City staff has drafted an outline regarding internal scrutiny of contracts with NMS Properties, after the company’s CEO, Neil Shekhter, was found to have forged documents in a Los Angeles Superior Court Case.
The contract review will focus on affordable housing requirements, development agreements, settlement agreements and future deals with Santa Monica’s biggest developer, according to an outline of the review obtained by the Daily Press. It’s estimated Shekhter controls as many as 2,000 apartments on the west side of Los Angeles.
In the Superior Court case, a judge found Shekhter and his associates had presented a fake contract regarding a multi-million dollar investment deal with a Boston-based hedge fund. The judge granted ownership of nine NMS properties to the fund, AEW, as a result of the suit. AEW immediately sold the properties to a third party real estate investor in Northern California. Shekhter has appealed the ruling and the buildings remain in limbo in the meantime.
Shekhter estimates the value of the nine properties at half a billion dollars. With their fate in question and the promise of ongoing litigation, City staff is anticipating NMS may have money problems.
“If NMS faces financial difficulties, two approved (development agreement) projects consisting of 164 housing units might not be built, potentially leaving vacant properties in need of maintenance,” the staff outline says.
It is not clear how a recent split in the company affects the probe. In January, NMS announced it was forming a new company, WNMS Communities, to take over all pending and future developments. A former NMS executive vice president is running the spin-off company. NMS Properties will continue to manage existing buildings.
The transfer to WNMS includes approximately twenty projects in some phase of development in Santa Monica, according to City estimates.
A spokesman for both companies says NMS does not have a problem with the City’s investigation.
“We are confident that all affordable housing requirements are properly fulfilled,” Eric Rose said. “There are no financial difficulties and therefore no reason to think performance may be impacted. The fact AEW is trying to take our profit should not raise a question of ‘financial difficulties.’”
The City is in the middle of negotiations with NMS regarding a land swap to build Fire Station 1. When the City Council first approved the deal back in Aug. 2012, the combined land was estimated to be worth $16 million dollars. While the design of the fire station has been approved, the contract with NMS Properties has turned out to be much more complicated. Four and a half years after the first approval, negotiations between NMS and the City are still going on.
In an email to the Daily Press, Councilmember Kevin McKeown, who asked for the probe back in December, called the effort by staff “deep and comprehensive.”
“We are giving special scrutiny to inclusionary housing fulfillment, ensuring accuracy of all documents, and to the ten pending Development Agreement applications NMS had filed in the City,” McKeown said.