la.curbed.com: City Wants Answers Over Concerto Construction Delays
Tuesday, June 1, 2010, by Dakota
Over the weekend, the New York Times ran a profile of Barry Sternlicht, the Starwood Capital executive who, along with other investors, now owns all those Corus bank loans, including the loans on downtown’s Concerto project, Koreatown's Solair, and the Terrenea Resort in Rancho Palos Verdes, respectively. When it comes to Concerto, Sternlicht and his cronies aren’t doing much to get the tower finished--because they have no incentive to see it completed. Astani is paying them $1 million a month in loan fees, and hey, the condo market is pretty weak. Why rush to finish? Here's an excerpt from the Times story, with Sternlicht bragging about his portfolio of loans: “We are going to be like the Saudis in all these markets,” he says. “We have the lowest cost of production and all the oil. There’s nothing else new under construction. In three years, when all the debris, all the clutter is done, we’ll be the guys. We will have price control.” Well, the city isn’t having it. Even before the story came out, City Councilwoman Jan Perry submitted a motion, asking the city’s chief legislative analyst to look into the delays and see "what steps can be taken to get the project moving and restore the associated jobs and economic growth," according to the motion, which was entered last week. “My hope is to bring more attention to this serious issue and do everything in the city's power to move forward on this project,” Perry tells Curbed in a statement. It's sort of a smackdown!
Additionally, Congresswoman Lucille Roybal-Allard sent a letter two weeks ago to the FDIC chairman, noting that if it's indeed true that Starwood-FDIC is stalling on finishing Concerto, then she would like a "a detailed explanation of the FDIC’s plan to remediate ” the situation.
As covered before, Corus bank funded Concerto as well as countless other buildings around the LA area. When Corus failed, Sternlicht and a group of investors paid $554 million for 40 percent of the package, while the FDIC holds 60 percent of the package. As the NYT story, the cheap FDIC loan financing is what makes the whole thing so great from the point of view of Sternlicht and the other investors. From the story: “That’s the beauty of this investment,” [Sternlicht] says. “I can afford to wait. If I had high-ticker, 10 percent financing, which would probably be the market rate, I would have to dump stuff. The interest payments would be killing me.”
Everyone knows that Astani has long been grumbling about how the ownership is structured, and he also makes an appearance in the NYT article. “I think Sternlicht is going to wind up flipping all this stuff in a year,” Mr. Astani predicts. “There are going to be huge lawsuits and bad publicity. His investors are going to get sick of it.”
Meanwhile, in a letter dated May 13th, Astani wrote to Congresswoman Lucille Roybal-Allard, who represents the 34th district (which includes downtown Los Angeles). The letter was forwarded to us from Perry's office. You can see the whole letter via this Google Documents link. And here's an excerpt from Astani's letter:
“The completion of Concerto is now entirely at the mercy of Starwood….Starwood has absolutely no incentive to see Concerto completed. In fact, their incentive is exactly the opposite. The longer they delay the project, the more monthly $1 million payments they can collect. But I think Starwood may have another motive to delay. Based on their actions to date, I believe that their real intent is to force me into a financial situation where I must give up Concerto. Starwood would then foreclose and take ownership of the project. They would take possession of the $260 million project after originally acquiring the loan for as little as $17 million cash and after having obtained $7 million-$10 million in interest payments from me.”
In response to Astani's letter, the Congresswoman wrote a letter to Sheila C. Bair, Chairman of the FDIC, asking her to “immediately look into this matter and provide a detailed explanation of the FDIC’s plan to remediate” the situation. See the letter via Google Documents.
The Congresswoman writes: “I know you share my commitment to getting people back to work and the economy moving again, and it seems that this is exactly the type of project we need to facilitate.”
Astani is currently out of the country, according to his assistant. Calls to his attorney weren't immediately returned. But it's worth pointing out that he famously personally backed the loan, so he has a lot to lose.
As for the other loans, the Starwood-FDIC group also owns the loans, which may explain why prices haven't come down at the Solair project. Why drop prices if you can wait it out?