The much delayed and highly contentious sale of several Santa Monica apartment buildings continued recently with a judge officially handing control of the property to a new owner.
San Francisco based SPI Holdings is now in 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 dispute between Shekhter and AEW in the “Lincoln Studios” case had stalled the official transfer of ownership to SPI while the larger saga played out.
The properties involved in the litigation include the Lido at 1440 5th Street, Quonset at 829 Broadway, Lincoln Walk at 1447 Lincoln Blvd, San Marco at 1420 5th Street, Rapallo at 1430 5th Street, Luxe Broadway at 1502 Broadway and 1511 15th Street. One other property is in Los Angeles: 9901 Washington Blvd, and another is in West Hollywood: Luxe La Cienega at 375 N. La Cienega Boulevard.
The original partnership included a monetary investment by AEW but the two sides disagree 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. SPI is owned in part by Dennis Wong a part-owner of the Los Angeles Clippers.
Shekhter appealed the ruling, but the properties were held in escrow while the case progressed. The courts ruled against Shekhter in his final appeal in September of last year and on Nov. 15, a judge formally ruled that SPI could take possession of the buildings.
“SPI has waited patiently for this legal process to play out,’’ said Elliot Peters, a partner in the San Francisco law firm of Keker, Van Nest & Peters, which represented Wong’s SPI Holdings. “The misconduct of NMS has been confirmed. SPI is now the unquestioned owner of these terrific properties.”
AEW is represented by Gibson, Dunn & Crutcher LLP and the firm said the courts have consistently found in favor of AEW throughout the process.
“We are obviously pleased with today’s ruling, which recognizes the reality that NMS’ challenge to the sale is barred by the Lincoln Studios judgment against NMS,” said Partner James Fogelman. “AEW will now vigorously pursue its claims against NMS and its affiliates for their fraudulent misconduct.”
AEW has filed a separate action against NMS and its affiliates in federal court alleging violations of the federal Racketeer Influenced and Corrupt Organizations Act (RICO).
Wong said he’s glad the process is coming to a close.
“I am thrilled that Judge Rosenberg has put an end to the baseless litigation against us,” Wong said. “These are premier properties and we look forward to taking control of them and delivering an outstanding residential experience, which our tenants expect and deserve.”
Sasha Frid, with Miller/Barondess LLP, is representing Shekhter in the case and downplayed the significance of the recent ruling.
“With respect to the November 15 decision in the Wong case by Judge Rosenberg, the ruling merely allows for a change in management of these properties,” he said. “It does not affect, in any way, the very serious claims for fraud and rescission, and for recovery of compensatory and punitive damages, that our clients are pursuing against AEW and the so-called new buyer of these properties.”
Frid said they have amended their complaint to include a fraud charge against AEW.
According to Frid, Shekhter included five of his personal properties in the joint venture with promises from AEW that he would be able to buy them out of the deal. Frid said AEW had no intention of allowing Shekhter out of the joint venture and their refusal to honor the terms of the contract is the basis for the fraud claim. They are seeking the return of the original five properties.
Attorneys for AEW say the fraud claim has no merit and it’s just a legal tactic to prolong the final decision.
AEW has filed a separate action against NMS and its affiliates in federal court alleging violations of the federal Racketeer Influenced and Corrupt Organizations Act (RICO).
editor@smdp.com
