Hahn Project Partnership Is in Default : Loans: Bank says partnership owes it $135 million in loans for Golden Triangle office complex. Roy Hahn says it won’t hamper plans for downtown San Diego sports arena.

Claiming it is owed millions of dollars in interest and principal, Bank of America said Thursday it has filed a notice of default on a partnership headed by developers Ernest Hahn, his son Ron, and Harry Summers over loans the partners used to build an office complex just north of University Towne Centre shopping mall.

The default on loans totaling $135 million comes at a time when Ron Hahn is attempting to piece together a development deal to build a downtown sports arena, as well as attract one or more professional sports franchises to the city, all with the city of San Diego’s blessing. A default is the first step a lender takes in trying to foreclose on a property.

In an interview Thursday, Ron Hahn said financial problems at the 17-acre office project called Plaza at La Jolla Village would have no adverse financial effect on his efforts to develop a downtown arena. “It’s not related at all. One (project) does not affect the other,” Hahn said, adding that his partnership is “cordially” negotiating with Bank of America to resolve the default.

In March, Hahn signed a “memorandum of understanding” with the city that gave him an exclusive, 18-month period to find a downtown site for the indoor arena. The apparent financial strength of Hahn and his father, Ernest, a retired shopping center developer who was once on Forbes magazine’s list of wealthiest Americans, influenced the city to give Hahn the sole responsibility for developing the arena.

Asked about the Hahns’ default, city of San Diego Property Manager Jim Spotts said: “We’re aware of it. I know that is something the Hahn interests are going to have to look at. We’re certainly alert to it. But, in the final analysis, it’s up to the financial underwriters of the sports arena project to pass on its financial feasibility.”

Bank of America and co-lender Dai-Ichi Kangyo Bank of Japan lent the money to the Hahns, Summers and their general partnership, Plaza at La Jolla Village Associates, to build a nine-building, 850,000-square-foot complex of office towers, restaurant, bank buildings and parking structures on the northeast quadrant of La Jolla Village Drive and Genesee Avenue.

The recession and overbuilding have caused problems for the Hahn-Summers team as well as for virtually every other office project in the North San Diego area. Since it opened in 1990, only one third of the space has been leased in the project’s largest building, an 18-story, 310,000-square-foot structure called the Hahn Tower that opened in 1990.

The overall vacancy rate among office projects in the so-called “Golden Triangle” area averages 35%, significantly higher than the rest of the city, said Dick Balestri, a leasing agent with CB Commercial in La Jolla who specializes in office buildings. The Golden Triangle refers to the area bounded by Interstates 805 and 5 and La Jolla Village Drive.

Alex McDonald, a San Diego attorney representing the partnership, acknowledged that the developers had fallen behind on the loans.

“It’s a result of the fact that the leasing market in San Diego is very poor and soft right now, and it’s been impossible to obtain leases with sufficient rents to keep everything current,” McDonald said.

The major issue in the dispute among the Hahns, Summers and the banks is $13 million of “recourse” debt now due, which the lenders say the borrowers are personally liable for. Bank of America is said to be preparing a lawsuit to recover the $13 million.

Most real estate loans are secured only by the property, but Bank of America said the Hahns and Summers made personal guarantees on loans for Plaza at La Jolla Village.

Asked about the guarantees, Bank of America spokesman Jim Mitchell said only that the notice of default was filed “to facilitate the payment of all sums due and payable under loans agreements.”

The Hahns and Summers are hardly the first Golden Triangle office developers to have a problem with their lenders. According to informed sources, virtually every major office building in the area has reverted to the control of developers’ financial partners or to their lenders.

Balestri of CB Commercial in La Jolla said cutthroat competition bred by overbuilding and a relative scarcity of tenants has led to rent slashing that has hurt the financial stability of all office projects in the area.