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Big Split

With a net worth in the billions and some 70,000 apartments to his credit, Alan Casden has made a name for himself as one of the region’s most successful – and pugnacious – developers.

His aggressive style has been key to his remarkable history of finishing even the most difficult projects. He even has kept relics of his past battles in his office, including a framed “Jack Weiss Stop Casden” sign that is a reminder of the then-city councilman’s futile opposition to Casden’s marquee mixed-used Palazzo project in Westwood.

But now Casden is embroiled in a dispute that has pulled back the veil on the performance of his main development company over the past decade, Casden Properties LLC. And it shows that even as tenacious and deep-pocketed a developer as Casden struggled during the downturn.

Casden and his partners bought a host of properties to develop in the L.A. region as the real estate market boomed. But amid depressed property values and difficulty in building the far-flung projects, the venture has repeatedly defaulted on loans, according to court records.

Last November, a Casden Properties executive went so far as to tell the partners there wasn’t enough cash to finish six projects and proposed a process to dissolve the company, according to court records.

Documents indicate that Casden Properties, which was formed by Casden; Apartment Investment Management Co. (Aimco) of Denver; and Cerberus LP, a New York private equity firm, was long considered a temporary venture and was originally set to expire no later than next January.

But the entire affair has turned adversarial.

Aimco has written off $37 million of its $50 million investment, according to regulatory filings, and is suing Casden to open his books to ensure that it gets a fair share of the remaining assets.

Aimco also is demanding to see whether any of the partnership’s financial resources were used by Casden in a side venture: Empire Landing, a 276-unit apartment complex in Burbank that opened last year.

Indeed, a report last month in the Business Journal that lenders had filed foreclosure lawsuits against several of the company’s properties appears linked to the larger conflict among the partners.

David Harris, an analyst at Gleacher & Co. in New York who tracks the publicly traded Aimco, said he is not surprised by how it all turned out.

“You don’t like to see write-offs, but that’s in line with the financial downturn and the recession prices. You had a property cycle that’s got a big boom and big bust in it, and a parting of the ways seems pretty standard,” he said. “Joint ventures are a bit like marriages: Fifty percent of them end up successful and 50 percent end in tears and tantrums.”

Although multiple documents indicate otherwise, Barbara Casey, a spokeswoman for the developer, said there is “no intent to dissolve” Casden Properties.

She added that Aimco’s lawyers “may interpret events differently.”

Casden was not made available to comment personally.

Cerberus representatives did not respond to requests for comment. Aimco’s attorneys and a spokesperson declined to comment.

A fresh start

The Business Journal in May estimated Casden had a net worth of $2.63 billion, placing him at No. 12 on the list of Wealthiest Angelenos. A good chunk of his fortune came from a 2002 payday that was one of the biggest in L.A. real estate history.

He and affiliates of Cerberus Capital Management LP, a high-flying Wall Street private-equity firm, had built up a large apartment portfolio under the banner of a company with a slightly different name, Casden Properties Inc.

The partners sold 17,000 of those apartments to Aimco in a deal valued at $1.5 billion. Casden personally received about $800 million, with Cerberus taking most of the remainder. But ever restless for a challenge, Casden dove right back into the development game.

With a clean slate to work with, he pooled $250 million with Cerberus and Aimco to start the development company Casden Properties LLC in 2002. Aimco and Casden took 20 percent stakes, while a Cerberus affiliate, Blackacre Casden LLC, took a 60 percent stake. It is not known whether Casden himself also has a stake in Blackacre Casden.

Investing with the savvy and hard-charging Casden was a no-brainer. On a decades-long streak of development victories, he was put in charge of the new company.

“We have a huge development pipeline,” he told the Business Journal upon announcing the new company. “This allows us to concentrate (on) what we do best.”

In its early years, Casden Properties completed an extension of the Park La Brea apartment complex in the Miracle Mile district, which had been under way before being sold to Aimco as part of the 2002 purchase. The company also planned to develop another complex nearby, on the site of a Ross Dress for Less store at Third Street and Ogden Drive.

But by 2005, the company was thinking bigger. Already having secured at least $8 million in financing for its Ross project, it ultimately borrowed $173 million to develop the Palazzo, and up to $50 million for projects in Santa Clarita, Ventura and Simi Valley and for two properties in Oxnard. A property in West Hollywood was later added to that list on loan documents.

Of the eight properties, only the 350-unit Palazzo project would ever break ground. Of the others, only the 370-unit Movietown project in West Hollywood appears ready for construction.

Asked to review the company’s track record since 2002, Casden spokeswoman Casey pointed to the successful Park La Brea and Palazzo projects, and the entitlements of the Movietown, Simi and Oxnard properties.

“With market conditions being what they have been since 2008, development would not have been prudent,” she wrote in an e-mail.

Development troubles

The properties were bought during the market’s upswing, and the company had been navigating the labyrinthine approval process in each city when the real estate crash hit.

In Santa Clarita, for example, the venture has been planning 850 apartments, condos and detached single-family residences on a 95-acre property for about five years, but has never completed a formal proposal.

It was delayed by everything from antidevelopment residents to the need to add a second point of access beyond a single existing railroad crossing, said Santa Clarita Community Development Director Paul Brotzman.

Such obstacles in Santa Clarita and elsewhere contributed to high development costs that were blamed for the venture’s unprofitability in early 2009, when Aimco wrote off one-third of its $50 million investment in Casden Properties.

“Over the last period of years there have been a number of soft costs involved in continuing to entitle and work those assets,” Aimco Chairman Terry Considine explained on an analysts call that year.

Shortly after that call, Casden Properties pulled out of one of its two Oxnard projects and demanded a refund from the city, which had sold the property for $24 million in 2006.

“I would say it left a sour taste in our mouths,” said Oxnard Community Development Director Curtis Cannon, who noted the city had to take out a bond to pay the refund.

Around the same time as the Oxnard pullout, court documents indicate that cracks in the company’s finances began to show.

A half-dozen lenders, led by Comerica Bank, notified Casden Properties in April 2009 that it had violated liquidity covenants on its loans. The company defaulted again in early 2010, and Comerica Bank extended the maturity dates of the loans to different points in 2012, according to loan documents.

By this time, Aimco had written off an additional $21 million of its investment as a loss, this time blaming declining property values in Southern California.

Breakup proposed

Lenders led by Comerica filed foreclosure lawsuits on six of the company’s properties in late May, indicating it had defaulted on loans at least five more times since November.

This period was marked by tensions among partners over how to break up the company, and over the development of Empire Landing in Burbank, which opened in August of last year, court documents in Aimco’s lawsuit show.

In November, a Casden Properties executive sent a letter outlining a three-month process of liquidating and splitting up the company’s assets. But Aimco complained that the company had not been providing access to its records, in an e-mail now attached to its lawsuit against Casden Properties.

“Alan is pushing everyone to discuss and possibly agree on an allocation of (the company’s) properties, but I assure you we will not be making any decisions or commitments without having full and open access to all relevant facts,” wrote Miles Cortez, Aimco chief administrative officer.

Aimco’s e-mail also mentioned new appraised values for several of the undeveloped properties that were less than half of the valuations on 2005 loan documents. For example, the Simi property was appraised last year at $6.8 million, down $14.7 million, and the Ventura property was valued at $2.8 million, down from $9.1 million.

Casden Properties General Counsel Andy Starrels replied to Cortez in an e-mail that those new appraisal figures were rejected by the company. He also wrote that the Burbank project had not, as Aimco worried, inappropriately used any of the joint venture’s resources.

In fact, Starrels told Cortez the joint venture benefited from being repaid for costs it had incurred for the project, though those costs are not explained in Aimco’s pending Delaware lawsuit.

“Those reimbursements, as was explained years ago, ran to (Casden Properties’) benefit and, inter alia, allowed it to survive as long as it did,” he wrote.

Restart

The first major sign of a resolution came last month when Casden Property LP, a new company formed by Casden, bought out all outside interests in the Palazzo complex and made up missed loan payments.

Similar deals are said to be in the works for the other properties, though Casey said that the partners have decided to wait on any additional sales to “assess market conditions.”

Before Casden made the Palazzo debt current, banks indicated they were owed $199 million by next year.

Lenders have dismissed their foreclosure lawsuit on the Palazzo but foreclosures against the other properties are still pending.

Despite the joint venture’s bumpy road, Casden himself appears to have made out OK. He now owns 100 percent of the fully leased Palazzo, in addition to the Empire Landing property, Burbank’s first major luxury residential development in decades. The Movietown project is fully entitled, although it remains to be seen which partner will keep it.

The developer also is working on an ambitious plan for a mixed-use project on the corner of Pico and Sepulveda boulevards, near the proposed Expo line. The project, which has yet to receive approvals, would feature 538 apartment units and more than 260,000 square feet of retail space.

The county’s apartment market has held especially strong over the last year or two. It makes sense to launch development ventures at this time, Harris said.

“It’s hard to believe Casden isn’t sort of reinventing himself again,” he said. “The timing looks propitious for developers to get back in. Alan Casden is looking, I suspect, to where he can source more capital to buy land and finance more development deals.”

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