Though Fashion Nova founder Richard Saghian’s $141 million bid for the mega-mansion known as The One was the highest bid at a bankruptcy auction this month, it may not be enough to close the deal.
The event came within a week of Russia’s invasion of Ukraine, and creditors, disappointed that the hammer price was less than half the home’s $295 million list price, are appealing to the US Bankruptcy Court judge , Deborah Saltzman, a repeat.
“It can’t be that the fear of this war and with the potential for World War III… didn’t have an impact [the] Bidding process,” said Hamid Rafatjoo, the attorney for Nile Niami, developer of The One, at a hearing on Friday. “This war scared everyone.”
Niami, who claims he is owed $44.4 million in loans for the project, had hoped to put together a last-minute $250 million offer for the home, which he sees as the pinnacle of his development career, but it fell through .
Saltzman was expected to make a decision Friday on whether to approve Saghian’s $126 million bid, which totaled $141 million with auction fees included. But like almost everything else related to the 105,000-square-foot Bel Air estate — which is still unfinished after almost a decade of construction — things went slower than expected. What participants thought was a brief hearing turned into more than five hours of argument and testimony from attorneys, home agents, Saghian and others.
Saltzman, citing case law that could allow her to reverse an offer if it was deemed “grossly inadequate,” said the stakes were too great for her to make a decision on the spot and she planned instead Closing arguments for Monday, when they promised a decision.
“There was a lot of discussion about laws. Many facts were discussed. I need some time to think,” she said.
The online auction opened on February 28, just four days after Russian forces invaded Ukraine, shocking the world while disrupting stock and currency markets. It was shut down on March 3 as Russia’s offensive raged on.
On one side are Saghian, property owner Crestlloyd, a handful of creditors and others who would benefit from closing the deal — and who say the war is far from the only reason the mansion has fetched such a low price . On the other side are additional creditors, some of whom could lose $10 million or more apiece and want a shot at a second auction. The home has claimed debts of over $250 million.
Lawyers for the creditors opposing the sale have alleged irregularities in the bidding process and put forward other legal arguments, but appeared to view the Russian invasion as their trump card, even as they conceded the conflict was not ending anytime soon.
Kyra Andrassy, an attorney for Inferno Investment who has filed around $31 million in claims against the property, compared the war to the outbreak of COVID-19, arguing that in the early days of the stunned by the pandemic, but eventually people learned to live with it.
“Things tend to normalize,” she told Saltzman. “I think people are adjusting.”
The prevailing counter-argument was simple: that the situation in Ukraine could continue or even worsen, meaning that a new auction could bring an even lower price.
“It’s all speculation as to what happens tomorrow, next week. World War III is two months away and we’ve been at it for God knows how long,” argued Thomas Geher, attorney for Hankey Capital, the real estate lending arm of LA billionaire Don Hankey, who has loaned more than $100 million to Crestlloyd but isn’t first among lenders to be at least partially repaid and supported the sale.
There was talk that a new auction would take place in the next few months given the costs involved in keeping the house bankrupt, which includes expenses such as upkeep and paying lawyers and other professionals.
Sale advocates noted that no other “good faith” bids had been received in the weeks since the auction, although Crestlloyd said after the auction ended on March 3 that it would welcome further bids.
But opponents said that despite global marketing efforts – one agent said he flew to London and Paris to meet potential buyers – only five bidders attended the auction, evidence that the war had deterred bidders. However, that number was about the number of bidders that Concierge Auctions, the online luxury auction house that ran the event, had long anticipated, according to attorneys in support of Saghian.
Those who want to quash the offer also pointed out that Crestlloyd had argued in court filings that the property at 944 Airole Way was worth $325 million. They also highlighted an appraisal conducted in 2019 during the construction of the home that valued the property at $228 million, proof that the high bid was grossly inadequate. Proponents countered that the rating was inflated to strengthen the house’s seal of approval.
Rayni Williams, one of the house’s agents, who will share in commissions totaling about $2.5 million if the sale is approved, admitted she was disappointed with the final offer and said she was hoping , it would set a record — apparently alluding to the $238 million a hedge fund mogul invested in a penthouse overlooking New York’s Central Park in 2019, a U.S. high-water mark.
As it was, the sale didn’t even break the California record held by venture capitalist Marc Andreessen, who bought a Malibu estate for $177 million in October.
Williams testified that during meetings with potential buyers, she learned that the lack of a certificate of occupancy for the unfinished home was a barrier to a sale, which she said likely reduced the number of buyers for a home that already had a tiny buyer pool would have.
“Buyers usually — especially at this asking price — want to move in straight away,” said Williams, adding that a second auction could be “very damaging” because it would “visually…look like an open market failure.”
One obstacle to obtaining an occupancy certificate is the stance of the Bel-Air Assn., a local homeowners group, which sent a letter to Crestlloyd and building officials promising to investigate alleged construction defects at the mansion and possible zoning violations that came to light The property was in state receivership last year.
The group has already contested permits for two more Niami homes and supported residents who have sued developer Mohamed Hadid over an illegally built Bel Air mansion will now be demolished. Fred Rosen, a board member for the homeowners group, attempted to speak at the hearing but was not allowed to do so after raising no objection.
However, Concierge Auctions President Chad Roffers appeared to confirm some of the group’s concerns when he testified that the mansion was damaged by record rains in late December, forcing Crestlloyd to scramble to make repairs so it could be shown .
He also said the lack of a certificate of occupancy and the association’s involvement in the demolition of the Hadid home were a red flag to “highly qualified buyers”.
“As they started peeling off the onion’s layer and began to understand the complexity and uncertainty surrounding a path to a C from O, it became an increasing headwind,” Roffers said. “I spoke to a prospective bidder on the day of the auction in London who was interested but ultimately freaked out at the lack of C of O and then the publicity surrounding the Hadid property.”
However, he also noted that the $141 million bid was 48% off list price, which he believes was the exact same discount at which Niami’s last three homes sold. “In preparing for this, I did my homework on recent transactions,” he said. “It’s spooky.”
If the offer isn’t approved, Saghian’s attorney, Sam Newman, warned the fashion mogul could “lose interest and move on to the next thing.” Sagian, recently classified as a billionaire by Forbesalready owns two homes in the area, one in the Hollywood Hills that he spent $17.5 million on in 2018 and another on a beach in Malibu that he bought for $14.7 million last year Has.
Newman said his client was recently made aware of a notice from the Los Angeles Department of Building and Safety that may have ordered The One’s roof to be removed.
The Times viewed a copy of the notice, which alleges that the overhangs of the building and the stair and elevator towers are exceeding height limits and need to be corrected. It also states that the property owner can apply for a permit to allow the structures.
Saghian’s attorney warned that his client faced a more complex situation than he anticipated when winning the bid. “No one knows how much money has yet to go into this property,” Newman said.
Still, when Saghian was sworn in as a witness, he seemed almost dizzy at the prospect of owning the house. Saltzman asked him about a peculiarity of the auction that has caused some puzzlement: why, after placing a $120 million bid that no one had matched, did he bid again for $126 million?
Roffers testified that the move was not unusual and was described as a “force bid” to deter further competition. Saghian had a different answer.
“I took a few seconds to think about it and picked my lucky number,” he said. “It’s 26. Sounds pretty crazy. But when I got the house, I thought that’s the way it should be.”
https://www.latimes.com/business/story/2022-03-20/the-one-mega-mansion-russia-ukraine-fashion-nova-richard-saghian Will Russian invasion of Ukraine block sales of The One?