A Bankruptcy Court judge has given final approval to a lawsuit settlement between Mohamed Hadid and his lender, developer Zach Vella, in spite of objections raised by the City of Los Angeles, The Real Deal has learned.
The compromise relates to a partially built mansion located at 9650 Cedarbrook Drive in the Beverly Crest neighborhood of Los Angeles. The 37-acre site, with a planned 78,000-square-foot home that is reportedly the largest-ever permitted residential project in Los Angeles, was once on the market with an asking price of $250 million.
The settlement approval comes a month after Hadid, through an entity called Treetop Development LLC, filed a motion seeking approval for the deal. In that motion, Treetop agreed to a compromise with Vella’s Skylark Capital and its servicer, Skylark (UK) Servicing LLC. Bankruptcy Court Judge Sheri Bluebond approved the settlement on May 20.
In her order on the motion, Bluebond described the deal as “highly negotiated by sophisticated parties.” The tentative ruling increases the debtor-in-possession financing on the property, provided by Skylark, from $10.5 million to $16.6 million. So-called DIP financing is used by an entity such as Hadid’s Treetop Development to continue to conduct business while in Chapter 11 reorganization.
Hadid’s original motion said “the parties have now reached an agreement that consensually addresses their various disputes, will facilitate a sale and potential plan process, and maximize the value of the debtor’s property which will serve to benefit the debtor’s estate and all of its creditors.”
In September 2022, Treetop accused Vella of perpetrating a “loan-to-own” scheme on the Cedarbrook Drive property, allegedly providing just a $29 million portion of a promised $92.8 million mortgage. Under the compromise agreement, Skylark’s secured claim was set at $40 million, much lower than the $63 million figure when the lawsuit was filed.
With her approval of the deal, Bluebond denied an objection from the City of Los Angeles. In January, Hadid sued Los Angeles officials over the cancellation of building permits for the Cedarbrook Drive house project. The city lost the case and was ordered to reinstate the permits. In its objection, the city said that the lawsuit settlement should not get court approval because it would give Hadid more resources to sue taxpayers.
“The settlement funds further litigation over the issue and also enables the expansion of litigation into other areas that seek damages against city taxpayers. Even if the settlement would lead to payment in full to all creditors, the settlement does nothing but drive the parties further into two camps: the City of Los Angeles versus virtually everyone else,” the city’s court filing read.
Under the compromise, any monetary award that Hadid wins against the city will be out of reach for Skylark.
In its latest monthly operating report, Treetop reported total assets of $107.6 million and total liabilities of $90.4 million.
Hadid could not be reached for comment.