The last decade’s great condominium construction boom is over in downtown Los Angeles -- with the exception of one battered builder still crawling toward the finish line.
A 30-story condo development that Hassan “Sonny” Astani set in motion in 2004 is all but complete after surviving a series of setbacks, including the successive failures of two banks that were helping fund construction.
In August, the city gave Astani the green light to let buyers move in to lower floors of his Concerto tower near Staples Center. But Astani is locked in a legal conflict with an East Coast investment group that prevents him from opening the doors. Outside the courtroom, Astani is hustling to rally public officials to his side, including a trip to Washington late last month looking for support.
As the investors see it, Astani is just another developer who mistimed the housing market and is upside down on his loan.
Astani, who has the support of local officials, including City Councilwoman Jan Perry, paints the conflict as a showdown between a local developer trying to finish a big project and high rollers with federal backing determined to grab his $260-million project at a discount.
“I face an unholy alliance between government and Wall Street,” Astani said, referring to a huge real estate deal sponsored by the Federal Deposit Insurance Corp. to help stabilize the commercial property market. Last October, investors headed by hedge fund Starwood Capital Group won an FDIC auction to take over the assets of a failed Chicago bank that had lent money to Astani.
For a bid of $554 million, the investors won control of the assets of Corus Bank, which had been seized by federal regulators. Starwood’s group, which then became known as Corus Construction Ventures, got a 40% stake in the assets. The FDIC kept ownership of the other 60% but put the investors in charge of managing the $4.5-billion portfolio of real estate loans and foreclosed condos, apartments, offices and land. Among the more than 100 loans was Astani’s $190-million construction loan.
The relationship between Astani and his new note holders was strained from the get-go. As Corus Bank was going under, regulators pressured the bank to reduce risk, and it stopped extending the funding Astani was using to pay for construction of his tower. The building was 95% complete at that time, he said.
Desperate to pay his contractors and keep construction of his tower on track, Astani auctioned off 77 low-rise loft units he had completed on the Concerto site in a one-day sale just before Corus Bank went under.
Astani sought Chapter 11 bankruptcy protection for Concerto days after the bank failed. He asked a U.S. Bankruptcy Court judge to approve the condo sales -- which hadn’t closed escrow -- and to let him use the $31 million he raised to pay bills and complete the tower.
But Astani had used the loft units as collateral for the tower construction loan and the FDIC objected to letting them be sold, especially in the depressed housing market. He also tried to buy his loan from the FDIC at a premium, but didn’t succeed.
A judge decided to let Astani close the condo sales and put the proceeds toward finishing the tower, but ruled that to protect the lenders Astani had to pay Corus Construction $1 million a month in interest and give the lenders a say in how Astani spent his money. A judge reduced the monthly payment to $750,000 in July.
The two sides haven’t agreed on much since, and progress on the tower has been excruciatingly slow. Astani has paid $9.75 million in interest and more than $3 million on lawyers while spending $8 million on construction, he said. He may be on the hook for millions more to pay Corus Construction’s legal fees.
Perry, whose council district includes downtown, agrees with Astani’s assertion that he was unfairly delayed from finishing Concerto’s tower by fallout from the deal with the Starwood group.
“We can’t let the federal government let someone hang out there and deny decent job opportunities in an economy when we desperately need them,” Perry said.
An FDIC spokesman defended the agency’s agreement with Corus Construction, which was the highest of eight bidders for Corus Bank’s assets
“What we’re trying to avoid is creating the kind of financial incentives that cause the rapid liquidation of the portfolio at fire-sale prices, which could further depress already distressed markets,” FDIC spokesman Andrew Grey said. “The structured transaction enables the FDIC’s managing partner to take a longer-term approach to the loans, allowing for an orderly workout period.”
Astani, though, has a great sense of urgency. In an effort to gain control of Concerto before he runs out of money, Astani launched a campaign to embarrass the lenders and pressure the FDIC into a settlement. In late July, he paid for ads critical of his opponents in the Weekly Standard, Roll Call and Washington Post. He also hired a high-powered public relations firm to represent him and courted press attention.
He hopes his lobbying efforts will produce congressional hearings on how the investment group is administering the former Corus Bank real estate portfolio on the public’s behalf.
Perry, Mayor Antonio Villaraigosa and Rep. Lucille Roybal-Allard (D-East Los Angeles) have made public statements of support for Astani. He paid for a recent ad in The Times in which the Los Angeles/Orange Counties Building and Construction Trades Council endorsed Astani, accusing Starwood Chief Executive Barry Sternlicht and his partners of killing 600 union construction jobs by holding up Concerto.
A representative of the ownership consortium said in response that the group has committed more than $500 million to complete construction and improve buildings that other developers left unfinished, thereby providing jobs.
“The allegations that Mr. Astani is making are patently false, particularly when you consider there are workers on site at the project as we speak,” spokesman Tom Johnson said. “We are amazed that he can fund such an erroneous PR and ad campaign that purposely distorts the facts.”
Astani said Sternlicht and the other hedge fund managers want him to give up and walk away from his project.
In late August, the Bankruptcy Court rejected Astani’s plan for Chapter 11 reorganization and gave him until December to come up with a new proposal. More than 30 other developers with loans in the Corus portfolio have already handed their projects’ keys to the new note holders and some observers are surprised that Astani hasn’t done the same.
Real estate attorney Dale Goldsmith of Armbruster Goldsmith & Delvac said he isn’t convinced that downtown Los Angeles is a viable market for large-scale condo development, but he thinks Astani has had a string of bad luck with his project.
“He’s really tenacious,” Goldsmith said. “Others would have given the keys to the lender and walked away.”
Astani said he is perhaps most galled at the idea that when the residential market revives in a few years the hedge funds will sell properties such as the one he built and take credit for creating them.
“I want to see it through and have my name on it,” he said. “Not Starwood’s.”