The largest collection of commercial properties in Pacific Palisades may end up for sale as a result of a dispute between the co-owners. The real estate at issue includes the bulk of both sides of Swarthmore above Sunset, the parking lot that backs those businesses to the east, and three properties on nearby Sunset. Two lawsuits have been filed in the case. The first, by lifelong Pacific Palisades resident John Wilson, filed June 22, asks the court to order the properties sold in order to divide up the interests, and to appoint a receiver as manager in the interim. A cross-complaint, filed on behalf of the MacDonald and Joslyn family interests on September 16, instead sues for a partition of interests ‘in kind,’ meaning that each owner would be allotted some portion of the properties. That countersuit calls a forced sale a ‘drastic remedy.’ A settlement conference is scheduled for next Monday, December 12, Wilson told the Palisadian-Post. He expects that an appraiser and an arbitrator will be selected during that meeting. Arbitration is set for January. Wilson hopes that the attorneys will also appoint an independent property manager, but says there is still no agreement on what level of control the co-owners would retain. If past experience is any guide, it may be difficult for this group of landlords to reach a consensus. There are 14 different entities named as co-owners of Palisades Properties, LLC, with addresses in Pebble Beach, Santa Barbara and Aspen, and even farther afield from Pacific Palisades, in San Antonio and Greenwich, Connecticut. Five own less than a 2 percent interest and the largest single stake amounts to slightly less than 28 percent. Based on legal representation, there seem to be five separate coalitions of co-owners, but Wilson says that just three people have been closely involved in making management decisions for the properties: Wilson, a trustee for his family interests (13.4 percent), trustee Robert Stelzl on behalf of the MacDonald and Joslyn family interests (51.9 percent) and property manager John Watkins, on behalf of the Carey family and other aligned interests (24 percent). The remaining parties are the children and grandchildren of Wilson’s deceased brother (10.7 percent). (These percentages are according to the cross-complaint.) But even the smaller group of three decision-makers has been hard-pressed to agree on issues ranging from tenant selection to how much to spend to maintain or upgrade the properties. In his claim, Wilson asserts that ‘the discord between the owners is having an adverse effect on the management of the properties,’ a comment echoed by those suing him in the cross-complaint. ‘When you stop talking to each other, you have a problem, and that’s what happened here,’ Wilson told the Post. He points to the Carey interests and their property manager, Watkins, as the stumbling block. ‘The rest of the people in the group are pretty much in agreement,’ Wilson said. The parties own the properties as ‘tenants in common,’ which means that any individual can block action by the others, regardless of the size of their ownership stake. A further complication is the fact that there was never any written agreement governing the co-owners’ relationship, according to Wilson and his attorney, Robert Clarkson of Clarkson/Riley, LLP. ‘This was done a long time ago, it was just a different day,’ Clarkson said. At one time, the ownership was split between fewer parties. Wilson’s father Robert, who built many of the original properties in the early 1950s, held 24 percent of the ownership together with his wife, Marjorie. The matriarch of the Carey family, who provided financing for the original construction, also held a large stake, Wilson says. The Miller family, which owned some of the land, also had a share. Over time, those interests were splintered as they were passed to succeeding generations. Wilson received his stake in 1994. Today, the storefronts in question include tenants from Bentons Sport Shop and the newly-opened Maison Giraud at the top of the street down to City National Bank on the east and, on the west side, from the former Prince’s Table and Village Books spaces down to the Intima intimate apparel store. Three parcels on Sunset house half of the Pearl Dragon (the bar is owned by another landlord), the vacant U.S. Bank building (where U.S. Bank still holds the lease, pays rent and refuses to give up the position to any other bank, according to Wilson) and the vacant space once occupied by the Nest Egg and The Office Supplier. The recession hit most tenants hard, including Village Books owner Katie O’Laughlin, who was forced to close her store June 30. Others said they couldn’t afford the rent increases when the owners began to more aggressively adjust rents to market levels in 2005. Greg Pawlik of Coldwell Banker, who represents the properties, told the Post that the asking rent is $4.50 per square foot per month plus triple net charges of an estimated 65 cents for taxes, insurance and maintenance. The last signed lease was with City National Bank, which opened in May. But conflict among the owners is another reason some of the stores have remained empty so long, according to Wilson. The former Office Supplier space has been vacant since March 2006; the old a la Tarte space since September 2007, for example. The Subway sandwich chain was interested in one of the properties on Sunset owned by the group, but Watkins insisted that a nail salon would be a better tenant, Wilson says. The salon owners were only willing to share financial information under the terms of a confidentiality agreement that prevented independent verification. In the end, Subway moved up the street into the Business Block building and Palisades Properties lost the opportunity. Peet’s Coffee & Tea was interested in the old Princess Table/Village Books space and Watkins also blocked that deal, Wilson says. Wilson believes that the Carey group may be trying to protect interests of its own on the south side of Sunset, where he believes it owns parcels between Monument and Swarthmore, including Noah’s Bagels and The Coffee Bean & Tea Leaf. The attorney who represents the Carey interests did not return a call from the Post for comment. ‘I am the sole person [owner] here in Pacific Palisades,’ Wilson says. ‘I’m trying to solve the problems, but I really get the broadsides from the community.’ He has a package of letters from angry residents who blame him for the empty storefronts. (Bob MacDonald, who is among those represented in the cross-complaint, once managed Palisades Properties [with ‘an iron fist,’ Wilson says] and may still live in the area, but is ailing and no longer directly involved.) Watkins has also made moves that run counter to existing leases, such as telling the Pearl Dragon that they could take over the Oak Room space, even though Lenny’s Deli holds the lease and has created Steve and Lenny’s Sports Bar there, Wilson claims. ‘He is just taking off on his own, doing his own thing, causing problems.’ In addition to prolonging vacancies, which hurt the village as a whole, Wilson contends that Watkins’ tactics have also prevented the co-owners from collecting long-overdue rents. ‘The income has diminished to the point of crisis,’ Wilson says. As a tenant in common, Wilson is entitled as a matter of right to have the properties ‘partitioned,’ which is what he calls for in his suit, according to his attorney Clarkson. But the law also strongly favors a partition of the property ‘in kind,’ as requested by the cross-complainants. A partition in kind is complicated, even if all the parties can agree on the relative value of specific parcels. ‘Due to the fact that the properties are owned by numerous parties, and in varied percentages, a physical division of the property will not be equitable,’ Wilson’s suit alleges. ‘The properties cannot be divided into subparcels wherein each subparcel will retain its pro rata value. Any attempted physical division ‘ would substantially diminish the value.’ It is possible that some subset of the properties could be sold to generate cash to buy out Wilson and any others currently interested in a sale, but the parties would still have to agree on an overall valuation and how to allocate tran saction costs, including taxes. The counsel for the cross-complainants did not return a call for comment, so it is not clear if they would be open to a partial sale. The impact of a sale on Swarthmore, Sunset and the community at large is hard to predict. One question would be whether the properties would generate interest from a single developer or large retailer, or if they would be sold piecemeal. One of the appeals to any buyer would likely be the large parking lot. The city has previously expressed interest in creating structured parking there, but Councilman Bill Rosendahl’s office wanted to see parking paired with low-income housing, according to Wilson. Wilson would like to see the surface lot developed as underground structured parking with small shops on the first floor above-ground and offices on the second story. But for now the parties are still trying to work out an agreement and a sale is not a foregone conclusion. Despite the legal filings, Wilson believes most of his fellow co-owners share his interest in hiring a property manager who could act without Watkins’ interference. And though his suit calls for a sale, he says, ‘I personally want to hold all the options open.’ If arbitration fails, the case has been set for trial in May in Santa Monica.
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