I am a builder, not a pundit or a politician. I'm not the soap box type, but I feel I must speak out about an outrageous injustice being done to our Los Angeles economy by the federal government.
My business is sub-contracting in the commercial construction industry, mostly large projects in Southern California. One of those projects is the 31-story Concerto condominium project in downtown L.A., which is being built by Astani Enterprises.
During the course of construction last year, Chicago-based Corus Bank, which owned Astani's construction loan, was seized and shut down by the Federal Deposit Insurance Corporation (FDIC), an independent agency of the federal government.
FDIC's goal was to create partnerships with certain hedge funds to manage the failed bank's $4.5 billion loan portfolio, including the Astani loan, which was not in default and on schedule to be paid off in full.
Any agency of the federal government should be looking out for the public's interest. But that's not what happened in this case. FDIC made a deal with an East Coast hedge fund, Starwood Capital, in which Starwood was able to put up only $10 million cash and receive an interest-free loan of $7 million to purchase managing interest in the Concerto loan of $163 million.
Starwood is getting $1 million per month in interest income, 40% of the loan payoff and $25 million from the developer in the form of a personal loan guarantee.
Sounds like a heck of a deal, but not for the public. The FDIC seizure and asset sale stalled construction, put dozens of building tradesmen out of work, and left subcontractors unpaid for their hard work. My company is out $1.6 million.
Astani offered the FDIC 10% more than Starwood to buy back his own loan, a move that would have kept the project going, kept workers on their jobs and kept the project on track. The first phase would be finished by now with new residents moving in, paying taxes and patronizing local retailers.
As it now stands, Starwood is the Saudi Arabia of the condo market with the lowest costs. It has no incentive to get the project back on track and actually has an incentive to keep it stalled.
Starwood has said publicly numerous times that their deal is so sweet they can afford to sit on the stalled projects, foreclose if necessary and sell for big profits when the economy is better. This East Coast hedge fund is now fighting our local developer for control of the project, and if Starwood is able to foreclose, it will get the whole $200 million project for a cash outlay of only $10 million.
More importantly for Los Angeles, work on the second phase, which was supposed to start this summer, has been indefinitely postponed, a potential loss of another $100 million to the local economy in jobs and local taxes.
I would not have believed any of this had I not been personally involved. And I
would not be so upset if it was not my own government who was behind the whole sweetheart deal that has robbed the Los Angeles economy of millions.
In a time of such enormous deficit spending and with huge tax increases on the horizon how can this go on? My fear is that this is only the tip of the iceberg and there are deals being cut daily by federal agencies that take the wind out of our country's economic sails.
My hope is that elected officials in Washington, if there are any who represent our interests here in Los Angeles, are willing to do something to fix this problem.