Maguire Thomas may lose downtown L.A. garage: lender attempting to foreclose on 15-story structure.

Less-than-projected demand for downtown L.A. parking spaces -- particularly at parking facilities serving new highrises from "peripheral" locations -- has led to a contentious dispute between downtown's leading office developer and a major international banking corporation.

The case is another indication that the future demand for downtown office space projected during the late 1980s highrise development boom -- and the related demand for parking spaces -- has failed to materialize amid the local economic downturn.

Last November, Sumitomo Trust & Banking Co. Ltd.'s Los Angeles agency sued Maguire Thomas Partners Inc., two Maguire Thomas-affiliated partnerships and a property appraiser in connection with the August 1990 loan used to build the 2,250-stall Grand Avenue Garage at 240 Venice Blvd. on the southern periphery of downtown L.A. The parking structure's developer -- the Maguire Thomas Partners-17th & Grand Ltd. partnership, of which Maguire Thomas is general partner -- holds a long-term ground lease on the full-block site, which is owned by the L.A. Unified School District. The 17th & Grand partnership owns the parking structure.

Through the L.A. Superior Court suit, Sumitomo Trust is seeking to foreclose on the 15-story structure located just north of the Santa Monica (10) Freeway between Olive Street and Grand Avenue. The suit also seeks unspecified actual and punitive damages related to misrepresentations executives of Maguire Thomas partnerships and consultant Landauer Associates Inc. allegedly made in applying for the loan.

The suit also alleges that the 17th & Grand partnership diminished the property's value by transferring parking "covenants" it controlled on 845 of the garage's stalls -- which could be used to satisfy highrise developers' city-mandated "off-site" parking requirements -- to another defendant, the Maguire Thomas partnership that developed the Gas Company Tower at Grand Avenue and 5th Street.

On Nov. 24, three weeks after the suit was filed, Superior Court Judge Robert O'Brien approved the appointment of receiver David A. Gill to take possession of the property.

Maguire Thomas does not dispute that the 17th & Grand partnership has failed to make interest payments under the loan, beginning with the $341,938.67 installment due April 28, 1993. But Maguire Thomas' attorney, Virginia Grogan of law firm Latham & Watkins, denied that any misrepresentations were made in connection with the loan application, adding that Sumitomo officials were given all the documents on which the property's value upon completion was appraised. Grogan also noted that the transfer of parking covenants from 17th & Grand to the Maguire Thomas Partners-5th & Grand Ltd. partnership was "contemplated" before the loan was made, was reflected in the appraisal supplied to Sumitomo Trust, and was actually aimed at "creating demand for peripheral parking" at the Grand Avenue Garage.

Grogan also questioned whether the loan is actually in default, noting that Sumitomo Trust stopped advancing loan funds at least six months before 17th & Grand stopped making interest payments -- and before 17th & Grand had totally tapped out the $37 million maximum to be released under the loan agreement.

Maguire Thomas' contention is that the loan documents include provisions for the lender's continued release of funds -- which could be allocated toward interest payments -- if the loan wasn't yet in default and if the entire $37 million hadn't yet been used for actual construction purposes, she elaborated. The 17th & Grand partnership developed the garage, which opened in January of 1992, in part to comply with the Los Angeles Community Redevelopment Agency's "peripheral parking" program. As part of the CRA's efforts to relieve burgeoning parking congestion in the downtown redevelopment district, the late-1980s program mandates that developers of new highrises in the downtown L.A. core locate 25 to 40 percent of the parking stalls serving their projects outside the "traffic impact zone" bounded by the Hollywood (101) and Harbor (110) Freeways, Olympic Boulevard and Spring Street.

The Gas Company Tower, 801 Tower at 8th and Figueroa streets and Home Savings Tower at 7th and Figueroa streets are the three completed highrises subject to the peripheral parking program's provisions, explained Dan Beal, the CRA's transportation director.

The fact that other planned projects subject to the program remain on hold -- projects that Maguire Thomas would have targeted to lease stalls in the garage -- helps explain 17th & Grand's inability to service the construction loan debt, said Maguire Thomas Senior Partner Richard Gilchrist. Downtown's shrunken tenant base, the success of state-mandated ride-sharing programs and the development of the subway system have also diminished demand for the Grand Avenue Garage, Gilchrist added.

"We just don't have the downtown parking problems that we had -- and thought were escalating -- in the 1980-90 period when we conceived the project," he continued. "And if some of the other projects had gone ahead as planned, we'd be looking at a much different situation with respect to (the garage's) economic viability," he concluded, adding that less than 1,000 of the garage's 2,250 stalls are being utilized.

In its suit against the Maguire Thomas entities and Landauer, Sumitomo Trust is claiming the extent to which Maguire Thomas tenants were expected to utilize the facility was misrepresented. The complaint states that the Landauer appraisal was based "largely upon purported 'contractual' obligations or 'commitments'" by Maguire Thomas or its tenants at Gas Company Tower and the nearby First Interstate World Center.

Based on leasing commitments at the two towers as of June 1990, the appraisal projected demand for more than 1,800 off-site parking passes, according to the complaint. But no such "commitments" ever existed, and tenants of the two highrises were only paying for about 610 stalls when the suit was filed, the complaint notes.

The complaint also states that the May 1991 transfer of the 845 parking "covenants" from the 17th & Grand partnership to the 5th & Grand (Gas Company Tower) partnership -- "without (Sumitomo Trust's) consent" and "without any monetary or other consideration" -- was "a sham transaction" intended "to hinder, delay and defraud" Sumitomo Trust in its collection of the loan. The complaint suggests that the 17th & Grand partnership should have received approximately the same consideration for those covenants -- $15,000 per stall -- as it received when it transferred 177 such covenants in favor of the 801 Tower's developers.

Sumitomo Trust's suit seeks as much as $12.675 million in compensation for the value of the covenants transferred from the parking garage's development partnership to the Gas Company Tower's development partnership.

Again, Maguire Thomas attorney Grogan said Sumitomo Trust was provided all the information and contracts upon which the appraisal was based -- including documentation of the planned transfer of the 845 covenants to 5th & Grand.

Five weeks after filing the initial complaint, Sumitomo Trust's attorneys also asked Judge O'Brien to revoke Maguire Thomas' allegedly "secret" shifting of nearly 500 Maguire Thomas-tenant parking assignments from Grand Avenue Garage to other downtown facilities "on the eve of the receivership hearing." As Grogan noted, Judge O'Brien denied that request. But one of Sumitomo Trust's attorneys, Michael Sitzer of Loeb & Loeb, said his client will also seek damages in connection with the "redesignation" of parking assignments through an amended complaint, which he said would be filed before the end of January. Sitzer said he planned to file the amended complaint on Jan. 28.

"We view the redesignation as a deliberate, spiteful act to sabotage the receivership estate. It causes a direct injury to (Sumitomo Trust's) collateral," Sitzer stated.

A status conference on the suit is scheduled for June.