- October 6, 2019
- Posted by: Hanson Law Firm
- Categories: Real Estate, War Story Wednesdays
🎬 EXT. POMONA – PARK – MORNING
A sunny morning in the park. It’s fairly empty, but a few families are dotted about the area. A little GIRL bends over the lip of the fountain to splash some water on her face, looking to quell the California Summer heat. As she starts to straighten out, she squints against the sunlight, peering at an odd collection of people semi-hidden behind the fountain.
There are about 20 people in smart-casual attire, in lawn chairs and holding umbrellas. Behind them stand a line of people in dark business dress, whispering numbers into cellphones. An ATTORNEY dabs his forehead with a handkerchief as he reads out property descriptions and prices, and the audience bid for the houses. As this goes on, the Girl wanders around the edge of the auction.
The Attorney pauses.
Our next parcel’s The Mountain. Anyone need introductions?
The crowd murmur and shake their heads.
Alright. Who’s interested in being prequalified to bid?
No one answers. The suits in the back shake their heads. The Attorney seems to have expected this. He sighs and clears his throat.
Well, the, uh, the Hughes estate placed a $100,000 credit bid on The Mountain.
The Girl comes to a stop near a striking WOMAN in a pinstripe suit and large round sunglasses. The Girl frowns at the Attorney’s words, not understanding.
Means the money comes out of the debt they’re owed instead of cash. Hughes estate and The Mountain go way back. If they win the auction, the place’ll just be coming back to its rightful owners. Used to be worth a billion dollars. But in the wrong hands… you see how far they’ve fallen.
If it’s so cheap but worth so much, why isn’t anyone else trying to buy it?
That debt I talked about? It’s $200 million. You’re a little young. I don’t think you know how much that really is. But no one wants to pay a hundred grand just to owe two hundred mil.
How do you know all this stuff? Who’re you?
I’m no one. I’m just out for a walk.
The Woman smiles mysteriously. Ahead, the Attorney counts down, with little excitement or surprise.
… and sold to the Hughes estate.
The Woman grins. The Girl watches her remove her sunglasses, and the Woman sheds a tear of joy, smiling with two rows of perfect, pearly teeth.
TITLE FADE IN: THE MOUNTAIN
Well? Are you on the hook? Get the Coen brothers on the case and we’ll have the next big real estate production (alongside classics like House of Wax, House on Haunted Hill, and House M.D.). As a case for the blog, it’s not half bad either.
The Mountain has two main attractions: 157 acres of undeveloped land, and grandfathered-in rights to build 12 feet higher than current Los Angeles code. It’s big enough to fit Disneyland with room to spare and it’s advertised as ideal for the billionaire who wants to “build his or her own city-like compound.” Over the course of its tumultuous ownership history, The Mountain has been fitted with infrastructure to support electricity, drainage, fiber optics, roads, top-of-the-line security and thousands of plants. A back-up generator waits unused to provide power to 300,000 square feet of buildings if LA should ever be plunged into darkness. Even among the city’s famous 90210 zip code, the place is one of a kind.
So you might be wondering how the heck it ended up being sold for 0.01% of its initial asking price. For answers, we need to turn to the parcel’s daisy chain of owners.
The earliest intriguing owner was the late Shams Pahlavi, an honest-to-God Persian princess and sister of the last shah of Iran. She sold the land to TV giant Merv Griffin, who held on to it for a decade before giving up on tentative development ideas and passing the buck to Mark Hughes, founder of Herbalife, the popular wellness supplement company with a business model shaped like a triangle. Any plans Hughes might have had were foiled by his untimely death in 2000 of a lethal cocktail of booze and antidepressants. Hughes’s son Alex was the only heir, but given that he was 9 at the time, the Herbalife fortune (including The Mountain) was packaged into a trust to be managed until Alex’s 35th birthday (the age when a boy becomes a man).
The trust’s managers sold The Mountain for just under $24 million to an Atlanta investor by the unlikely name of Chip Dickens, who proceeded to borrow $45 million to develop the plot. When he started to face financial difficulties, father-son investor pair Victorino and Victor Noval swooped in with grandiose plans to rescue Dickens. You’d think Victorino’s stint in prison for tax evasion and mail fraud would have been a red flag, but maybe Chip’s a forgiving kind of guy, willing to give folks a second chance. An admirable quality.
Anyway, the debt ballooned to $200 million.
With rising property prices in LA, the Novals and their broker slapped a $1 billion price tag on The Mountain, and though the move attracted a whole bunch of publicity and some cursory interest from Bezos and Brad Pitt, nothing came of it. The asking price dropped to $650 million, then kept spiraling down the drown until the Novals tried and failed to declare Chapter 11 bankruptcy through their LLC, Secured Capital Partners. This prompted the Hughes estate to force a foreclosure auction. If someone bought the place, they’d also be buying the $200 million debt, and that’s a pretty big ask for what’s basically an empty field at this point, if a high-profile one. The other option was for the Hughes to buy the property back themselves. This meant eating the $200 million, but it also meant getting their hands on the place once more, where they’d be free to develop it or sell it again, probably for much more than the debt’s worth.
After all this, you’d be within your rights to question if the land is cursed in some way, but the Hughes estate has experience managing vast sums of money, so if anyone’s qualified to start this new chapter of The Mountain’s life, it’s probably them.
Incidentally, the Woman from the opening script, who was seen happily crying? Rumor has it she bore a surprising resemblance to Mark Hughes’s widow, Suzan. Seems the land was destined to return to the Herbalife heirs one way or another.