Judgment Puts Pressure on L.A. Loft Developer

The cornerstone project of Los Angeles’ efforts to convert downtown buildings to residential lofts could be sold at auction unless its developer pays nearly $900,000 owed to a contractor.

The potential sale of the 240-unit Old Bank District project follows the arbitration of a dispute between the project’s main contractor, Prudential Management Co., and developer Tom Gilmore, who said Monday his buildings will not have to be sold.

“I am not saying that the legal process does not exist for that to occur,” Gilmore said. “I am saying that, in reality, the chances of it occurring are nonexistent.”

A court-appointed arbitrator awarded $857,000 to Prudential in January, according to Prudential’s attorney Peter Csato. The money, he said, represented payment owed to Prudential by Gilmore for work on the sprawling residential project, which spans three buildings along 4th Street at Spring and Main streets.

With no payment from Gilmore in nearly four months, Csato said, his client contacted the Los Angeles County Sheriff’s Department to sell the buildings, which are all occupied, so the judgment could be paid. The buildings will be sold at auction in 120 days, he said, unless Prudential is paid.

“We are basically trying to enforce the judgment by involuntary means because we are not being voluntarily paid,” Csato said. He said either payment or bankruptcy protection would prevent the sale.

Prudential’s Chief Executive Officer Frank Gamwell said the company has done about $17 million worth of work on the project.

“The last thing I want to do is be seen as the person who would put a hiccup in the downtown revitalization efforts,” said Gamwell. “But Mr. Gilmore and his legal counsel have done everything possible not to pay me.”

Gilmore said such claims are groundless. “We will pay them something, someday, depending on how we negotiate with them,” he said.

Prudential entered into a contract with Gilmore’s development company more than three years ago to convert three office buildings west of skid row into residential lofts. The project was heralded as a groundbreaking effort to revitalize downtown Los Angeles by transforming once-foreboding streets into vibrant pockets of apartments, condominiums and businesses.

But even as the concept drew accolades and imitators, Gilmore’s project encountered cost overruns and controversy.

Last year, a half dozen veteran city inspectors told The Times that their bosses improperly exempted the project from some building and fire code requirements, putting hundreds of tenants at risk in the event of a major fire. Gilmore and the officials who approved the project’s opening said the claims were without merit.

The project, originally estimated at $30 million, has cost about $37 million. Almost $26 million of that was funded by a mortgage guaranteed by the U.S. Department of Housing and Urban Development, and another $5 million was lent by the city of Los Angeles.

Gilmore said he at first withheld payments to Prudential for work that he considered substandard. “My personal opinion is that they did absolutely awful work and I am outraged that they could make any money from us,” he said.

Prudential’s Gamwell said the arbitration judgment proved his firm’s work was sound.

Referring to the 70-unit San Fernando, the first of the buildings to open, Gamwell said any question about the quality of work should not be directed at Prudential, but at other contractors hired by Gilmore.

“I am one of the biggest believers in revitalizing downtown Los Angeles,” said Gamwell. “I am investing in projects there myself, so the last thing on Earth I would ever want to see is Tom Gilmore in trouble on this project.”

While praising the Old Bank District project, Gamwell said, Gilmore is “ruining the opportunity for downtown Los Angeles instead of helping it, which is what he originally did.”

Times staff writer Roger Vincent contributed to this report.