Chapter 11 for Plaza at La Jolla Village : Real Estate: Development partnership, that includes Ron Hahn, seeks bankruptcy protection. It has fallen behind on $135-million in loans on the 17-acre project.
A real estate partnership that includes San Diego developer Ron Hahn, who is currently attempting to put a deal together to build a downtown sports arena, has filed for protection under Chapter 11 of the federal bankruptcy code.
Earlier this month, Bank of America filed a notice of default on the partnership, which also includes Hahn’s father, Ernest, a retired shopping center magnate, and local developer Harry Summers. Bank of America then alleged that the Hahns and Summers had fallen behind on payments on $135 million in loans.
Bank of America also alleged that the partners were personally liable to pay off $14 million of the overdue loans. That sort of “recourse” debt is not typical of most real estate foreclosures. Usually, lenders can recover their loans only by foreclosing on the property that secures the loans.
The Hahns and Summers took out the loan to build Plaza at La Jolla Village, a nine-building 850,000-square foot complex of office, restaurant, parking and bank buildings located across the street from University Towne Centre, a shopping mall also developed by Hahn.
The partnership, which also borrowed from Aetna Life & Casualty and Dai-Ichi Kangyo Bank of Japan, has debts totaling $170 million on the property.
The 17-acre property, located at La Jolla Village Drive and Genesee Avenue, has been hit hard by the soft office leasing market. The project’s largest office tower, an 18-story building, is only one-third leased. Several other high-rent office properties in the UTC area have encountered similar financial problems.
According to David Bagley, the attorney representing the Hahns and Summers, the developers will ask U.S. Bankruptcy Judge Peter Bowie to approve a reorganization plan that would allow the partners to “restructure the debt on the project in a way that reflects the realities of today’s commercial real estate market.”
Bagley would not discuss the plan in greater detail, but observers expect the partners to ask the court for extended terms.
Observers also said Tuesday that Bank of America may ask the court to keep the project out of bankruptcy proceedings, arguing that the project’s financial problems can be addressed adequately though the foreclosure process. Typically, a lender can foreclose on a property within 120 days after filing a notice of default.
Bank of America spokesman Jim Mitchell in San Francisco was unavailable for comment Tuesday. Bagley said Tuesday that the bankruptcy filing would not affect or disrupt tenants in the Plaza at La Jolla Village complex.
The chapter 11 bankruptcy filing was made by the partnership entity only and not by the Hahns or Summers personally. A Chapter 11 bankruptcy filing can shield debtors from creditors for up to several months.
However, the filing could affect the younger Hahn’s efforts to assemble downtown property for a projected indoor sports arena. The City Council signed a “memorandum of understanding” with Hahn in March that gave him an exclusive 18-month period in which to find a suitable site for the downtown arena.
Hahn was unavailable for comment Tuesday afternoon at his Land Grant development firm.
