Chinatown development woes highlight retail slump.

Dynasty Center winds up at the center of legal dispute

A heated dispute between a complex development partnership and its construction lender illustrates the slump in Chinatown's small-merchant-oriented retail environment.

Sumitomo Bank of California claims the developer of the 48,000-square-foot Dynasty Center shopping center -- which fronts Broadway in the heart of Chinatown -- is in default on $12 million worth of construction loans. In court documents filed in its lawsuit against 21st Dynasty Corp., Sumitomo attorney David Cowan says the developer is "effectively blackmailing" the bank, as it has refused to service the construction debt unless Sumitomo offers permanent financing for the property.

In 21st Dynasty's cross-complaint against the bank, attorney Bill W. Lew claims Sumitomo has reneged on oral and written commitments to provide permanent financing on Dynasty Center for up to 10 years. A Lew memo noted that Sumitomo so far has only agreed to extend the maturity date on the notes -- in exchange for new loan fees -- on an annual basis.

Attorneys for both sides said they and their clients would not comment on the dispute, but public records highlight the developer's fight to hold onto its investment amid still-slumping real estate and capital markets.

Title records show that on Sept. 28, Sumitomo filed a notice of default in connection with a $10 million construction loan it funded in May 1989 and a $2 million "further advance" it funded in February 1991. The notice indicates 21st Dynasty was more than $176,000 behind in its payments on the notes as of Sept. 20.

Bankruptcy court documents show that 21st Dynasty filed a Chapter 11 petition to protect its property on Oct. 25, listing assets valued at about $15.17 million and liabilities of about $12.42 million. The petition indicates that at the time of the filing, Dynasty Center's developer owed Sumitomo Bank $12.26 million, that the firm was more than $65,000 behind in its monthly payments on the portion of the development's site the firm holds through a long-term leasehold interest, and that it owes nearly $100,000 in property taxes.

The bankruptcy petition lists holders of 5 percent or more of 21st Dynasty's stock. These include: George and Ginny Wang with 33 percent; Fong Wu with 23 percent; Goodring Investment Inc. with 18 percent; Harry Wu with 9 percent; and Satco Inc. with 6 percent.

The troubles at the 3-year-old, two-level center reflect the general slide in rents and property values within the bustling Chinatown district just northeast of L.A.'s Civic Center.

Broker David Louie with CB Commercial Real Estate Group noted that demand for Chinatown retail space has waned from its peak three or four years ago, illustrating the effects of the recession as well as the emergence of certain San Gabriel Valley communities as rival Chinese cultural centers within L.A. County.

Louie was involved in the recent foreclosure sales of two other Broadway retail properties that also fell victim to the decline in Chinatown property values, the broker said. But he also stressed that the light rail station slated for Alameda and College streets "will represent a springboard for Chinatown's economic revitalization."

Another source familiar with the property noted that an approximately 8,800-square-foot ground-floor space slated for an ethnic grocery store has never been occupied. Another 2,000-square-foot second-story space formerly housing a jewelry mart is also vacant, the source added.

He also explained that -- as is typical with Chinatown retail properties -- Dynasty Center's "bread and butter" is its 100-plus small tenants, many of whom spread their wares onto the busy adjacent sidewalks each morning.

In a declaration filed in the civil dispute, 21st Dynasty President Ginny Wong stated that as the development team endeavored to lease the center, it offered many current tenants free rent through the end of this month. Her statement noted that the firm anticipates gross receipts will increase by about 90 percent in January after the free-rent concessions expire.

One of the developer's bankruptcy attorneys, Bert Kawahara, also filed a motion noting that 21st Dynasty is trying to determine if it can negotiate more favorable terms on its ground lease.

In the bankruptcy case, Judge Geraldine Mund recently granted Sumitomo attorney Cowan's request that 21st Dynasty allow bank officers to examine the development partnership's financial records, including any documentation of the property's market value, efforts to refinance the loans through another party, and negotiations to sell the center. This examination was scheduled to commence Dec. 3.

Cowan has also requested that the court appoint receiver Robert Warren to replace Charles Dunn Co., which 21st Dynasty hired late last August, as the center's property manager.