February 23, 2022 – The Debtors filed a motion to extend the periods during which they have an exclusive right to file a Chapter 11 Plan, and solicit acceptances thereof, through and including June 23, 2022 and August 22, 2022, respectively [Docket No. 130]. Absent the requested relief, the Plan filing and solicitation periods were scheduled to expire on February 23, 2022 and April 24, 2022, respectively.
In this first request for additional exclusive time, the Debtor highlights that it has a limited ability to progress a Plan until its asset sale process is complete and it has better visibility as to distributable proceeds. At present, the Debtor expects the auction process in respect of its "The One" mega mansion to be completed by March 3rd (it begins on February 28th) with a closing by March 21st. With completion of the sale process, the Debtor will either "successfully emerge from its chapter 11 case or to exit through a structured dismissal….largely dependent on the sale price for the Property and the Debtor’s success in resolving any disputed claims."
The Debtor remains outwardly confident that the auction will generate sufficient proceeds "to pay all allowed secured claims, administrative claims, and priority unsecured claims, in full, and to make a distribution on allowed general unsecured claims, potentially up to payment in full with a surplus to the Debtor’s owner;" although not so confident that it can resist using the first part of the motion as a promotional tool:
"The Debtor’s primary asset is the residential real property (the 'Property') that it developed, which is located at 944 Airole Way, Los Angeles, CA 90077. The Property is one of the finest pieces of real property in America. The Property is situated on an approximately four-acre Bel Air promontory, featuring the best views of Los Angeles. A moat that encompasses the Property gives the impression that it’s floating on water. The approximately 105,000-square-foot glass and marble compound holds 21 bedrooms, each with sweeping views of Los Angeles and the ocean, and 42 full and 7 half bathrooms, as well as every amenity in the world. It features a 30-car garage, five swimming pools, a two-story waterfall, and numerous other water features, as well as two restaurant-grade kitchens, an indoor/outdoor entertainment cen ter with its own VIP ro om, a movie theater, charitable organization rooms, a four-lane bowling alley, a library with floor-to-ceiling windows, a full beauty salon, a spa with a steam room and jacuzzi, a cigar lounge, and a gym. Three smaller villas also sit on the property, spread across the four acres. The 5,000- square-foot master suite is an oasis within the mansion. Designed with its own se parate office and walk-in closet, the suite also has its own pool and kitchen. To guarantee privacy, it’s isolated from the rest of the house. The mansion includes five elevators and LED ceilings that display images of moving clouds. The Property features state-of -the-art technology, with a full secur ity center. The design encompasses secondary corridors for staff to use.
At present, the Debtor believes that the Property has a fair market value of well over $200 million in its 'as-is' nearly complete condition, but understands that the market will ultimately dictate the price."
The extension motion explains, “…the Debtor intends to formulate a plan that will enable the Debtor to successfully emerge from its chapter 11 case or to exit through a structured dismissal. The manner in which the Debtor proceeds will be largely dependent on the sale price for the Property and the Debtor’s success in resolving any disputed claims. As also discussed above, the Debtor already obtained approval of the Bid Procedures and working to obtain Court approval of a sale of the Property and to close it by March 21, 2022. While the Debtor has been focused on consummating an expeditious sale of the Property for the highest price possible, the Debtor has begun the claims reconciliation process. That process will take some time given that over $255 million in claims have been asserted, many of which are based on alleged secured loans to the Debtor that involved substantial documentation and amendments.
Based on the foregoing, proposing a plan and preparing a disclosure statement at this time would be premature and inefficient since the Debtor’s ultimate reorganization structure will be substantially dependent upon the outcome of (1) the sale of the Property, which will largely determine the pool of funds available to pay allowed claims and (2) the claims reconciliation process and potentially objections to larger claims, which will allow the Debtor to better ascertain the amount of allowed secured, administrative, priority, and general unsecured claims. On the other hand, if the Debtor can reduce variables by completing a sale of the Property and the claims reconciliation process (and maybe objections to certain large claims), the Debtor will be able to provide creditors with a more accurate disclosure statement, plan, and understanding of what they will receive on their claims.”
Current Sale Timeline:
- Auction: February 28 – March 3, 2022
- Deadline to object sale: March 15, 2022
- Sale Hearing: March 18, 2022
- Sale Closing Date: March 21, 2022
Background
The Property is the famous/infamous Los Angeles mega mansion “The One” with DIP lender Hankey the largest of secured lenders and owed $123.8mn in respect of prepetition debt.
According to an article published by the Wall Street Journal in respect of the January 6th hearing, "The managers of developer Nile Niami’s bankrupt Bel-Air, Calif., megamansion “The One” received court approval to auction it off to a small pool of ultra-wealthy buyers.
A CNN report states, "The hillside property, which spans over a sprawling 3.8 acres, will be listed on January 7 at an eye-watering $295 million, with an online sale held February 7 to 10 via Concierge Auctions [this clearly delayed]."
Judge Deborah J. Saltzman of the U.S. Bankruptcy Court in Los Angeles granted procedures for the sale of the still-unfinished mansion, with a $295 million asking price but no minimum bid. Under the court-approved timeline, the winning bidder could close by the end of next month on the 105,000-square-foot compound, which was placed in chapter 11 in October."
The motion [Docket No. 88] provides, “The Debtor’s primary asset is the residential Property that it developed, which is located at 944 Airole Way, Los Angeles, CA 90077. The Property is one of the finest pieces of real property in America. The Property is situated on a four-acre Bel Air promontory, featuring the best views of Los Angeles…
The Property requires some work to be fully completed, which the Debtor believes will cost approximately $5-$10 million. However, even in its current state of near-completion, the Property can be and has been marketed for sale. The Debtor believes that the Property has a current fair market value of approximately $325 million in its ‘as-is’ nearly complete condition, but understands that the market will ultimately dictate the price.
There are a number of claims allegedly secured by liens on Debtor’s Property. Based on the most recent preliminary title report for the Property, information received from certain alleged secured creditors, and other information available to the Debtor, the Debtor is informed and believe that, as of the Petition Date, the claims allegedly secured by liens on Debtor’s Property totaled approximately $179.2 million, including a claim in the alleged amount of approximately $123 million held by Hankey, the Debtor’s primary secured lender.
Based on the foregoing and other information available to the Debtor regarding alleged unsecured claims, the Debtor believes that the overall prepetition claims asserted against the Debtor, plus the claim for the postpetition DIP Loan, total approximately $194.6 million, with approximately $191.2 million of such claims allegedly secured by the Property and approximately $3.4 million in unsecured claims. Thus, the Debtor has approximately $133.8 million of equity in the Property. Even if the Property sold for substantially less than $325 million, for example $250 million, the Debtor would still have $58.8 million of equity in the Property and more than substantial funds to pay all allowed claims in full.
[NB: The equity cushion has somewhat deflated since the filing of the Debtor's December 8th DIP financing motion which provided: "Based on…information available to the Debtor regarding alleged unsecured claims, the Debtor believes that the overall pre-petition claims asserted against the Debtor total approximately $182.6 million, with approximately $179.2 million of such claims allegedly secured by the Real Property and approximately $3.4 million in unsecured claims. Thus, the Debtor has approximately $145.8 million of equity in the Real Property. Even if the Real Property sold for substantially less than $325 million, for example $250 million, the Debtor would still have $70.8 million of equity in the Real Property and more than substantial funds to pay all allowed claims in full."]
Unfortunately, before the Property could be fully completed and sold (either as a fully completed or nearly completed project), the Debtor’s primary secured lender, Hankey, as well as a number of other junior secured lenders and mechanic’s lien holders initiated a multitude of state court actions against the Debtor seeking, among other things, to recover amounts allegedly owed and to foreclose on the Property. In connection with its action, Hankey sought and obtained the appointment of a receiver for the Property (the ‘Receiver’). In addition, Hankey had a foreclosure sale of the Property set for October 27, 2021.
As a precursor to selling the Property, the Debtor had to regain possession and control of the Property from the Receiver. To that end, immediately after the Petition Date, pursuant to Section 543, the Debtor’s counsel demanded that the Receiver, among other things, (1) turnover the Property and other property of the estate and (2) to cease exercising control over such estate property. As can be seen from the docket, soon after the Petition Date, the Debtor, with the assistance of its counsel and manager, quickly negotiated an interim stipulation with Hankey and the Receiver regarding access to the Property to facilitate efforts to employ brokers and market and sell the Property. Recently, based on the efforts of the Debtor’s counsel and manager, the Receiver voluntarily turned over the Property and all other estate property to the Debtor as of December 1, 2021.
The Debtor is now in position to sell the Property. Subject to Court approval, the Debtor intends to sell the Property as soon as practicable for the highest price possible under the circumstances. In fact, on December 14, 2021, the Debtor filed an application to employ the Brokers and the Auctioneer to market and sell the Property (the ‘Employment Application’). [Dkt. 74]. The Debtor’s agreement with the Auctioneer (the ‘Auction Agreement’) requires that the Debtor seek Court approval of the Bid Procedures (aka the Bidder Terms and Conditions) attached to the Auction Agreement, which are summarized in the preceding Bid Procedures Motion and attached hereto as Exhibit ‘1.’ Based on the filing of the Employment Application, the Debtor, with the assistants of the Brokers and the Auctioneer, is pursuing a sale of the Property to close by on or about February 28, 2028, or as soon as practicable thereafter. Importantly, the Debtor is informed and believes that Hankey and other large stakeholders support such a sale of the Property in the context of the Debtor’s bankruptcy case.
Based on discussions with the Brokers, the Debtor believes that a near-term sale of the Property will generate sufficient funds to pay all allowed claims in full, which will allow the Debtor to exit bankruptcy, either pursuant to a plan or an alternative exit strategy, with a surplus for the Debtor’s owner. While the Debtor believes that the structured dismissal option is more favorable because it offers substantial cost and time savings, which will benefit all parties in interest, in the event dismissal is not possible, the Debtor will propose a simple reorganization plan with terms similar to the expected conditions for dismissal – i.e., paying all allowed claims in full on the effective date of the plan.”
More Background
According to an article published by CNBC, Nile Niami and his Crestlloyd limited liability company, "have borrowed more than $165 million to build and sell 'The One' [over the past four years], according to property documents."
The article further states, "The largest lender is Hankey Capital, founded by Los Angeles billionaire Don Hankey, which has over $115 million in loans on the property. Yogi Securities Holdings, led by doctor-turned-real-estate-investor Joseph Englanoff, has loaned 'The One' over $36 million. Two other entities, Inferno Realty and Maybach Corporation Holdings, have provided loans of $7 million each."
Hankey Capital touts itself as "a private direct lender originating bridge financing in the 3 million to 100+ million dollar range secured by real estate located in California. We specialize in time-sensitive and value-added deals underserved by banks and other traditional capital sources. In addition, Hankey Capital offers structured finance solutions (including Debtor in Possession financing), totaling over $500 million in recent deals. Currently, Hankey Capital has over $850 million in loans on its balance sheet."
In March 2021, Hankey issued a notice of default on the property. The Los Angeles County Superior Court placed the property into receivership in July and appointed Ted Lanes of Lanes Management as the receiver.
Auction Pushed Back
An October 14, 2021 Los Angeles Times article published on Bakersfield.com notes the the foreclosure auction scheduled for "The One" was postponed by the Los Angeles County Superior Court until October 27th after "Englanoff alleged that Hankey reneged on an agreement to have the house completed and sold by real estate brokers, and instead was using the auction process to unfairly take ownership of the mansion or hog the proceeds if it is sold to a third party.
Englanoff, a Los Angeles-area physician and real estate investor who lent $30.2 million to Crestlloyd in 2018 through his Yogi Securities Holdings, states in legal filings that he is still owed $22 million.
He said in a declaration that he had agreed to Hankey's proposal to appoint a receiver in July to finish the house so it could get a certificate of occupancy and be sold through a traditional listing… However, he accused Hankey of pushing ahead with the auction for the billionaire's own benefit even after two brokers last month agreed to list the property for $225 million."
According to the LA Times report, Hankey initially provided an $82.5mn loan to the Debtor in October 2018. Hankey subsequently lent an additional $23.5mn to Crestlloyd, and Yogi Securities provided $30.2mn.
Now, the report explains "Yogi also says the subsequent loans and a change to the original profit-sharing agreement invalidated the first priority position for Hankey’s entire debt. In other words, should the house sell, Englanoff argues, Hankey should not see a penny until Englanoff’s own debt is repaid in full."
Past Issues
This is not Niami's first foray into bankruptcy. The Wall Street Journal reported on December 9, 2020 that a company controlled by Niami filed for bankruptcy in respect of a home he built in West Hollywood.
That property was also reportedly subject to foreclosure after "a limited-liability company tied to Canadian investor Lucien Remillard, one of [Niami's] lenders and a longtime partner, filed a notice of default on the property." Lucien's son, Julien Remillard's, Inferno Investment also provided a loan to the Debtor for "The One" in 2015.
The WSJ article also states "One of the property’s biggest lenders is a limited-liability company tied to Joseph Englanoff, a real-estate investor and another longtime partner of Mr. Niami. Mr. Englanoff took control of another of Mr. Niami’s projects, a Beverly Hills spec house with a 'car museum' that was once priced at $100 million," but later sold that property.
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