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 from prominent L.A.-based developer Barry Shy, 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 alleges Shy 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.
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 Shy was made aware of the 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 Shy was 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 Shy 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, Shy’s firm 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. A reader once asked Curbed L.A.: “Is Barry Shy really the Antichrist? I’m looking into units downtown to buy, but every bit of research I do on any of Shy’s buildings only confirms his slumlord status.”
The post Barry Shy didn’t disclose defects in $400M deal: suit appeared first on The Real Deal Los Angeles.
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