Will Russia’s invasion of Ukraine block the sale of The One?
Although Fashion Nova founder Richard Saghian’s $141 million bid for the mega-mansion known as The One was the highest bid at a bankruptcy auction this month, that might not be enough to close the deal.
The event took place less than a week after Russia invaded Ukraine, and creditors disappointed that the winning bid was less than half the house’s $295 million list price are asking to US Bankruptcy Court Judge Deborah Saltzman to get a makeover.
“It is impossible that the fear of this war and with the potential for a Third World War…did not have an impact [the] bidding process,” Hamid Rafatjoo, attorney for The One developer Nile Niami, said during a hearing on Friday. “This war scared everyone.”
Niami, who claims he is owed $44.4 million in loans to the project, had hoped to put together a last-minute bid of $250 million for the home he sees as the culmination of his career in the construction industry. development, but it collapsed.
Saltzman was expected to make a decision Friday on whether to approve Saghian’s $126 million bid, which totaled $141 million with auction fees. But like almost everything else associated with the 105,000-square-foot Bel-Air estate — still unfinished after nearly a decade of construction — things went slower than expected. What participants thought was a short hearing turned into more than five hours of arguments and testimony from attorneys, house brokers, Saghian and others.
Saltzman, who cited case law that could allow her to rescind a bid if it was deemed “manifestly inadequate,” said there was too much at stake for her to make a decision on the spot and instead scheduled closing arguments for Monday, when she promised a decision.
“There has been a lot of discussion about the law. Many facts have been discussed. I need time to think,” she said.
The online auction opened on February 28, just four days after Russian forces invaded Ukraine, shocking the world while disrupting stock and currency markets. It ended on March 3, as the Russian offensive raged.
On one side are Saghian, owner Crestlloyd, a handful of creditors and others who would benefit from getting the deal done – and who say the war is far from the only reason the mansion has reached such a low price. On the other, there are additional creditors, a few of whom could lose $10 million or more each and want a chance at a second auction. The house bears claimed debts that exceed $250 million.
Lawyers for the creditors opposing the sale alleged irregularities in the bidding procedures and made other legal arguments, but appeared to view the Russian invasion as their trump card, even though they admitted that he conflict was unlikely to end anytime soon.
Kyra Andrassy, an attorney for Inferno Investment, which has filed about $31 million in claims against the estate, likened the war to the COVID-19 outbreak, saying if the world was stunned at the start of the pandemic , people finally learned to live with it.
“Things tend to normalize,” she told Saltzman. “I think people are adapting.”
The prevailing counter-argument was simple: that the situation in Ukraine could continue or worsen, which means that there is a chance that a new auction will bring an even lower price.
“It’s just speculation about what will happen tomorrow, next week. World War III is two months away and we’re in this for God knows how long,” said Thomas Geher, attorney for Hankey Capital, the home lending arm of Los Angeles billionaire Don Hankey, who has loaned more $100 million to Crestlloyd but is first among lenders to be at least partially repaid and backs the sale.
There has been talk of any further auctions in the coming months, given the cost of keeping the house bankrupt, which involves expenses such as upkeep and paying lawyers and other professionals.
The backers noted that no other “good faith” bids had been made in the weeks following the auction, even though Crestlloyd had said after the auction ended on March 3 that it would welcome new offers.
But opponents said that despite a global marketing effort – one broker said he had traveled to London and Paris to meet potential buyers – only five bidders took part in the auction, proof that they have said the war had scared off bidders. However, that figure was about the number of bidders long overdue by Concierge Auctions, the luxury online auction house that organized the event, according to Saghian’s lawyers.
Those who want to kill the offer also pointed out that Crestlloyd argued in court papers that the 944 Airole Way property was worth $325 million. They also pointed to an appraisal done in 2019 while the house was under construction that valued the property at $228 million, evidence that they said the highest bid was woefully inadequate. Supporters countered that the valuation was inflated to bolster the house’s cachet.
Rayni Williams, one of the house’s brokers, who will share commissions totaling around $2.5 million if the sale is approved, admitted she was disappointed with the final offer and said she had hoped that she would set a record – apparently alluding to the $238 million the hedge fund mogul spent in 2019 on a penthouse overlooking New York’s Central Park, a high tide line in the United States.
In fact, the sale didn’t even break the California record set by venture capitalist Marc Andreessen, who bought a Malibu estate for $177 million in October.
Williams testified that she learned during her meeting with potential buyers that the lack of an occupancy certificate for the unfinished home was a barrier to a sale, which she said likely reduced the number of buyers for a house that already had a small pool of buyers.
“Buyers generally want – especially at this purchase price – to move in straight,” said Williams, who added that a second auction could be “very damaging” because it “would optically … look like a failure in the market. free”.
An obstacle to obtaining a certificate of occupancy is the position of the Bel-Air Assn., a group of local owners who sent a letter to Crestlloyd and building officials pledging to investigate defects in alleged construction of the mansion and possible zoning violations that came to light when the property was in receivership last year.
The group has already appealed permits granted to two other homes in Niami and supported residents who sued developer Mohamed Hadid over an illegally built Bel-Air mansion being demolished. Owners Group board member Fred Rosen attempted to speak at the hearing but was not allowed to do so after objections he lacked standing.
However, Concierge Auctions president Chad Roffers appeared to confirm some of the group’s concerns when he testified that the mansion had been damaged by record rainfall in late December, forcing Crestlloyd to scramble to make fixes so that it can be shown.
He also said the lack of a certificate of occupancy and the association’s involvement in the demolition of the Hadid house were a red flag for “highly qualified buyers”.
“As they started peeling off the layer of, you know, the onion, and understanding the complexity and the uncertainty in terms of the path to a C of O, it became a bigger and bigger headwind. “, said Roffers. “I was on the phone with a potential bidder on the day of the auction in London who was interested but was ultimately totally freaked out by the lack of C of O and then the publicity around the Hadid property.”
He also noted, however, that the $141 million offer was 48% off the list price, which he said was exactly the same discount at which Niami’s last three homes sold. “While preparing, I was doing my homework on recent transactions,” he said. “It’s strange.”
If the offer is not approved, Saghian’s lawyer, Sam Newman, warned the fashion mogul could “lose interest and move on”. Saghian, recently considered a billionaire by Forbes, already owns two homes in the area, one in the Hollywood Hills he spent $17.5 million in 2018 and another on a Malibu beach he bought l year for $14.7 million.
Newman said his client had recently been made aware of a notice from the Los Angeles Department of Building and Safety potentially ordering the removal of The One’s roof.
The Times viewed a copy of the notice, which alleges that projections of the building and the stair and elevator tower exceed height limits and need to be rectified. It also indicates that the owner can apply for a permit to authorize the structures.
Saghian’s lawyer warned that his client faced a more complex situation than he had anticipated when he made the winning bid. “No one knows how much more money will have to be poured into this property,” Newman said.
Even so, when Saghian was sworn to testify, he seemed almost giddy at the thought of owning the house. Saltzman asked him about a peculiarity of the auction that raised some questions: why, after placing a winning bid of $120 million that no one had exceeded, did he bid again for $126 million? dollars?
Roffers said the move was not uncommon and was characterized as a “power bid” intended to further scare off competition. Saghian had another answer.
“I took a few seconds to think about it and chose my lucky number,” he said. “He’s 26. That sounds pretty crazy. But when I got the house, I thought it was meant to be.