Finance Nightmare Ends for Burbank Developers : Japanese Firm Replaces Saudi Arms Dealer
Adnan Khashoggi, a Saudi Arabian arms dealer and key intermediary in facilitating U. S. weapons sales to Iran, left a black mark on Burbank that the Japanese company Kumagai Gumi is turning to gold.
That’s the way Stephen Geiger and Dee Christiansen view what to them was a construction horror story, a nightmare come true, until the Japanese stepped in.
Geiger, 41, and Christiansen, 44, were developing a 30-story office building in Burbank when their financial partner, Triad Properties--a firm owned by Khashoggi-- pulled out. That left the developers, undertaking their first big office project, with a $15-million debt and a hole 55 feet deep and 250 feet square.
“When we found out that Santa was out of toys, we were shocked,” Geiger said of Khashoggi, who was described as “the great un-billionaire” in a news story about the Saudi’s financial woes.
Khashoggi, once reputed to be “the richest man in the world,” had a sprawling estate in Spain (see related item in the Hot Property column), a penthouse apartment in New York, a well-appointed DC-8 airplane, a 285-foot yacht with a helicopter on the fifth deck, a disco and a theater. Then came the stories that he was in debt.
“We first recognized that he was having problems in late 1985,” Geiger recalled. “He missed some interest payments on our $15-million loan and cut his Salt Lake City project (Triad Center) in half.”
A year later, lenders who financed Triad Center sued for $61 million over collapse of the unfinished project, and more than $150 million in litigation was pending against Khashoggi’s Utah-based Triad America, Triad Properties’ parent firm.
In the meantime, Geiger said, “the City of Burbank was concerned about our big hole, and people wanted to know if our project would hit the wall.”
Trying Times
They were trying times for Geiger, who dreamed of building the office tower since 1977, when he first acquired an interest in the site.
Geiger wasn’t even a developer then. He was an apartment house broker with H. Bruce Hanes until 1979. Then he went on a ski vacation to Park City, Utah, and bought a parcel zoned for a small hotel. He met Christiansen, a Utah builder, and together they developed the property into condominiums that were then operated as a hotel.
After that, they built a couple small office buildings in Salt Lake City--one in joint venture with General Electric, the other as a partner of American Savings & Loan. And they built several hundred apartments, most of them in Burbank and the rest in Glendale and North Hollywood. Christiansen moved to California in 1981.
“There are a lot of other projects we didn’t even start because of the tower,” he said.
Planned Since 1982
The tower, once called the Geiger Tower and now known simply as The Tower at Burbank, has been in planning since 1982, when the rest of the 1.4-acre site at 3900 W. Alameda Ave. was purchased. In 1983, the property was rezoned from R-4 to C-3, and building approvals were obtained for 520,000 square feet of office space. Then came the models and renderings.
Geiger remembers spending most of 1984 looking for an equity partner. He found it, he thought, in Triad Properties. “At the time, we perceived it as pretty exciting potential,” he said. “Then Khashoggi had liquidity problems.”
Geiger figures Khashoggi’s troubles stemmed from the fact that “a lot of his cash flow was tied to his selling planes and other items to countries whose cash flows were impacted by the drop in oil prices.”
By late ‘85, Khashoggi was no longer accessible to Geiger and Christiansen. In early ‘86, Geiger said, “we started meeting a lot of characters that Khashoggi brought in to recapitalize his company, but during the second quarter, he lost control and turned the company over to a Canadian group.”
Interested in Getting Cash
The Canadians were only interested in liquidating the company and getting their cash back, he said, and he spent months looking for other financing.
Why didn’t he and Christiansen walk away from the project? “Because my name was on it,” Geiger replied, “and we were $15 million into the project.”
As it was, there were rumors that he had gone bankrupt and the project was in foreclosure, but those rumors were untrue, he said. “And when people said, ‘I hear you’re going under,’ I said, ‘The news of my demise is premature.’
“I felt like the Monty Hall of real estate,” he added, referring to the TV game-show host. “I flew all over trying to make a deal.”
He went to Riyadh, Saudi Arabia; London and New York. But he hit the jackpot in Tokyo.
Offered to Purchase
A New York banking firm actually introduced him to the nearly 50-year-old Kumagai Gumi Co., and for awhile it looked as if the Japanese company would form a joint venture with Triad Properties to complete the Burbank building. However, Triad was unable to meet certain commitments, Geiger said, so Kumagai Gumi withdrew from the negotiations but later offered to purchase the project.
And, recognizing a value in keeping Geiger and Christiansen, Kumagai Gumi asked them to stay on as co-developers. “With the parent company owning 100%,” Geiger added.
Geiger and Christiansen wound up with employment contracts and the possibility of sharing in future profits.
Escrow closed Christmas Eve. Three weeks later, he said, Triad America filed for bankruptcy.
Geiger sighed. “If escrow hadn’t closed, that bankruptcy would have taken our project with it.”
As it is, they got a check for $14 million, with the other $1 million “taken care of over time,” he explained.
And the $85-million building is up to the third floor now. Redesigned by the Nadel Partnership, the 32-story tower--the tallest building in Burbank and one of the tallest in the San Fernando Valley--is expected to be completed by December, 1988. Coldwell Banker is handling leasing.
‘Showed Good Faith’
“The Japanese showed good faith by starting construction three weeks after the close of escrow, building out of corporate funds. They didn’t wait for the construction loan to come through,” Geiger remembered.
“And they made it a better building. They had it totally redesigned from a low Class A to a high Class A building. It’s a Class A Downtown L. A.-type office building, but it’s not downtown. It’s in Burbank’s Media District.”
He gives Richard Katano, head of North American operations for Kumagai Gumi, credit for moving ahead. “He could see the value through the chaos,” Geiger said.
The tower is also a first for Kumagai Gumi, parent of KG Land California, which is developing the project with Christiansen/Geiger. Kumagai Gumi, a construction company that has won prizes for its pioneering work on bridges, tunnels and high-rise projects and last year was awarded nearly $7 billion in construction contracts, never before owned 100% of a development in North America.
Bought 100% of Project
Geiger and Christiansen are relieved that Kumagai Gumi bought 100% of their project.
“Trying to put up a 500,000-square-foot office building in an unproven office market with unproven developers totally on spec is not a task we’d recommend to anyone on their first big venture,” Geiger said.
But would they do it again? Without a doubt, they say. In fact, Christiansen said, “We’re already working on another project in Southern California three times as big.”
