Neil Shekhter, who was once the city’s most prolific and controversial developer, has lost control over another three local properties as part of an ongoing inability to repay bank loans.
According to The Real Deal, Shekhter recently lost ownership of 1007 Lincoln Boulevard, 1038 10th Street and 1516 Stanford Street to Bank of Southern California as part of foreclosure proceedings.
The transfer of property is a result of a lawsuit filed by Bank of Southern California over a $16.2M loan covering the three parcels which according to the bank has never been repaid.
Bank of Southern California brought the case against several members of the Shekhter family and their associated businesses concerning a defaulted business loan agreement. The loan agreement, executed in September of 2022, involved a principal sum of $16,200,000. To secure the loan, the borrower provided a deed of trust and an assignment of rents, which encompassed the three local parcels of real estate.
According to the plaintiff, the borrower defaulted on the loan agreement by failing to make the required monthly payments. Additionally representatives for Shekhter allegedly confirmed their intention not to rectify the missed payment or contribute further funds toward the property in a phone conversation with the bank.
As of September 19, 2023, Shekhter and the other borrowers owed the bank a principal sum of $14,379,511.30, along with accrued interest, late charges, costs, and legal expenses, as outlined in the loan documents. The loan agreement also stipulates that the borrowers are responsible for the plaintiff’s reasonable attorney fees incurred in enforcing the agreement.
The bank is also making a fraud allegation, claiming the defendants lied on their loan application and that the bank would have never made the initial loan had they known the truth.
The bank alleges the purpose of the $16.2 million loan was for refinancing and property renovations. Specifically the cash was to be used to pay off a previous loan, secure tenant buyouts and remodel the properties as a means to secure higher rents.
However, the bank claims there were plans in place to convert the properties into affordable housing.
“Indeed, absent Borrower taking such steps (i.e. buyouts and renovations, as represented by Borrower), it would make no financial sense for Plaintiff to make the Loan,” said the lawsuit.
In the lawsuit, the bank claims it became aware of the proposed plans when the three properties were included in a settlement with the City over the Builder’s Remedy projects and plans for the specific sites were released, including affordable housing units.
“In other words, as early as three days after entering into the Loan Documents and securing an over $16 million loan from Plaintiff, including with the express purpose to renovate and stabilize the Real Property for higher market rents, Borrower applied to the City to convert the properties to very low to moderate-income households, contrary to Borrower’s stated intentions. Plaintiff would not have made the Loan to Plaintiff had it known of Borrower’s real intentions,” said the lawsuit.
The plaintiff asserts that there were no meaningful efforts towards property renovations despite receiving funds specifically earmarked for that purpose and that at least one unit was allegedly leased out at below-market rates to friends of the family.
While the current case is the latest in a series of legal setbacks for Shekhter and his companies, it’s not the first nor may it be the last.
In 2018, San Francisco based SPI Holdings took control of nine local properties that were once part of a joint venture between Neil Shekhter/NMS Capital Partners and a subsidiary hedge fund AEW. The original partnership included a monetary investment by AEW but the two sides disagreed on the terms that would allow Shekhter to repay that investment and buyout AEW. Shekhter tried to repay AEW its $60 million investment plus interest and take sole ownership of the properties. AEW refused the buyout money and NMS filed a lawsuit over the ownership of the properties. In December of 2016 a judge said Shekhter forged contracts, lied and destroyed evidence in the lawsuit over the buyout. The judge gave AEW full control of the properties and the hedge fund quickly sold them to San Francisco developer SPI Holdings for about $430 million.
Since that time, Shekhter and companies he is associated with have tangled with other business partners, banks and government entities.
Santa Monica has tussled with Shekhter and affiliated parties over accusations of illegal evictions, improper rental practices, construction standards and most recently over the Builder’s Remedy system.
Shekhter was the primary developer to capitalize on Santa Monica’s failure to adopt rules compliant with state standards that resulted in a carte blanche for developers to bypass local zoning rules. That situation resulted in a settlement that withdrew the vast majority of supersized projects in exchange for enhancements to a few specific buildings and was referenced in the Bank of Southern California lawsuit for clustering affordable housing into the properties that were supposed to be refurbished.
Shekhter was once the boogeyman for residents opposed to development and while his Builder’s Remedy projects generated widespread angst among locals, other companies have largely eclipsed him in the public eye as most of the current construction is tied to newer developers like Cypress Equity.
Outside Santa Monica, Shekhter has lost about half of his total holdings or about 1,000 total housing units. About 20% of those were sold to other companies but the bulk were transferred to various investors to avoid foreclosure and wipe out about a billion dollars worth of debt.
Despite the resolution of those cases, others persist. As recently as last month, a court ruled against him in a $3M case with another lender, Preferred Bank.
matt@smdp.com