Downtown Builder Is Sued by Partners

Developer Tom Gilmore’s partners in a $27-million Los Angeles housing project want to end the 3-year-old collaboration, contending in a lawsuit that his mismanagement has left the 209-unit development “dead in the water.”

The suit, filed by Affordable Multi-Family Co. and Multi-Housing Investment Inc., alleges that, though millions of dollars in city-approved bond proceeds had been earmarked for the project, Gilmore’s “unnecessary delays and lack of performance” left the partnership owing vast sums in property taxes, liens and bank fees.

At the same time, according to the lawsuit, Gilmore as managing partner collected a “significant portion” of a $2.7-million construction loan as a developer’s fee.

The lawsuit also contends that Gilmore purposely mishandled the project for the “underlying and nefarious purpose” of driving the partnership into the ground so his company could take over the project for less than its market value.

Gilmore said Wednesday that he had no problems with dissolving the partnership and dismissed the lawsuit as a legal tactic by investment partners who want to safeguard their stake in the project. He said another potential investor has been in talks with his partners about taking over the project.

“We would disagree with everything in the lawsuit.... We are not addressing it because we don’t believe it will have to be answered,” Gilmore said.

Ron Rus, the attorney for Gilmore’s investment partners, countered that lawsuits “are filed for a reason. There is no negotiation for anyone to buy the plaintiff’s interests.”

The suit, filed April 9 in Los Angeles Superior Court, represents the latest controversy over Gilmore’s management of publicly financed projects in downtown Los Angeles.

A year ago, Gilmore faced the possibility that his 240-unit Old Bank District project along 4th and Spring streets would be sold at auction because of a dispute over $900,000 owed to a contractor.

Though that dispute was eventually settled, city records recently showed that Gilmore had not paid Los Angeles any of the principal on its $3.8-million loan. Under the original agreement with the city, payments on the principal were not required until the project turned a profit. Virtually all of that project’s $37 million in funding has come from city loans and a federally guaranteed loan.

The recent lawsuit involves a proposal to convert the Rowan Building at 458 S. Spring St. into affordable apartments. It was filed by two companies whose parent corporation, Simpson Housing Solutions of Long Beach, is one of the nation’s largest partners in developing affordable housing.

The lawsuit and city records show that the project was to be financed using bond proceeds issued by the city’s Community Redevelopment Agency and guaranteed by Fannie Mae. In order to have the bonds issued, according to the lawsuit, the partnership guaranteed Fanny Mae $25 million as security for the bonds.

With $9.5 million spent to buy the 1912 building, the partnership still has millions of dollars in bond proceeds held by a bank and available for construction, the lawsuit contends. The partnership was forced in 2001 to secure a $2.7-million loan toward construction, according to the lawsuit. Meanwhile, the suit contends, Gilmore made a number of costly mistakes, such as failing to pay $306,000 in property taxes, allowing a $197,000 lien to be placed on the property, and failing to pay $109,000 to a bank that had agreed to provide another construction loan. The bank later withdrew its commitment, according to the suit.