors of less than 5 cents on the dollar; while other sales and expenses will move the final figure up and down, the documents make clear that the creditors do not stand to get much.

The relative pittance that might be recouped would be another blow to Namvar’s creditors, who are mostly members of the businessman’s own community of Jewish immigrants from Iran and live in the Beverly Hills area. The 59-year-old personally solicited investments from them and now many have lost their life savings.

Indeed, the financial damage inflicted by the collapse of Namvar’s portfolio is so large that the documents say that a $5 million fund would be created to pay back “widows and orphans,” presumably to help the neediest of his creditors. Additional details are not known about the fund.

“The trustees are trying to make lemonade from lemons,” said A. David Youssefyeh, an attorney representing nearly two dozen creditors, in an e-mail interview. “Unfortunately, Mr. Namvar did not leave a whole lot for them to work with.”

Indeed, after Namvar and his company entered bankruptcy court in December 2008, many of his properties were claimed. Secured lenders have foreclosed on $424 million worth of property, with an additional $130 million in danger of being lost to foreclosure, according to a February report by the trustees. Presumably no proceeds from those foreclosures would be available to the bankruptcy estates of Namvar and Namco.

The 10 properties that will benefit the bankruptcy estates were picked because they are thought to be the least bogged down by debt, liens and other encumbrances.

However, the creditors also could benefit eventually from 49 other assets – including apartments, offices and development land – that would be managed by a special entity called RealCo. These are properties that need to be managed longer term.

Sources said creditors would run that entity through an elected board and have the right to hold on to or sell properties. But it’s unclear if those properties would net significant proceeds given that some might be saddled with debts or liens and might not be owned outright by Namvar or his company.

The documents further indicate that the trustees expect there will be $26 million in fees and expenses for themselves, lawyers and other professionals working on the case – a higher figure than some anticipated. Those expenses will ultimately have to be approved by the court. After those expenses are taken out, the estates are projected to have a total cash balance of $32.9 million at the end of March. But again, other assets and expenses will move that amount up and down.

George Haroonian, a leader of a group of several hundred creditors, said that the amount of money for professional fees is disturbing because it will come from funds that otherwise could go to pay investors.

“I think creditors would be very, very surprised and upset when they hear of this number because this will directly affect how much creditors would get,” he said.

Namvar trustee R. Todd Neilson and Namco trustee Bradley Sharp both declined to comment, citing the confidential nature of the documents.

Also declining comment was Benjamin Efraim, a member of the Namco creditors committee. Namvar and attorneys representing the two creditors’ committees did not respond to requests for comment.

It’s also unclear what effect last week’s indictment of Namvar on wire fraud charges will have on the bankruptcy, since the matter is centered on real estate transactions not handled by Namco Capital but a related bankrupt company. (See the sidebar story on page 58.)

The plan

The documents obtained by the Business Journal are marked “preliminary and subject to change” but shed substantial light on the estates of Namvar and Namco. One lists the sales and lays out the operating budget of the estates from August to March, while the other provides a one-year financial forecast for RealCo, which could presumably have an indefinite life.

The one real bright spot is a deal previously reported by the Business Journal: the $111 million sale of a 307,000-square-foot office building at 12121 Wilshire Blvd. that headquartered Namco. Last month, bankruptcy Judge Barry Russell approved its sale to a real estate investment trust, netting $33.5 million, according to the documents.

Another deal also previously reported is the $3 million sale of an industrial building at 1929 Pico Blvd. near downtown Los Angeles. The sale is expected to close in October, netting the estates $2.16 million. However, the other eight sales combined would net a total of just $3.4 million.

Indeed, the sales reveal how little equity is left in the portfolio, much of which Namvar amassed as the real estate boom picked up steam. In summer 2008, an internal document created by Namvar listed a total of 160 properties and LLCs in the portfolio, pegging their total value at $2.43 billion.

One noteworthy trustee sale involves Park Fifth, a prominent but stalled 76-story mixed-use project across from Pershing Square in downtown. Promoters have said it would be the tallest residential tower east of Chicago when completed.

Separate documents obtained by the Business Journal last year show Namco purchased an interest in the project for $28 million in 2005. However, the bankruptcy documents show the sale of that stake will net just $500,000 for the estates.

The RealCo assets include a Carson office property, and retail properties in South Gate and Simi Valley. Other assets include an outlet mall in Las Vegas; a shopping center in Harrisburg, Ill.; ground leases of two marinas; three pistachio farms; and several apartment buildings. There also is raw development land in California, Arizona and Nevada.

However, the documents show many of the properties will, for the time being at least, cost the estates money. For example, 2.4 acres of land in Las Vegas – in which RealCo would have 50 percent interest since Namvar had at least one partner in the deal – is not expected to generate any revenue next year. Repairs, maintenance, insurance and various taxes would cost $30,876, requiring contributions of about $15,000 from RealCo and the partner.

Haroonian, who opposed the sale of the 12121 Wilshire building because he believed the price was too low, said he supports the creation of RealCo but is disappointed in the portfolio.

“Of course, creditors wanted to have more of the assets, not what’s remaining of the assets. My understanding is that the remaining assets are not so significant,” he said.

It’s particularly disappointing to creditors who had held out hope that they would get most of their money back.

According to a source, there are other assets of Namvar and Namco that would not be a part of RealCo and are not listed as pending or future sales. It is believed those assets are the subject of litigation or other disputes. It’s unclear how much money they would generate for the estates and creditors.

End game

The documents essentially outline how the bankruptcy case will wrap up. They are being reviewed by creditor committees, who could modify the reorganization plan. Creditors will have a vote on whether the judge should approve it.

Multiple issues still need to be resolved involving fairly large sums of money. The documents show that RealCo will need at least $5 million, presumably to cover properties that would be losing money. Another $5 million would be required for an entity called LitCo, which a source said is likely a fund to handle ongoing litigation for the estates.

Then there is the issue of the fees to the trustees, attorneys and other professionals, which could generate a fight.

However, Dan Schechter, a bankruptcy expert and professor at Loyola Law School, said that the fees are not surprising given the size and complexity of the case. Namvar’s bankruptcy is one of the largest personal bankruptcies in Los Angeles County in years.

Schechter added that Russell is known as an experienced judge who does not tolerate inflated fees.

“These lawyers know it. Nobody walks into Barry Russell’s courtroom with inflated or phony fee applications. It would be suicide,” he said.

It’s believed the trustees hope to have the reorganization plan approved by the end of March.

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