It turns out there's some truth to that rumor that developer Meruelo Maddux wants to turn its 705 W. Ninth rental building, a project that's in Chapter 11 bankruptcy protection, into a condo project. On November 18, the developer (under a LLC name) filed legal papers asking a bankruptcy court to allow it proceed with a one day auction of 48 of the building's 214 units.
Citing the success of the Concerto lofts sales event, the filing requests a Kennedy Wilson-run auction (the same firm that did Market Lofts), and predicts that units could sell for between $415-$500 per square foot. The developer promises a sale price of no less than $340 a square foot, and believes that they will raise at least $22.3 million from the sale.
The filing comes amid much legal jostling between Meruelo Maddux and Century City-based Canyon Capital Realty, the investment firm which provided the $84 million loan on the downtown project (the filing names "Canpartners" as the affiliate who gave the loan).
While Meruelo Maddux may be pushing for an auction, the investors want to seize the tower. On November 12th, Canpartners filed a motion for relief from automatic stay, a move that essentially asks the court to lift the Chapter 11 “freeze” on the building and allow foreclosure proceedings to begin.
The moves come as the two parties bicker about how much the tower is worth: Mereulo Maddux claims that if prices increase after the proposed auction, the building could be worth $131 million, while Canpartners has submitted an appraisal that puts the tower at $62.5 million as an apartment building, and worth $65.92 million as a condo building. (For those wondering about the vast difference between those two figures, keep in mind that exaggeration and number inflation or deflation are all part of the legal game.)
It's hard to speculate as to why the developer picked only 48 units--the first six floors--to auction off, but it's likely that a smaller number of units would go more quickly than a larger pool of units. Additionally, perhaps the developer (also in Chapter 11 protection) is just looking to quickly raise cash at this point.
A rep for Meruelo Maddux declined to comment on the legal proceedings, and a messages left for Canyon Capital Realty execs weren't returned.
Nevertheless, a bankruptcy judge is expected to rule in December on the auction request, and a ruling on the motion of relief of stay is expected in January. Given the legal filings to date, it's wouldn't be surprising if these two things happen in the next few weeks: Meruelo Maddux will likely file papers opposing Canpartners' request for relief from stay, and Canpartners will likely file a motion opposing the auction request.
What is clear at this point is this: We all should have gone into the bankruptcy law or auction business.