Judge to Handle Messy Marina del Rey ‘Divorce’ : Business: L.A. developer and Saudi group are seeking to restructure a deal through bankruptcy court. At stake is control over a vast real estate empire.
Almost from the start, it was a troubled marriage.
Three summers ago, a prominent developer sold a major stake in his vast Marina del Rey real estate empire and became partners with a secretive Saudi sheik.
The problems soon began. Over time, the differences grew, the recriminations became more bitter, the financial straits more dire.
Now, the two sides are in the throes of an agonizing divorce, being waged in federal bankruptcy court. There, Los Angeles developer Abraham M. Lurie is pitted against an investment group headed by billionaire Saudi Arabian businessman Abdul Aziz al Ibrahim, brother-in-law of King Fahd.
Each side has submitted plans to restructure their partnership, Marina International Properties Ltd., to eliminate the other. At stake: control of three hotels, two apartment complexes, shopping centers, office buildings, restaurants and more than 1,100 boat slips in Marina del Rey and millions of dollars in annual revenue to the county.
A key test of each plan’s strength--along with a third by the largest of the banks involved--will come Tuesday, when U.S. Bankruptcy Judge Calvin K. Ashland considers disclosure statements detailing each side’s reorganization plan.
In a bit of deja vu, Lurie’s plan again involves secret investors.
The contest is being closely watched by a group of banks that together have $140 million in unpaid loans on the marina properties. Also watching will be attorneys for Los Angeles County, which owns Marina del Rey and leases most of the harbor long-term to private developers.
The County Board of Supervisors in 1989 blessed Lurie’s sale of a 49.9% stake in his marina empire without learning the identity of his partners, concealed by an elaborate network of shell corporations stretching from Europe to the Caribbean to California.
The supervisors were assured by a lawyer that the investors were legitimate foreign businessmen “who wish to remain anonymous to avoid . . . criminal elements that tend to gravitate to and feed upon the prominent and well-to-do.”
In late 1989, a Times investigative report identified the lead investor as Ibrahim.
This time, the county is taking a different tack. Its attorneys have challenged all three bankruptcy reorganization plans as inadequate to ensure that the marina properties are maintained, upgraded and redeveloped to their fullest economic potential.
In a series of private meetings this spring, county officials contacted several local developers to solicit interest in putting together an independent bid for the marina holdings. So far, the effort has failed.
The Lurie properties, which make up about 20% of the marina, are the source of more than $5 million a year in rent payments and property and hotel taxes for the financially strapped county. In addition, Lurie and the Saudis owe another $5 million in deferred rent on the Marina Beach Hotel.
But the county is only one player in a bankruptcy that involves the Bank of Montreal, Calfed Bank, Great Western Bank, Mitsui Manufacturers Bank and the federal government’s Resolution Trust Corp., which took over the failed Unity Savings of Beverly Hills.
Unwilling to take a huge loss on the largest of the three hotels, the Marina Beach, the Bank of Montreal has submitted its plan to reorganize and take control of the marina holdings. Calfed and Great Western have tried to have the properties sold and the assets liquidated.
Together, the banks are owed an estimated $140 million for loans, back interest and other costs associated with the marina properties.
With the recession depressing real estate values and the marina properties suffering from deferred maintenance, recent appraisals have put the value of the leaseholds at far less than the loans--between $111 million and $126 million.
The biggest problem is the Marina Beach Hotel. In a region where the hotel industry is plagued by too many rooms and not enough people to fill them, the value of the hotel has plummeted.
Appraisers estimate that the Marina Beach is worth between $27 million and $31 million, about half of the $54.6 million owed to the Bank of Montreal.
The Ibrahim disclosure statement, which does not include the investor’s plan, is 800 pages long. The Bank of Montreal’s plan is only slightly smaller. Lurie’s was the last filed of the three and is the thinnest and least specific.
Once a major political contributor and a leading force among marina leaseholders, Lurie’s personal and business fortunes have soured in the last few years.
In an interview last week, Lurie said he wishes that he had never entered into partnership with the Saudis. At the time, Lurie was suffering serious financial problems from heavy borrowing against the marina properties and continuing losses at the Marina Beach Hotel.
He had not paid the county more than $1 million in back property taxes, had failed to develop the last waterfront property in the marina and was in default to one of his lenders.
Even if he had ended up in bankruptcy sooner, Lurie said, he would have been in a better position to reorganize: “I could have been doing that without the competition of a partner at the same time.”
Lurie likened the fight to a David-Goliath struggle. “I consider myself the David. I consider them to be the Goliath. . . . I don’t think there is any question who is going to end up with the property--I think I am.”
But such bold talk runs contrary to the expectations of most observers, who expect the Saudis--with their far deeper pockets--to win.
Joseph A. Eisenberg, Los Angeles bankruptcy attorney for the Saudi investors’ Marina Group of Companies, said Lurie’s reorganization plan is so skimpy that there is not much for creditors to digest.
Ted Reed, director of the county Department of Beaches and Harbors, which oversees the marina, said the county is “not comfortable with the (Lurie) plan as it stands now, that’s for sure.” Reed said he does not know who the new investors are or where the $5 million infusion they propose is coming from.
Lurie said he will disclose the investors’ identities at Tuesday’s bankruptcy court hearing.
In the meantime, the county has filed objections to all three plans. Martha Romero, deputy county counsel, said the county is concerned about the deteriorating condition of the marina properties, especially the boat slips.
In addition, she said, the present partnership has “a disastrous operating record,” which is producing lower rents to the county than do other marina properties.
“We don’t know how they will achieve improved results,” Romero said, pointing to the absence of a business plan and working capital to run the properties.
However, the county may have no choice in the matter. Its overtures to several developers did not pan out. “There was no one rip-roaring wanting to do it,” Reed said. “The problem we have right now is there is a generally depressed real estate market. Developers are dropping by the wayside.”
The Lurie/Ibrahim Holdings
1. Marina Plaza Hotel site*
2. Marina International Hotel
3. Doubletree/Marina Beach Hotel
4. Marina del Rey Hotel
5. Admiralty Apartments
6. Islander Marina Apartments
7. Fisherman’s Village
8. Pier 44
9. Marina West
10. Marina Beach Shopping Center
* Not involved in bankruptcy
The Lurie-Ibrahim Partnership
Marina del Rey is owned and administered by Los Angeles County . Businesses there operate under long-term leases (usually 60 years) that can be bought and sold much like conventional real estate.
August, 1989: Abraham M. Lurie, the marina’s largest developer, sells a 49.9% stake in his holdings to unidentified foreign investors for $21.8 million. To conceal the partners’ identities, the deal is structured through a dozen shell corporations. County supervisors approve the sale without learning who the investors are. The deal involves about 20% of the property in the marina--three hotels, two apartment complexes, commercial properties and more than 1,100 boat slips.
November, 1989: A Times investigative report identifies the lead investor as billionaire Saudi businessman Abdul Aziz al Ibrahim, a brother-in-law of King Fahd.
October, 1990: Apparently strapped for cash, Lurie agrees to sell his remaining 50.1% interest in the marina to the Ibrahim group for $15.3 million, with the Saudis agreeing to assume more than $130 million in debts. But the deal is not closed and soon collapses in battle for control of the properties.
March, 1991: The Saudis sue to dissolve the partnership with Lurie, accusing him of fraud and abuse. Two banks file default notices against the partnership for failure to make payments on $75 million in loans.
June, 1991: Beset by mounting legal problems, Lurie files for bankruptcy. A judge appoints a receiver to oversee the marina properties.
July, 1991: The day before a scheduled bank foreclosure on one marina hotel, the Lurie-Saudi partnership files for Chapter 11 bankruptcy protection. In another development, auditors link Ibrahim to $132 million in questionable loans from the scandal-plagued Bank of Credit and Commerce International.
November, 1991: A county inquiry finds that Ibrahim used $7.7 million from accounts at BCCI to finance part of his investment in the marina, but concludes that there is “no evidence of any wrongdoing by the Ibrahim family in connection with the activities of BCCI.”
April-June, 1992: The Saudi group, the Bank of Montreal and Lurie file separate reorganization plans with the federal bankruptcy court.
