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Major Santa Monica Developer Tries to Get Properties Back

Bob Kronovetrealty
We Love Property Management Headaches!

Santa Monica Convention and Visitors

By Jorge Casuso

February 8, 2019 -- Neil Shekhter and his affiliated companies will ask a Santa Monica Superior Court judge to rescind the 2016 sale of nine NMS properties claiming the buyers “were not bona fide purchasers,” his attorney said.

The move comes after the court on Thursday granted the plaintiffs' motion to file an amended complaint against the multi-billion dollar, Boston-based hedge fund, AEW Capital, and the buyers of the properties.

The new lawsuit comes after a Court of Appeal judge last year reversed the prior dismissal of the case, allowing Shekhter and the other plaintiffs to take AEW to court on their fraud claim.

According to the complaint, AEW Capital Management "refused to accept a $500 million offer to purchase the properties from a legitimate third party buyer," according to Skip Miller, the plaintiffs' attorney.

The company then sold the properties to Dennis Wong, part owner of the LA Clippers, and Mark L. Friedman "in an insider, below-market transaction done vis-à-vis a private auction," Miller said.

The properties were sold for $430 million, or $70 million less than the prior $500 million offer, and approximately $100 million below market value based on sale of comparable properties, the complaint alleges.

"This was done as part of a conspiracy between AEW and the Wong/Friedman defendants to confiscate Shekhter’s equity in the AEW-NMS joint venture," the plaintiffs' atorneys said in a statement Friday.

James Fogelman, a partner at Gibson Dunn who represents AEW, played down the court's decision Thursday and said he expects the case to be dismissed.

“Nothing substantive happened yesterday," Fogelman said. "The court has already held that the buyers are free to own and manage the properties as they see fit."

Fogelman noted that the Court of Appeal "already affirmed in the original case that NMS and Shekhter committed forgery, perjury and the destruction of evidence, and affirmed AEW’s right to sell the Properties in its sole discretion.

"We expect that this case, like the last one, will be dismissed in the near future,” Fogelman said.

Skekhter and his company, NMS, became one of Santa Monica's biggest landlords after buying the Downtown apartment buildings built by developer Craig Jones in the early 2000s.

The company continued to build its portfolio, which included 23 buildings in Santa Monica, most of them Downtown.

In 2014, Shekhter filed a lawsuit alleging that AEW, which had entered into an agreement to develop nine "LUXE" apartment buildings in Santa Monica, West Hollywood and Culver City, owed him $720 million for violating the terms.

In late 2016, Los Angeles Superior Court Judge Suzanne Bruguera found that Shekhter had fabricated and destroyed evidence and committed perjury.

She ordered Shekhter to cede control of the properties and pay the defendant's attorneys’ fees ("Court Dispute Between Developers Spills into Santa Monica City Council Chambers," December 2, 2016).

Last September, Shekhter filed an amended complaint in Superior Court for fraud against AEW Capital, but the case was dismissed.

The current lawsuit was filed after a Court of Appeal judge reversed the prior dismissal, allowing Shekhter to take AEW to court on their fraud claim.

According to the complaint, “AEW instructed, and the [Wong/Friedman parties] permitted, the escrow company that handled the sale to distribute the proceeds solely to AEW.”

"AEW took back $236.8 million in seller financing at substantially under-market interest rates" and "closed the sale without title insurance," the complaint alleges.

The company also "did not list the properties in the market to get the highest value; kept the identity of the buyer secret and withheld all sale records from its joint venture partner, Shekhter," according to the complaint.

"We have emails and proof of what happened," Miller said. "To this day, Shekhter has not received a penny from the proceeds of the sale."

Miller said he expects the case to go before a jury later this year.

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