25 Oct 2011
- Written by Jack Humphreville
On Wednesday, March 9, the City Council approved the Disposition and Development Agreement with the inexperienced, undercapitalized, and litigious Hal Katersky and his Pacifica Ventures, the developer of the Cesspool on Vine, the $57 million Class A office building located at 1601 North Vine between Hollywood and Sunset Boulevards. The only dissenter was Paul Krekorian, the leading vote getter in last Tuesday’s election. (Link)
During the City Council meeting, Katersky claimed that this project is “shovel ready, ready to go, and we look forward to beginning it in the fall.”
Breaking ground in the fall will require that Pacifica Ventures have its financing arranged. The financing, in turn, is dependent upon having signed leases from entertainment related tenants. Based on comments by John Tronson of Ramsey Shilling Commercial Real Estate, the Vine Street Tower is a very attractive property that that will command premium rates. Of course, this raises the question of whether the Community Redevelopment Agency’s financial assistance is even needed to develop this project.
Financing the Vine Street Tower may present problems given the recent bankruptcy of Katersky’s Albuquerque Studios. This is compounded by the ongoing attempts to foreclose on the New Mexico property by Chicago based New Vista Investment Group and Workers Realty Trust II, the current equity investor in Hollywood, as they try to protect their existing underwater investment from being taken over by the construction lender (see below) in conjunction with Katersky. (Link)
Furthermore, Amalgamated Bank’s LongView ULTRA Construction Loan Investment Fund, the previously announced lender for the Vine Street Tower, is the construction lender to Albuquerque Studios and may have business and credit issues with an additional investment in another questionable Katersky project.
LongView ULTRA may also have a “concentration” risk where the fund has too many eggs in one basket.
Katersky may not be able to meet the stated lending standards which require the developer to have “real equity” of 10% in the project. However, Katersky’s bargain basement purchase price may count as equity. Once again, this raises the question of whether the CRA’s financial assistance is even needed to develop this project. (Link)
While it easy to agree that the Vine Street Tower will have a positive impact on Hollywood and its economy, the real issues involve the unsavory and unprofessional conduct of the CRA and City Hall, and whether the City and the CRA should be doing business with Katersky.
In 2006, the CRA indirectly purchased the 18,150 square foot lot from politically well connected Ullman Investments for $5.45 million. This purchase price represented a 35% premium over the CRA’s own appraisal. Yet the CRA has unable to explain in sufficient detail the circumstances surrounding this above market purchase price.
Nor has the CRA or the City Council addressed Ullman’s contract to manage the project’s 200 car parking garage in the middle of the underserved Hollywood market. This contract alone is worth millions in future management fees, not bad for a company that wants nothing to do with the CRA.
Nor has the CRA or the City Council addressed the inflated development costs that were used to determine the bargain basement sale price to Katersky, resulting in an added $5 million to $7 million bonus to the developer. He may even be able to count this bonus as part of his equity investment, once again raising the question whether the CRA’s financial assistance is even needed to develop this project.
And then there is question of how the CRA managed to be snookered by Katersky given that his two signature investments, Albuquerque Studios and Culver Studios, are both busts. Furthermore, Katersky has a history a failed ventures and litigation that was documented by Richard Verrier in his August 17, 2010 Los Angeles Times article, “Law Suits, Failures Mark Developers Past.” (Link)
No wonder that the Cesspool on Vine is considered the poster child for the abolishment of the CRA.
But of greater concern is that the Cesspool on Vine is also the poster child to justify the Federal Grand Jury’s ongoing investigation into the shenanigans and corruption in City Hall. And unlike Angelenos who have a tough time getting answers from City Hall, or putting in a word edgewise, the Federal Grand Jury has investigative and subpoena powers that require truthful and timely answers. And, as we all know, perjury is a serious crime.
We look forward to the timely ground breaking and the successful completion of the Vine Street Tower. But if past history is an indicator, there is a high probability that we will be hearing more about the Cesspool on Vine.
Vol 9 Issue 21
Pub: Mar 15, 2011