Propmodo Daily

By Franco Faraudo · Jan. 23, 2024

Greetings!

Another commercial real estate owner has been forced to give part of its portfolio to creditors in lieu of foreclosure. While the company might not be one of the most well-known property companies in the country, its owners and their families have a rather sordid backstory, which we serve up in today’s daily.

Be sure to read our Real Talk interview with Joanna Frank from the Center for Active Design. As the real estate sector is increasingly prioritizing health and sustainability, her organization is leading the way through the expansion of Fitwel certification. This trend, spanning offices to industrial spaces, underscores the post-pandemic emphasis on healthy environments.

Also this week, Propmodo Technology is covering innovations in HVAC. We look at some research about the effectiveness of heat pumps in extreme weather and examine how new carbon reduction policy is asking much more from HVAC building control software.

Now let's dig in!

Is This the End or Just Another Bump in the Road for LA’s Most Notorious Landlord?

One of Los Angeles's largest multifamily landlords used to be WS Communities. As of last week, they no longer hold that distinction. They have been forced to pay off over a billion dollars in what is reported to be floating-rate loans by giving half of their portfolio to their creditors. The future of WS Communities is now uncertain, but there is plenty known about its past.

WS Communities was co-founded by Neil Shekhter, his sons, and the company's current CEO. It made the news last year for submitting around a dozen developments to the City of Los Angeles designed to take advantage of a "builders remedy" that had been imposed on the city by the state of California for noncompliance with the statewide affordable housing plan. The buildings that were proposed were excessively large and were meant to create controversy.

The plan worked well. Neighbors were up in arms about the development, telling council members that it was like having "Godzilla next door." Eventually, the city negotiated with WS, giving them special privileges and promising to pass a housing plan if they withdrew their permit applications.

This type of controversy and legal wrangling seems to follow the founder, Neil Shekhter, wherever he goes. He was previously involved in an incredibly contemptuous lawsuit with his previous firm, NMS Properties after they had tried to force a buyout on his JV partner, the hedge fund AEW Capital Management. AEW alleged that Shekhter falsified the contract that it provided the court. While that was never proved, Shekhter lost the case (replacing the hard drive and googling things like "secure wipe hard drive" days before he was ordered to turn in his personal computer certainly didn't help).

It didn't end there. When AEW moved in to take control of the buildings, Shekhter was accused of assaulting one of the hedge fund's employees. AEW even went as far as to petition the federal government to open a racketeering case against Shekhter for violations of the RICO Act. Ultimately, NMS lost control of the buildings.

That is nowhere near the extent of Shekhter's run-ins in court. In 2021, NMS was sued for unlawful evictions by the city of Santa Monica. WS Communities, Shekhter, and his family were also sued by his half-brother for non-payment of a $100 million dollar loan in October of last year.

Given the numerous lawsuits, debts, and negative publicity WS has accumulated, it wouldn't be shocking if the company were to shut down. The company's website currently shows it as "expired," and there has been no communication from the company regarding its future intentions. However, should the company dissolve, it wouldn't be surprising to see its remaining assets reemerge under the control of Shekhter. Known for his shrewdness and ability to bounce back, Shekhter has consistently demonstrated his capacity to recover and rebuild following significant challenges. This wouldn't be the first time Shekhter has had to start over, and it's unlikely to be the last.

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Propmodo Daily is written and edited by Franco Faraudo with contributions from readers like you and the Propmodo team.

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