25 Oct 2011
- Written by Jack Humphreville
Herb Wesson’s orchestrated farce at Wednesday’s meeting of the Housing, Community, and Economic Development Committee did little to answer the growing skepticism involving the circumstances surrounding the Community Redevelopment Agency’s September 2006 round about and questionable purchase of the 18,150 square foot lot at 1601 North Vine from Ullman Investments, the subject of a previous CRA investigation. The purchase price was $5.45 million, a $1.35 million (33%) premium to the CRA’s appraisal of $4.1 million.
At the Committee meeting, Hal Katersky, the undercapitalized and inexperienced developer of the Cesspool on Vine (aka The Vine Street Tower), claimed to have no knowledge of the CRA’s lower valuation.
But as one observer of this 4 ½ year saga commented, “If Katersky didn’t know about Ullman and the lower appraisal, then he is a fool. If he did, then he is a liar. In either case, Eric Garcetti, the CRA, and the City Council should have nothing to do with this clown.”
During this Committee meeting, Katersky stated that he did not have any outstanding litigation.
However, prior to Katersky’s unequivocal statement, a polished CRA spokesman said that there were outstanding legal issues involving Albuquerque Studios, the subject of a $100 million bankruptcy. At the same time, Workers Realty is trying to foreclose on its mezzanine loan to Albuquerque Studios. This loan is personally guaranteed by Katersky, a resident of Thousand Oaks, and Dana Arnold, his partner and a resident of Santa Monica. This will have a material adverse impact on their already strained finances.
There is also the lingering question regarding litigation involving Culver Studios that reflects negatively on the character, ethics, and business practices of Katersky and Arnold. According to the Los Angeles Times article of August 17, 2010, “Lawsuits, Failed Ventures, Mark Developer’s Past,” (link) this case, alleging “various acts of fraud and embezzlement,” was settled with Katersky and his partner making “a large financial settlement” and giving up “all their financial interests” in this studio.
Before proceeding, the CRA and the City Council must demand full disclosure in writing regarding the purchase of the property from Ullman and the payment of any fees, including to Earl Lestz, as well as a detailed history of Katersky’s business dealings, litigation, and any related settlements. Katersky needs to represent that such disclosure is full and complete in all material respects. This would not only include Albuquerque and Culver Studios, but litigation involving his business dealings in New Orleans, stock fraud in Oklahoma, and his 1997 bankruptcy.
Furthermore, these disclosures will need to be assumed by any equity investor and lender to insure that the disclosure is thoroughly reviewed by an independent third party for accuracy. Katersky’s word is not sufficient.
Katersky also said the project was “shovel ready, ready to go.” Therefore, the CRA and the City Council must insist on a definitive timetable for breaking ground in the very near future, say 90 days. There must also be a performance bond to insure the timely completion of this Class A office building.
Under the present arrangement, Katersky will purchase the lot from the CRA for the bargain basement purchase price of $825,000, a discount of $4.6 million (85%) from the CRA’s purchase price.
However, experienced real estate executives have said that the total development costs of $56.7 million are overstated by at least $5 million, and probably more in the range of $7 million. If so, this would increase the purchase price to around $6 million, and possibly as much as $8 million.
The issue is not whether The Vine Street Office Tower is a good project. Rather, should the CRA even be involved in the project given the vibrant real estate market in Hollywood? What are the details surrounding the purchase of the lot from Ullman? And why are the CRA and the City of Los Angeles working with Hal Katersky, an undercapitalized developer with no experience in developing speculative, multitenant Class A office buildings in Hollywood and who has a demonstrable track record of questionable business dealings?
As opposed to proceeding with this transaction, the CRA needs to determine if it would be preferable to sell the land to a well capitalized, experienced developer of Class A office buildings in Los Angeles rather than continue with undercapitalized and increasing financially desperate Katersky.
The Cesspool on Vine, the poster child of why the CRA should be abolished, tarnishes the reputation of Eric Garcetti, the City Council, and the City of Los Angeles. As one CityWatch reader quipped six months ago: “To get rid of the Stench, FLUSH KATERSKY!”
Put another way, would you bring this developer home to meet your parents?
Vol 9 Issue 17
Pub: Mar 1, 2011