Kate Cagle
Santa Monica’s largest residential property owner has filed a lawsuit against a Boston-based hedge fund, alleging AEW attempted a “hostile takeover” of seven of their properties in the city and two others in Los Angeles County.
The suit is the latest battle in a legal war that has waged between NMS Properties and AEW over a joint venture to finance 9 properties in Southern California.
NMS owns and manages 23 buildings in Santa Monica and is the city’s largest affordable housing provider. Through his companies, NMS’s CEO and founder Neil Shekhter owns more than 2,000 apartment units in Santa Monica and the Westside of Los Angeles.
On Dec. 2nd, a judge forced Shekhter to cede control of nine properties (seven in Santa Monica) to hedge fund AEW as part of a civil suit. Judge Suzanne Bruguera found NMS destroyed evidence, submitted fraudulent documents to the court and misappropriated funds when dealing with AEW and ordered them to pay AEW’s attorneys’ fees and costs in excess of $6 million.
Attorneys for NMS have already filed an appeal to the Superior Court’s ruling. In the meantime, NMS will continue to manage all of the properties.
The dispute between NMS and AEW over the joint venture will continue to work its way through the courts over the coming years. In the latest lawsuit, NMS filed a complaint alleging AEW attempted a “hostile takeover” of the nine properties to oust them as managers in November, weeks before the judge’s order.
On November 21st, a team of locksmiths, private security guards, and computer technicians suddenly stormed all the nine properties at once and announced there was a new management company in charge, according to the complaint. As employees scrambled to call their bosses, Shekhter’s son, Alan, went to see what was happening in the apartments at 1502 Broadway. A guard prevented him from entering and claimed to have a court order giving management company USRG the right to take over the building.
Over the next five hours, Shekhter remained locked out as similar scenes unfolded at the other properties. During that time, Shekhter claims the intruders rummaged through files, changed locks and took keys and garage openers and kept employees from leaving. The Santa Monica Police Department finally ended the ordeal when they ordered the intruders to leave, according to the complaint.
Since that day, NMS Properties has posted guards outside the buildings in question. They remain there today.
The lawsuits do not involve the city of Santa Monica but press coverage of the ruling caused some leaders to lose trust with the developer who has 18 additional properties up for future development. At last Tuesday’s City Council meeting, leaders asked for additional scrutiny of all city contracts dealing with NMS.
“We don’t know what aspects of our business with various people in the city could be impacted,” said Councilmember Sue Himmelrich, who directed city staff to look into the matter.
Councilmember Kevin McKeown says he has already heard from the tenants of the seven local buildings involved in the lawsuit who are worried about what a management shake-up means for them.
At the meeting, a spokesman for NMS promised to hand over any documents regarding current or pending contracts with the city.
“We would like to reassure the council, the mayor that we will cooperate fully with anything that the council would like to look at,” Eric Rose said. “We’re confident that any review will show NMS has always acted with the highest integrity.”
The lawsuit could hit NMS’s pocketbooks much harder than the $6 million dollars in fees and suit costs owed to AEW. Shekhter estimates the value of the properties ceded to AEW at $500 million, according to a complaint filed by his attorneys with the Superior Court on Dec. 1st.
When pressed, Rose would not commit to providing documents about the company’s financial viability to the City Council. Rose restated the company’s confidence they will win on appeal.
“This is simply a business dispute,” Rose said.
The judge’s Dec. 2nd ruling came after a forensic examination of documents handed over as part of the lawsuit filed by NMS against AEW over the joint venture. In September of 2015, the judge ordered NMS freeze all electronic documents and submit computers and devices to the court. Evidentiary hearings took place over eight days in October of this year.
Shekhter’s attorney, Skip Miller of Miller Barondness, LLP in Los Angeles, defended his client last week in a statement to the Daily Press:
“Neil Shekhter didn’t forge anything. The order is wrong. All he did was discard his personal home computer to protect his and his family’s privacy,” Miller said.
