Rash of financial crises rock major commercial projects.

Wave of bankruptcies and foreclosures roll through city

Several blue-chip properties in Los Angeles County have either been foreclosed on, have filed for bankruptcy protection, or are embroiled in sensitive debt-restructuring talks, which is sparking a new wave of concerns about the impact of the international commercial real estate collapse on the local economy.

Among the new wave of affected properties are Raffi Cohen's Figueroa Plaza in downtown Los Angeles, Ted Field's Murdock Plaza in Westwood, and Jerry Snyder's Marina City Club in Marina del Rey.

Among the major-league players said to be locked in local debt-restructuring talks are Metropolitan Structures, JMB Realty Corp. and IDM Corp.

Local real estate executives were quick to point out last week that the May 14 bankruptcy mega-filings by Olympia & York Developments Ltd. in Toronto and New York will likely have little impact on Los Angeles County properties. (Those filings could have devastating impacts on the commercial real estate markets of Toronto, New York City, and London.)

But the major equity stakes owned by O&Y in the World Savings Building in West L.A. and the 400 S. Hope St. building in downtown L.A. call into doubt the future economic viability of those buildings.

Regardless of what happens with O&Y, the increasing number of L.A. real estate problems clearly indicates that the City of Angels is far from immune to the worldwide recessionary fallout. And adverse worldwide publicity of the L.A. riots will likely add to those woes.

Lenders foreclosed on $252.5 million worth of properties in Los Angeles County during the month of April, according to statistics released last week by TRW REDI Property Data. That represented only a 1.9 percent increase from the prior month. But it represents a 35.4 percent increase from the like period a year ago, and an astounding 902.0 percent increase from the like period two years ago.

Among the local properties that have filed for Chapter 11 bankruptcy protection in recent weeks include: Figueroa Plaza, a top-flight office tower in downtown Los Angeles; the Marina City Club, a high-rise condo complex and boating marina in Marina del Rey; and the WCT Building, an office tower just west of downtown Los Angeles.

Also, a prime commercial parcel on the southeast corner of Figueroa and Ninth streets in downtown L.A., where the 1 million-square-foot RCI Tower was being developed, was foreclosed on April 28 by that project's main lender, Equitable Life Assurance Society of the United States.

A few blocks away, a court-appointed receiver last month seized control of Olympic Union Square, a two-building office complex at 1605/1625 Olympic Blvd. That project, which is owned by Paul and Don Feder, a father-and-son team operating under the name FAB Enterprises, contains some 600,000 square feet of space.

Over in Westwood, Frederick W. "Ted" Field, an heir to the Marshall Field department store fortune, on May 12 relinquished his ownership in Murdock Plaza, one of the Westside's premier buildings, to Sumitomo Life Realty.

That ownership change was also triggered by the severe downturn in L.A. commercial property values, sources said. But the Murdock Plaza ownership change resulted from Sumitomo Life deciding to exercise sooner than expected its option to convert to equity the $100 million convertible mortgage it held on the building.

"This ownership change in no way relates to any financial distress of Mr. Field, and no other (Field-owned) property in any way, shape or form is in any type of jeopardy," said Bob Burkett, a senior vice president of Field's Westwood-based holding company, the Interscope Cos.

"It was merely a business decision," he added.

While Field's holdings may not be distressed, the same cannot be said for the holdings of local developers Raffi Cohen and Jerry Snyder.

Cohen ran into problems galore with his main lender, Equitable Life, which led Cohen to file for Chapter 11 bankruptcy protection on his Figueroa Plaza tower in downtown L.A. on April 27. Cohen's twin tower next door, Figueroa Plaza II, is not included in that filing.

The very next day, April 28, Equitable Life foreclosed on Cohen's prime parcel just a few blocks down Figueroa, where Cohen and Melvin Simon & Associates were co-developing a 1 million-square-foot mixed-use tower, called RCI Tower.

Leslie Bledsoe, a spokeswoman for Equitable Life, said her company has not yet formulated any long-term plans for the RCI site.

Industry sources said Equitable holds debt on several other commercial properties on the periphery of downtown L.A., which may also be foreclosed on soon.

Meanwhile, Leslie Cohen (no relation to Raffi Cohen), an attorney representing Figueroa Plaza, downplayed her client's recent Chapter 11 filing.

"The defaults are not substantial," said Leslie Cohen. "We are trying to renegotiate the terms of our secured creditor's note, which we feel is justified in light of what has happened with property values and interest rates."

The recent events call into question the financial stability of Figueroa Plaza II, which is also owned by Raffi Cohen. It also casts a dark cloud of uncertainty over the future prospects for RCI Tower ever becoming a reality.

Also now under that same cloud of uncertainty is another huge commercial project that Cohen has been co-developing with Melvin Simon & Associates in downtown L.A.

That project, called First Civic Center, calls for a 20-story, 600,000-square-foot office tower; 75,000-square-foot plaza retail mall; two restaurants; and a 6,000-square-foot day-care center to be built on a Spring Street site across from L.A. City Hall.

Melvin Simon recently pulled out of the First Civic Center project, leaving financially strapped Cohen as the project's only developer.

Both the RCI Tower and First Civic Center sites are located within the Central Business District Redevelopment Project Area. And both projects have been overseen by the Los Angeles Community Redevelopment Agency. CRA officials did not return phone calls last week.

Meanwhile, over in Marina del Rey, developer Jerry Snyder on May 15 filed for Chapter 11 bankruptcy protection on his Marina City Club property.

That property contains 700 condominiums in three high-rise towers, a Red Onion restaurant, 101 apartment units, 322 boat slips, an athletic/social club, and a Ritz-Carlton hotel. snyder operates the county-owned property under a long-term ground lease that runs through the year 2067. He subleases the hotel and restaurant to independent operators.

Snyder had argued for weeks that he could remedy his payment defaults to the county and his main lender, Aetna Life Insurance Co., if he could sell the remaining 64 condos at the Marina City Club.

He has been leasing those condos on a month-to-month basis, but recently notified those tenants that they must vacate so the condos could be auctioned off by Kennedy-Wilson Inc. on June 7.

A court-appointed receiver, acting on Aetna's instructions, stepped in and halted the evictions and planned auction, which prompted Snyder to file for bankruptcy protection.

"I don't think they (Aetna) understand the complexity of this property," Snyder lamented. "That auction would have yielded about $14 million, which would get us out of default and back on solid footing."

Snyder's bankruptcy filing is the second major Marina del Rey property to file for Chapter 11 protection. Last July, the marina's largest property owner, Marina International Properties Ltd., filed for Chapter 11.

That partnership, comprised of local developer Abraham Lurie and a Saudi Arabian investor group, is still trying to emerge from bankruptcy.

The two recent Marina del Rey bankruptcies will likely have a negative affect on property values throughout the county-owned marina, sources said. But the county is not expected to lose any money directly from the two filings.

"The county is in first position to be paid any monies owed; we're even ahead of secured creditors," confirmed K.C. "Chris" Klinger, deputy director of the L.A. County Department of Beaches & Harbors. "But this (second marina bankruptcy) definitely poses a problem, from a public relations standpoint. It would probably be on the mind of any lender reviewing our loan portfolio right now."

Klinger quickly added that many lenders focus more on individual properties and leaseholders, rather than on the marina as a whole.

To illustrate his point, Klinger revealed that another major county leaseholder in Marina del Rey, Morris Pynoos, secured a $20 million refinance loan last week to complete a renovation of his 624-unit Kingswood Apartments complex, which was built about 30 years ago. The issuer of that loan was John Hancock Mutual Life Insurance Co.

The mounting number of local real estate bankruptcies and foreclosures could grow further in the months to come. Several major property owners are said to be in very serious debt-restructuring talks. IDM confirmed it is still trying to restructure its debt. Metropolitan Structures is continuing to hold talks with its lender, Citibank, about restructuring the debt on Two California Plaza in downtown L.A., sources said.

And now JMB Realty Corp. is said to be holding sensitive talks with Citibank about restructuring its debt on some of the Century City properties JMB bought from ALCOA. JMB properties said to be under discussion are the twin Century Plaza Towers and possibly the Century Plaza Hotel.

JMB officials were unavailable for comment last week, and Citibank officials refused to comment on the situation.

Some sources indicated L.A. will fare worse than any major commercial real estate market except New York when all is said and done.

"Los Angeles has suffered more than the national average in terms of the national recession, and it will also suffer more than the national average in terms of the national real estate collapse," asserted David Schulman, director of real estate research at Salomon Brothers in New York.

"We're not L.A. bashers, either," Schulman insisted. "We wrote very bullish reports on L.A. back in 1987, but very bearish ones since 1989."

Schulman said the L.A. commercial real estate market is being hit worse than any other major U.S. market, except for New York City, because industry participants here stubbornly clung to three "myths" about L.A.

"People caught up in the 1980s' frenzy clung to the myth that the Japanese would always be around to bail everybody out," Schulman said, "to the myth that L.A.'s diversified economy was recession-proof, and to the myth that L.A. didn't have any of the structural problems associated with Eastern cities."