In 2021, Johnny Lu and Yaojan Liu were raising money from investors to build 452 apartments in Playa Vista, on the edge of the 405 freeway.
The two men behind TA Partners already had some financing — a $13.5 million loan from local lender Partners Capital Solutions.
But when TA Partners was raising money, one group of investors claimed they never knew about the debt, and that the loan never went towards the project at 6055 West Center Drive.
Rather, it went into Lu and Liu’s pockets, leading the project to fall into bankruptcy, according to a lawsuit filed earlier this year in Los Angeles Superior Court.
The investors — who form an entity called RUC14 Playa LLC — sued Lu, Liu and TA Partners, alleging commingling of funds, fraud and misrepresentation, court records show. Attorneys for TA Partners, which have requested for arbitration in the case, did not respond to a request for comment.
The lawsuit marks yet another battle for TA Partners, which lost two development sites in Irvine to lender Mack Real Estate last year through a foreclosure after defaulting on $200 million in loans, and has filed for bankruptcy on the Playa Vista development.
Hankey Capital has also scheduled a foreclosure on the Playa Vista development, after filing multiple notices of default, saying TA Partners owes more than $30 million in unpaid debt.
TA Partners has taken some responsibility for both the demise of the Playa Vista project and the Irvine foreclosures.
In a February letter to RUC14, which was filed with the court, principal Yaojan Liu acknowledged some loans were used to pay off personal debts and other equity was used to invest in a financial technology special purpose acquisition company, or SPAC.
“We would like to offer our apology for the non-compliance during project execution,” Liu wrote in the letter. “Self-reflection is needed and I would like to apologize.”
Big fish to little fish
Johnny Lu, through a predecessor to TA Partners, bought the Playa Vista site for $8.2 million in 2014, records show.
He scored the site from Equity Residential, the Chicago-based apartment giant that was, at the time, the sixth largest landlord in the U.S. Equity Residential had planned to build more than 500 units on the land. Lu decided to take on the challenge.
Four years later, his entity sold it to TA Partners and three other investors for $10.7 million.
A year later, Lu and Liu at TA Partners scored a $13.5 million loan from Partners Capital Solutions on the property — the debt that RUC14 claims it never knew about.
“The borrower was the project company,” Liu wrote in his investor letter filed with the court. “The borrowed amount was transferred by me and Johnny Lu to repay our personal investment debts.”
RUC14 invested $12.9 million in equity in the project in 2021, alongside six other investment entities, the LLC said in its complaint. In total, TA Partners raised $65.4 million for the development, after the $13.5 million loan, court records show.
But right before raising the equity, TA Partners refinanced the loan from Partners Capital Solutions with a new $14 million, six-month loan from Preferred Bank.
SPAC side quest
Lu and Liu then got sidetracked. In October 2021, TA Partners managed to upsize its loan from Preferred Bank to $20 million.
That meant $5.5 million in new funding. But most of it went towards buying equity in a completely unrelated special purpose acquisition company called Fintech Ecosystem Development Corp.
SPACs are formed to raise capital through an IPO and then acquire an existing company. Many real estate firms — WeWork, Better and Porch, for example — have gone public through SPACs.
But the SPAC that TA Partners invested in was formed to acquire REVO FAST, a company related to electric vehicles, according to the investor letter sent to RUC14.
“We thought that we would control a SPAC by ourselves and put our real estate projects into listed companies, thus having a publicly listed financing platform,” Liu wrote in the letter.
The plan failed. The $4 million that was invested into the SPAC is still locked up in equity, according to the letter.
Liu went back to the more traditional way of financing a project — through a lender.
Hankey Capital, known for providing bridge loans, gave TA Partners a $27.5 million loan in December 2021, records show.
“We once again obtained funds by raising the loan amount from Hankey as a way of solving the problem at hand,” Liu wrote in the letter, adding that loan amounts were getting higher at the same time that interest rates rose.
The loan from Hankey, RUC14 alleges, was not for the benefit of the project, but was “utilized by TA Partners, Johnny Lu, and Larry Liu to enrich themselves at the expense of TA Fund II,” according to the investors’ complaint.
In December, Hankey filed a notice of default, claiming TA Partners owed $1.7 million in unpaid debt as of November 2023.
By February, that amount ballooned to $30.6 million, records show. A foreclosure auction has been scheduled for May 31.
In his letter, Liu offered condolences to the RUC14 investors: “Ultimately our greed led to the unfavorable situation of Hankey’s loan defaulting and a possible forfeiture.”
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