Laguna Point Properties sues over $400M DTLA deal

Threat of tenant litigation, code violations detailed in complaint

111 W 7th Street (Getty Images, Google maps)
111 W 7th Street (Getty Images, Google maps)

UPDATED: Sept. 6, 2022, 9:20 a.m.: When Laguna Point Properties bought a portfolio of apartments in Downtown L.A. for $402 million, it wasn’t expecting tenant litigation, a pile of utility bills and violations of city fire codes.

But the Orange County-based investment firm alleges it faced all these costly challenges when it acquired the five buildings, according to a lawsuit filed with L.A. County Superior Court last week. The company is now looking to recover an unspecified amount in damages.

Laguna Point filed the lawsuit against five limited liability companies that owned properties at 215 West 6th Street, 650 South Spring Street, 600 South Spring Street and 548 South Spring Street, totaling 1,037 units.

Barry Shy, a prominent L.A. developer, signed the purchase and sale agreement to sell what the lawsuit calls the “Main Premises” to Laguna Point as a manager of one of the LLCs named as a defendant in the suit, Main SB. The suit did not specifically name Shy, or any other individual, as a defendant.

Manhattan Loft and 600 Tower, two other LLCs named as defendants in the suit, list Barry Shy as manager, filings show.

Laguna Point alleges the entities breached the sale contract by failing to disclose a threat of litigation from tenants and a number of defects at the properties. Neither Shy nor Laguna Point responded to requests for comment.

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Two days after the sale contract closed in April, a group of tenants at 215 West 6th Street sued the entity that owns the property — now under Laguna Point — for negligence and for making the property inhabitable. Laguna Point contended the LLCs were made aware of the threat of this lawsuit last year, but “concealed this information and falsely warranted and represented that they were not aware of the threat of such litigation,” according to the complaint.

Laguna Point also alleges the LLCs were still collecting rent from tenants for two months after the deal closed — at least $307,000 in payments — and failed to pay “significant utility charges to avoid payment.”

Though all deals require some sort of due diligence, Laguna Point alleges the entities failed to disclose a slew of faults and defects across all buildings — everything from faulty lobby doors, an “inoperable” circulating pump and a damaged cooling tower.

At 111 West 7th Street, one of the buildings purchased by Laguna Point, the LLCs allegedly never fixed a fault fire pump motor after a fire broke out earlier this year, in direct violation of city code, according to the complaint. Laguna Point said it now has to pay $200,000 to fix the pump and pay a person $18,000 a month to act as “fire watch.”

Shy, who has built hundreds of apartment units across Downtown L.A., has been accused of overcharging brokers and tenants and skimping on construction work in the past. He maintained all of his projects were “high quality” in a 2009 interview.

The entities named as defendants have not yet responded to Laguna Point’s complaint, as of Sept. 6.

This story has been updated to reflect that Barry Shy is not named individually as a defendant in Laguna Point Properties’ suit; Shy is listed as a manager for some of the limited liability
companies named as defendants in the lawsuit.