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Hollywood Takes a Hit? DS Ventures Looks to Reorganize

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One of Hollywood’s bigger redevelopment boosters, DS Ventures is looking to reorganize following the personal Chapter 11 bankruptcy filing last month of principal David Schwartzman. Schwartzman owns 86 percent of DS Ventures, according to documents filed last month in US Bankruptcy Court, Central District of California, so DS Ventures’ properties--the Beverly Hills-based developer owns or has a stake in more than a dozen proposed or existing developments—--are mentioned in the filing. And all is not well with some of these projects. According to the filing, the lender has filed a notice of default (the first sign of foreclosure) on the Metropolitan, that dark-hued hotel turned rental tower on Sunset Blvd. A housing development proposed for Mulholland Blvd--a project the neighborhood group Save Oak Savanna is fighting--is in Chapter 11. Not mentioned in the filing, but notable: DS Ventures's proposed Lexington project, a mixed-use development that would have taken out the Circus Disco on Santa Monica Blvd, is dead. Looks like the kids can keep dancing for now.

According to court documents, Schwartzman's lawyers blame the collapse of Lehman Brothers on DS Ventures' current financial difficulties, noting that Lehman was the financial partner on the majority of the company's projects.

Also in the filing, lawyers for Schwartzman argue that in most of these cases, selling DS Ventures’ properties is not an option because of the current real estate market. (Of course, we are now seeing some developers try and unload properties.) The filing classifies these projects as special, and in need of DS Ventures’s background and expertise. “Many, if not all, of the projects involved complicated entitlement issues or are otherwise politically sensitive," write Schwartzman lawyers.

Here is a partial list of the projects listed in Schwartzman's Chapter 11 filing:

Metropolitan Hotel, now a rental property: According to the court documents, lender GE Commercial Property recorded a notice of default against the property at 5825 Sunset, commencing its non-judicial foreclosure.

Notably, the filing also mentions the former hotel as a possible revenue-generator because of supergraphics. And here's the backstory on the graphics and why to perhaps like DS Ventures: According to a February 2009 Los Angeles Times article, the developer was one of the few companies to refuse advertising company Skytag’s offer to put up a Statue of Liberty supergraphic on the Metropolitan Hotel. Playing by the rules (aka waiting for sign rules to be worked out) cost them financially, according to the Times article.

Not that they aren’t going to put up advertising eventually. In their filing, lawyers for Schwartzman note that the Metropolitan Hotel’s forthcoming signage--two supergraphics and roof signage—will bring in substantial income. From the filing:“The value of such signage could be an amount equal to the price paid for the property.” How much did they pay for the hotel? Property records show that DS Ventures paid $18 million for the hotel and $2.1 million for the adjoining commercial property in 2005. Who knows the time period for bringing in $18 million? It’s not clear as lawyers for Schwartzman did not return calls. Regardless, ka-ching!

22255 Mulholland Drive: Now in Chapter 11. DS Ventures has a 50 percent stake in 22255 Mulholland Drive, site of a proposed and highly contested development (DS Ventures is seeking entitlements for 23 homes). A group called Save Oak Savanna has long fought the developer's project.

Former St. Luke’s Medical Center: DS Ventures purchased the old hospital (in partnership with Lehman) and has been seeking to transform it into an assisted-living facility, and possibly add 160 elderly units. Development of this area has been controversial, according to media reports.

14717 Sherman Way: Row homes or apartments are planned for this site.

2775 Cahuenga: 75 apartments are planned.

63rd Avenue and Esplanade Street, Playa Del Rey: DS Ventures in partnership with Lehman on this site. According to the filing, DS Ventures is in a lawsuit with the City regarding the “unauthorized down-zoning of the property.” The Argonaut has been covering DS Ventures and how some neighbors have objected to the company's development plans in the neighborhood.

The Lexington: While it’s not mentioned in the filing, the once proposed Lexington on Santa Monica Blvd (site of the Circus/Arena discos) is currently dead, according to the clubs' owner. “The project is not going forward,” Eugene LaPietra, who had looked to develop the site with DS Ventures, tells us. “[DS Ventures] was unable to fill their commitment so they are no longer involved in the project.”

Meanwhile, is there anything unusual about Schwartzman’s Chapter 11 filing? “With just a cursory look, not particularly,” says Glendale-based attorney David A. Tilem, who specializes in bankruptcy cases. “But there is a lot of property involved.” What's next for Schwartzman and DS Ventures? Filing for Chapter 11 bankruptcy protection gives the developer time to reorganize and pay off whatever debts are owed. Tilem laid out what usually follows next in these types of cases:

There are numerous scenarios that could play out, but here are three possibilities: 1. An agreement could be reached between all the parties and the loans could be re-written and the bankruptcy would be dismissed; 2. a plan for formal reorganization would be proposed, one which would be overseen by the courts; or in a worst case scenario (for DS Ventures), an order could be given to liquidate the company. 3. Additionally, the court could just order the bankruptcy dismissed, a move which basically says, “Figure this out on your own, we aren’t going to help.”

The next hearing is set for August 3rd.

Schwartzman’s filing also reveals some insight into the lifestyle of our city's very wealthy developers. According to the filing, he is trying to hold on to his $6.5 million home (his estimate of its worth, based on recent sales) at 1426 Harridge Drive in Beverly Hills (Monthly mortgage payments are $22,222.08), while he was leasing a 2006 Bentley (which he is giving up). And he owns a Mercedes 2006 SL 65. Rolling with the homies!
· Bankruptcy Petition #: 1:09-bk-16565-MT [Pacer]
· DS Ventures Archives [Curbed LA]