Compensation Sought as Ritz-Carlton Real Estate Dream Dies
by Nick Welsh
Credit Bill Levy for being nothing if not persistent. In the hushed chambers of the Santa Barbara Bankruptcy Court on January 11, Levy’s intricately crafted house of cards came crashing down, leaving investors and creditors holding an empty bag on an estimated $90 million worth of promises. Anyone in the courtroom to witness the sale of Levy’s assets to his lender, Mountain Funding, would have assumed his dream of building Ritz-Carlton time-share condos on three parcels of land on lower State Street had officially been declared dead.
But as of late in the day on January 16, Levy was back in action, informing a room of 35 investors that they might get some money back yet. Levy and business partner Roy Millender announced they did not, in fact, lose absolutely everything to Mountain Funding in bankruptcy court, but that they still retained control of two parcels essential to the project. While Levy’s ingenuity in the face of adversity is not to be underestimated, city planning czar Paul Casey was unimpressed by Levy’s threat of gumming up any development deal Mountain Funding might attempt in the future. “From where I’m sitting, Levy’s holding a two of clubs and a three of spades,” said Casey. “That’s not much of a hand for high-stakes poker.”
Levy had been conspicuously absent when Bankruptcy Judge Robin Riblet presided over the final demolition of what has been variously known as “Entrada de Santa Barbara,” “Levytown,” and most recently, “Ritz-Carlton.” Millender was present but left immediately afterward referring requests for comment to paid media consultants. Several of Levy’s investors complained about how quickly the bankruptcy proceedings had unfurled, having been initiated right after Thanksgiving and concluded shortly after New Year’s. Riblet responded that no good options were available to Levy’s investors; she could allow the sale to proceed as scheduled, she said, or Mountain Funding could foreclose on Levy’s debt of $42 million. She opened the floor for potential buyers to submit cash bids; none did. In lieu of such a bid, Mountain Funding submitted its $42 million I.O.U. and walked off with the project and its permits.
Levy’s saga with City Hall, his investors, his creditors, and his banker has been the stuff of Santa Barbara urban legend. According to documents filed in bankruptcy court, Levy and Millender — having sought three extensions on their permits and finding themselves in a dire financial situation — were forced to apply to Mountain Funding, which specializes in high-risk, high-cost loans to distressed developers. Rapidly escalating construction costs plagued the project, along with a shortsighted political strategy in which Levy sought to circumvent an environmental review by “pre-mitigating” the impacts of his proposed project. Although City Hall went along with this proposal, activists with the Citizens Planning Association sued, winning a partial legal victory that delayed the project enough to set it on its heels. The rest of the problems stemmed from Levy’s rocky relations with a former business partner, Richard Berti, who waged a seven-year legal battle to force Levy to provide full accounting of the partnership’s books. Berti secured a court-ordered audit that revealed Levy had spent $11 million of his investors’ funds without proper authorization. Part of that figure included $60,000-a-month management fees to which Levy’s critics insist he was not entitled.
In 2005, Levy estimated it would cost $100 million to build the project, but real estate watchers put the current figure closer to $140 million. It’s at that price that Mountain Funding will seek to sell its title to the parcels. Some in the development community claim that the construction costs associated with developing the site have grown so steep the project cannot pay for itself. To make it work, they claim Mountain Funding will have to sell cheap and City Hall will have to allow more rooms to be built than have been permitted. In the meantime, the site remains a slow-moving construction pit.