A planned foreclosure auction of the largest modern home in the country has been delayed after billionaire lender Don Hankey was accused of maneuvering to take control of the troubled Bel-Air project and leave other debt holders out in the cold.
"The One," a 105,000-square-foot unfinished mansion once marketed for $500 million, had been set to be sold to the highest bidder Wednesday. The auction was scheduled after developer Nile Niami's limited liability company, Crestlloyd, defaulted on $106 million owed to Hankey's real estate lending arm.
But a Los Angeles County Superior Court judge delayed the trustee's sale until later this month after lender Joseph Englanoff alleged that Hankey reneged on an agreement to have the house completed and sold by real estate brokers, and instead was using the auction process to unfairly take ownership of the mansion or hog the proceeds if it is sold to a third party.
Englanoff, a Los Angeles-area physician and real estate investor who lent $30.2 million to Crestlloyd in 2018 through his Yogi Securities Holdings, states in legal filings that he is still owed $22 million.
He said in a declaration that he had agreed to Hankey's proposal to appoint a receiver in July to finish the house so it could get a certificate of occupancy and be sold through a traditional listing. The luxurious mansion at 944 Airole Way features multiple swimming pools, a beauty salon, a four-lane bowling alley, a multiplex-size movie theater, a rooftop putting green and other over-the-top amenities.
He accused Hankey of pushing ahead with the auction for the billionaire's own benefit even after two brokers last month agreed to list the property for $225 million.
"Although it is not anticipated that the sale of The One will generate $500 million it is certainly believed to be able to generate at least $225 million," Englanoff wrote in his declaration. "With a potential sales price of $225 million all secured debt would be paid and even [the developer] would net proceeds."
Hankey, 78, said in an email that he did try to work out a deal with Englanoff and "we never came to terms." He defended his decision to proceed with the auction.
"The public sale represents a unique opportunity to own an iconic property in one of the most desirable locations in the world," he wrote in the email.
In court papers, attorneys for Hankey Capital said the company's actions were legal and noted there is nothing preventing Yogi from bidding for the house itself.
Hankey made an initial $82.5-million loan to Crestlloyd in October 2018, but the showdown between the two lenders mostly focuses on two additional loans totaling $23.5 million that Hankey Capital made to Crestlloyd after Englanoff's Yogi had made its own $30.2-million loan.
What sort of Brinks truck is going to pull up with a briefcase full of cashier's checks for over one hundred million bucks?
John Tedford, partner at Danning Gill
Englanoff said Hankey Capital's two succeeding loans, one for $8.5 million and another for $15 million — as well as revenue from a profit-sharing agreement based on the sales price that Crestlloyd agreed to with Hankey — should not be paid off until his own loan is satisfied.
Yogi also says the subsequent loans and a modification to the initial profit participation agreement invalidated the first priority position of the debt owed to Hankey. In other words, should the house sell, Englanoff argues, Hankey shouldn't see a penny until Englanoff's own loan is repaid in full.
The other major debt holder is an entity called Inferno Investment, associated with Julien Remillard, a longtime friend of Niami, which lent Crestlloyd more than $10 million in 2015. That is the oldest outstanding loan, which would typically give it seniority over all other debt and allow it to be paid first out of any sale proceeds.
However, Hankey negotiated a deal with Remillard to be the senior lienholder in exchange for making his $82.5-million loan, which was needed to help finish the project. That deal puts Inferno next in line for proceeds ahead of Englanoff's Yogi. There is other smaller debt attached to the property, as well as money owed to contractors.
Englanoff also alleged that, with all three loans and mounting interest, Hankey would probably assert that his firm is owed more than $120 million at the trustee's sale before any other lender is paid — about $38 million more than he is due.
The doctor said that would discourage other bidders and could leave Hankey owning The One with a so-called credit bid, which is based on what he claims he is owed and does not require a cash outlay. That would wipe out all the other lenders, who would have their liens against the property erased by the foreclosure.
"Hankey would become the owner of the property and there would be no excess/surplus to pay off Plaintiff or any of the other junior lenders," Englanoff said in the declaration.
Hankey would then be in a position to do what he wants with the property, including proceeding with a traditional sale that might possibly bring in more than $200 million.
John Tedford, a partner at law firm Danning Gill in Los Angeles who worked for a client involved in a dispute with Hankey in another foreclosure case, said he did not think Englanoff would prevail with the argument that Hankey's entire debt is subordinate to Yogi's. However, he said the additional loans were another issue.
"The junior lienholders probably have a good argument that their liens are senior to the new stuff," said Tedford, who is not involved in the dispute involving The One.
Tedford said that foreclosure sales typically leave little to nothing for junior lienholders and one possibly requiring a cash bid of $100 million or more could be particularly challenging.
"What sort of Brinks truck is going to pull up with a briefcase full of cashier's checks for over 100 million bucks?" he quipped.
In issuing his decision, Judge Mitchell Beckloff last week denied a request for a temporary restraining order but still delayed the sale until Oct. 27 to give the sides a chance to work out a deal.
He also granted Yogi's request that Hankey Capital be required to provide a statement showing how much is still due on its original loan of $82.5 million, including interest and any other charges. Englanoff has made an offer to pay off Hankey's debt in that amount to end the foreclosure process.
Tedford said that if the trustee's sale is delayed, Hankey could withdraw the foreclosure notice and proceed with the $225-million listing. He also could seek foreclosure again at any time for a smaller sum.
The legal fight comes as court-appointed receiver Ted Lanes proceeds with efforts to sell the property. Last week, another judge approved a deal with Kurt Rappaport of Westside Estate Agency and Chris Adlam of Vista Sotheby's International Realty to be the joint listing agents.
Lanes said that if Hankey proceeds with the foreclosure and takes ownership of the property, he would have the option to carry out the listing deal. Rappaport declined to comment. Adlam did not respond to requests for comment.
Lanes also has hired San Diego construction consulting firm Xpera Group to analyze whether the house was built to spec by Niami after concerns were raised by Bel-Air homeowners about the quality of the construction. Lanes said the firm has already begun its analysis.
Niami declined to comment but hinted in a prior interview that he had problems completing the house because the money lent to him was not disbursed in a timely manner to pay contractors.
In the spring, after he defaulted on his loan to Hankey, he proposed living in the house and turning it into an event space featuring entertainment such as boxing matches and concerts. Hankey was not interested in the plan.
This story originally appeared in Los Angeles Times.