Time-Share Construction Inches Forward
by Nick Welsh For years now, the leading lights of Santa Barbara’s civic community have wondered just how long Bill Levy, Santa Barbara’s iconic wheeler-dealer developer, could remain aloft financially. Last Friday, they found out, as Levy’s carefully crafted house of cards came crashing down. That’s when Levy and his longtime partner Roy Millender — operating as Santa Barbara Beach Holding — applied for Chapter 11 bankruptcy protection for their high-flying plans to build 62 deluxe time-share condos on the lower two blocks of State Street in partnership with Ritz-Carlton. Because of Berti’s exertions, Levy’s books were subjected to a rigorous audit, which, the Court of Appeal noted, concluded that Levy misspent $11.6 million of his investors’ money.Levy and Millender were effectively forced to file bankruptcy by their chief lender, Mountain Funding of North Carolina, after they repeatedly failed to pay back the $44 million they owed. Had Levy and Millender not agreed to file “voluntary bankruptcy,” Mountain Funding — which specializes in lending to developers in distress — was prepared to hold a public foreclosure sale in front of the courthouse this Wednesday at 1 p.m. But even though they filed for bankruptcy, Levy and Millender are not yet completely out of the lower State Street project. Under the terms of the bankruptcy filing, Levy and Millender will be given until December 15 to repay Mountain Funding and secure an additional $115 million construction loan. Given that their failure to obtain such financing in the past forced them to do business with Mountain Funding in the first place, few close to the situation think they stand much of a chance. Many of Levy and Millender’s problems stem from the fact that since 1991 — when they first began what evolved into the time-share scheme — their partnership amassed more than $68 million in debt on property taxed at an appraised value of about $10 million. But that first figure significantly understates the total debt Levy had burdened his project with. It does not include the untold millions invested by countless doctors, lawyers, dentists, and other small investors over the years, many of whom have sued Levy and Millender to get their money back. It’s expected that none of those smaller investors will ever see a dime. Even bigger players — like Michael McAdams, who invested $10 million — will be hard-pressed to recoup their investments. Levy’s forced disappearance from the deal he began masterminding 15 years ago — and for which he won City Hall and Coastal Commission permits — increases the odds that the time-share condos might one day be built, but by no means guarantees it. Because of Levy’s inability to secure financing, he twice had to seek extensions on construction permits. His last permit is scheduled to expire December 12. Had construction not started by then, the project — hard-won and long fought — would have been dead in the water. Mountain Funding, however, has already committed to spending up to $4 million on construction to keep the permits alive. To this end, Melchiori Construction has dispatched crews of workers to plant pipes in the ground to remove water from the soil. In the meantime, Mountain Funding is desperately seeking to find a qualified buyer to take over the project. Without all of Levy’s debt, litigation, and angry investors anxious to be paid back, finishing the development should presumably be easier. (While none of the current councilmembers was in office when Levy’s project was approved and few have any enthusiasm for it today, City Hall exacted significant concessions — a new parking garage, wider sidewalks, and new traffic signals to name a few — from Levy in exchange for approval.) One reason for Levy’s poor relations with many investors was highlighted this week in a ruling published by the Court of Appeal awarding Dick Berti, Levy’s one-time friend and investor, legal fees for his seven-year quest to see the time-share project’s books. Because of Berti’s exertions, Levy’s books were subjected to a rigorous audit, which, the Court of Appeal noted, concluded that Levy misspent $11.6 million of his investors’ money. “The evidence was insufficient to support a conclusion that these transactions were allowable under the partnership agreement or were the responsibility of the partnership,” the court found. Berti will seek hundreds of thousands in legal fees, and will likely have to sue Levy personally to claim any of it. And Berti’s is likely to be just one of many lawsuits to be filed in the aftermath of Levy’s crash.