Court Verdict Allows Carmel Partners to Keep SF Apartment Property
California Superior Court Judge Marla J. Miller has ruled in favor of the defendants in a case involving a loan originally taken out before the credit freeze and subsequent economic crisis of 2008 for the acquisition of an apartment property in San Francisco.
By Dees Stribling, Contributing Editor
San Francisco—California Superior Court Judge Marla J. Miller has ruled in favor of the defendants in a case involving a loan originally taken out before the credit freeze and subsequent economic crisis of 2008 for the acquisition of an apartment property in San Francisco. The decision in the case (CGC-10-496887) leaves the defendants, affiliates of the San Francisco-based real estate investment firm Carmel Partners, in possession of the property.
The case stems from transactions that began in 2007, on the eve of the Great Recession, when entities associated with Richard D. Cohen, founder of the New York-based real estate giant Capital Properties, bought a high-rise apartment community in San Francisco known as Rincon Residential Towers for $143 million. Cohen’s entities took out a two-year, $110 million loan from Bear Stearns to fund the purchase.
The property at the heart of the dispute is now known as Carmel Rincon Luxury Apartments, and offers studio, one- and two-bedroom units in downtown San Francisco. It is located within the Rincon Center.
“Nine months after entering into the loan, Plaintiffs and Mr. Cohen knew that the Rincon property was worth far less because of the global financial crisis,” Judge Miller wrote in her decision, which totals 58 pages. “Mr. Cohen began his efforts to get out from under the $110 million debt in the spring of 2008, when he approached Bear Stearns and offered to purchase the loan at a 25-30 percent discount. Bear Stearns’ counteroffer of 10 percent or less wasn’t satisfactory for Cohen, in light of the drop in the property’s value.”
After the demise of Bear Stearns, the loan was held by the Maiden Lane Trust, which was set up to receive the Bear Stearns assets that JP Morgan didn’t want. In June 2009, the loan matured, and was afterward in default. Negotiations by Cohen’s entities with Maiden Lane to acquire the loan were ultimately fruitless, and a Carmel Partners entity, CP III Rincon Towers Inc. eventually acquired the loan.
“Mr. Cohen could not get the discount he wanted,” Judge Miller wrote. “He then tried to disrupt the sale and deter others from closing a purchase of the loan. During the auction, Mr. Cohen directed his lawyers to send threatening letters to the lender, which would be disclosed to potential loan purchases. After Carmel Partners was selected as the high bidder in the auction process, Mr. Cohen instructed his lawyers to file this lawsuit and to record a lis pendens, thus encumbering the collateral for the loan…”
At trial, Cohen contended that loan defaults had been wrongfully declared and the lenders had interfered with his ability to refinance the loan, and asked for the property as well as damages. Judge Miller disagreed, however, finding for the defendants. “Even if Plaintiffs were not in default as of June 2009, Plaintiffs’ claims still fail,” the judge asserted.
Capital Properties was represented in the case by a multi-firm team that included Boies, Schiller & Flexner LLP, Fried, Frank, Harris, Shriver & Jacobson LLP, and Friedman & Atherton LLP. Carmel was represented by the firm Manatt, Phelps & Phillips LLP.