Levy Declares Bankruptcy

Time-Share Construction Inches Forward

by Nick Welsh For years now, the leading lights of Santa Barbara’s
civic community have wondered just how long Bill Levy, Santa
Barbara’s iconic wheeler-dealer developer, could remain aloft
financially. Last Friday, they found out, as Levy’s carefully
crafted house of cards came crashing down. That’s when Levy and his
longtime partner Roy Millender — operating as Santa Barbara Beach
Holding — applied for Chapter 11 bankruptcy protection for their
high-flying plans to build 62 deluxe time-share condos on the lower
two blocks of State Street in partnership with Ritz-Carlton.

Because of Berti’s
exertions, Levy’s books were subjected to a rigorous audit,
which, the Court of Appeal noted, concluded that
Levy misspent $11.6 million of his investors’ money.Levy and Millender were effectively forced to file bankruptcy by
their chief lender, Mountain Funding of North Carolina, after they
repeatedly failed to pay back the $44 million they owed. Had Levy
and Millender not agreed to file “voluntary bankruptcy,” Mountain
Funding — which specializes in lending to developers in
distress — was prepared to hold a public foreclosure sale in front
of the courthouse this Wednesday at 1 p.m. But even though they
filed for bankruptcy, Levy and Millender are not yet completely out
of the lower State Street project. Under the terms of the
bankruptcy filing, Levy and Millender will be given until December
15 to repay Mountain Funding and secure an additional $115 million
construction loan. Given that their failure to obtain such
financing in the past forced them to do business with Mountain
Funding in the first place, few close to the situation think they
stand much of a chance.
Many of Levy and Millender’s problems stem from the fact that
since 1991 — when they first began what evolved into the time-share
scheme — their partnership amassed more than $68 million in debt on
property taxed at an appraised value of about $10 million. But that
first figure significantly understates the total debt Levy had
burdened his project with. It does not include the untold millions
invested by countless doctors, lawyers, dentists, and other small
investors over the years, many of whom have sued Levy and Millender
to get their money back. It’s expected that none of those smaller
investors will ever see a dime. Even bigger players — like Michael
McAdams, who invested $10 million — will be hard-pressed to recoup
their investments. Levy’s forced disappearance from the deal he
began masterminding 15 years ago — and for which he won City Hall
and Coastal Commission permits — increases the odds that the
time-share condos might one day be built, but by no means
guarantees it. Because of Levy’s inability to secure financing, he
twice had to seek extensions on construction permits. His last
permit is scheduled to expire December 12. Had construction not
started by then, the project — hard-won and long fought — would
have been dead in the water. Mountain Funding, however, has already
committed to spending up to $4 million on construction to keep the
permits alive. To this end, Melchiori Construction has dispatched
crews of workers to plant pipes in the ground to remove water from
the soil. In the meantime, Mountain Funding is desperately seeking
to find a qualified buyer to take over the project. Without all of
Levy’s debt, litigation, and angry investors anxious to be paid
back, finishing the development should presumably be easier. (While
none of the current councilmembers was in office when Levy’s
project was approved and few have any enthusiasm for it today, City
Hall exacted significant concessions — a new parking garage, wider
sidewalks, and new traffic signals to name a few — from Levy in
exchange for approval.) One reason for Levy’s poor relations with
many investors was highlighted this week in a ruling published by
the Court of Appeal awarding Dick Berti, Levy’s one-time friend and
investor, legal fees for his seven-year quest to see the time-share
project’s books. Because of Berti’s exertions, Levy’s books were
subjected to a rigorous audit, which, the Court of Appeal noted,
concluded that Levy misspent $11.6 million of his investors’ money.
“The evidence was insufficient to support a conclusion that these
transactions were allowable under the partnership agreement or were
the responsibility of the partnership,” the court found. Berti will
seek hundreds of thousands in legal fees, and will likely have to
sue Levy personally to claim any of it. And Berti’s is likely to be
just one of many lawsuits to be filed in the aftermath of Levy’s
crash.