After bankruptcy, what comes next for the Mountain of Beverly Hills?

Brokers say the property, most recently listed at $650M, will likely have more price reductions with its owner in Chapter 11
By Natalie Hoberman | June 05, 2019 12:00PM

Victorino Noval and Franco Noval (Credit: Getty Images)

Victorino Noval and Victor Franco Noval (Credit: Getty Images)

The so-called Mountain of Beverly Hills came on the market last summer with a flashy $1 billion price tag, generating news stories and drawing eyeballs from around the world. The property’s jaw-dropping asking price set a new record in Los Angeles, as well as the country, at a time when the ultra luxury market was starting to show signs of softening.

A year later, the high-profile parcel still has brokers buzzing, but for all the wrong reasons.

“The whole thing wasn’t real from the beginning,” said Stephen Shapiro, co-founder of luxury brokerage the Westside Estate Agency. “It was all a pipe dream.”

After failing to unload the 157-acre property at its 10-figure ask, the owners of the Mountain chopped its price down to $650 million in February. Last week, a day before a lender could foreclose on the Mountain, its owners filed for bankruptcy in a Los Angeles federal court.

Secured Capital Partners, the ownership entity controlled by Victor Franco Noval, the son of admitted felon Victorino Noval, sought Chapter 11 protection on May 29. Secured Capital had acquired the land making up the Mountain from Tower Park Properties — another entity controlled by the Noval family — in 2016 through a title transfer with $190 million in liens allegedly attached to the site.

Steve Lewis, founder of the Beverly Hills-based Core Real Estate Group, said Secured Capital’s financial troubles didn’t come as a surprise to him because the Mountain’s previous owner, Tower Park, had also went bankrupt. That entity, controlled by the elder Noval and investor Charles Dickens, filed for Chapter 11 in 2008. It transferred ownership of the Mountain to Secured Capital eight years later.

By filing for bankruptcy, Secured Capital and the Novals will “keep it in the family for the next thousand years,” added Lewis.

A source familiar with Secured Capital said the crux of the Beverly Hills-based firm’s bankruptcy filing is a dispute over what is owed to the lender, the Mark Hughes Family Trust, an estate for the late Herbalife International founder. The Hughes trust, which owned the Mountain until selling it for $23.75 million to Tower Park in 2004, claims it is owed around $190 million in interest and other related expenses.

Tower Park alleges that its debt is closer to $100 million. Filing for bankruptcy, said the source briefed on the matter, will allow the back-and-forth between the Mountain’s owner and its lender to play out in court for a bankruptcy judge to decide.

Ronald Richards, a Los Angeles lawyer serving as special litigation counsel to Secured Capital, said that his client’s Chapter 11 filing was made to prevent one creditor from “equity stripping” an asset owned by the firm.

“The Chapter 11 filing ensures a fair and orderly distribution to repay all creditors what is owed and to deal with any that have charged illegal or excessive fees or default interest,” said Richards, noting that Secured Capital has other assets besides the Mountain.

A declaration filed by Richards with the bankruptcy court states that Secured Capital also owns 215 South Bedford Drive in Beverly Hills, 2458 North Euclid Avenue in Upland, as well as penthouse 3 and unit 402 at the Remington condominium complex at 10727 Wilshire Boulevard in Los Angeles. Secured Capital paid a combined $12.5 million for the four residential assets over the last seven years.

As for the Mountain, brokers and industry experts have been questioning the legitimacy of the property’s initial price tag since it hit the market last year, arguing that the $1 billion ask was more of a publicity stunt than a viable figure.

Stephen Kotler, CEO of Douglas Elliman’s Western Region, said he had a couple of clients that “were nibbling about the idea” of making a bid on the Mountain, but ultimately felt the asking price was well beyond their reach.

“The highest and best use for this place is a king or queen, or someone who thinks they are king or queen, to buy it and build a compound,” added Core’s Lewis.

Another potential alternative is for a developer to buy the property and build several spec mansions on the site. But “no one gives a shit about subdivisions,” added Lewis. It’s believed that Scott Gillen, a prolific Malibu developer, bid $400 million for the Mountain in January but was rejected by its owners.

Subdividing the Mountain would also be a “pretty risky situation” given that the local luxury market is already showing signs of an imminent slowdown, said Westside’s Shapiro. A recent report revealed that Los Angeles County saw a 23 percent increase in listings in early May, to 13,437 homes, as well as a 6 percent decline in escrows from a year ago.

If the Mountain were to sell for $200 million — a more realistic figure now that its owner is in bankruptcy court — a developer would have to spend roughly $40 million on each of its six unbuilt lots, Shapiro said. And if a prospective developer were to pay that price per lot, Shapiro said they’re going to want to build large estates that they can sell for $100 million apiece.

“Look at how many houses in town have sold for $100 million and you’re going to have an empty hand,” added Shapiro.

Richards disputed such speculation, telling The Real Deal that “brokers who do not have the same approvals, entitlements and data that the owner’s broker does are no different than talking heads on TV.”

The Mountain’s listing broker, Aaron Kirman, declined to comment when asked how Secured Capital’s bankruptcy could affect the property. He did confirm that he still held the listing for the site, which is located at 1652 Tower Grove Drive.

Bankruptcy, however, presents a whole new set of challenges for a property that had struggled to sell beforehand.

“If I was Aaron, I’m calling anyone who had a remote interest in it and telling them they can get it for $200 million right now,” Lewis said. “It is a sellable piece — it’s the greatest piece of land in this hemisphere. But it’s only worth what it’s worth.”