As announced by Circling the News in November, longtime Pacific Palisades commercial real estate owner Elliott Zorensky is selling his property on Sunset (15220-15240) and La Cruz (15230-15234). His tenants include Wells Fargo Bank and Palisades Garden Café.
Ronald Reagan American Legion Post 283, which owns the CVS building and the Post Office facility on the west side of Zorensky’s property, voted yes last Thursday evening for the executive committee to pursue negotiations with Zorensky.
In order for the executive committee to go forward, two-thirds of the members who voted at the meeting had to vote yes. The vote was 61 for and 29 against, so the proposed action won by one vote.
As of February 7, the Legion had 607 paid memberships. An email was sent to all members who had an email address and 590+ letters were mailed, advising members about the upcoming vote. About 15 percent of the current membership voted.
In a February 4 email sent to certain Post 283 members, executive committee members Kurt Hiete (a CPA) and Ted Howells (a CPA who also served as the Post 283 finance officer, 2015-2019), were joined by investment advisor Steve Patterson, a member of the Post 283 investment committee, in urging against the purchase of the 36,000-sq.-ft. site with a total building area of 18,455 sq. ft.
The three men pointed out by-law problems:
1) When the by-laws were amended in 2019, they required two Post meetings for approval of large transactions. It was felt that having time between regular meetings would give members time to think and ask follow-up questions. “Having these two Post meetings less than one week apart and with less than one week’s notice violates the spirit of the by-laws and does not provide the membership with sufficient time to review, discuss and understand this transaction,” the men wrote. (The first meeting was held on February 3 and the second on February 6.)
2) The short notice meant only a small percentage of the members would vote. “If approved, this transaction results in the Post incurring debt of almost $50,000 for each one of the Post’s members,” the men wrote.
3) “The purchase of real estate is a Prohibited Investment as defined in the Investment Policy Statement dated September 12, 2017 and approved by the ExCom. This prohibition was included in the Policy because it was concluded, after considerable review and discussion, that such an investment provided too great a risk and the portfolio should not be made subject to real estate fluctuations. With no advance notice, the ExCom at a meeting Saturday arbitrarily voted to waive this prohibition.”
Zorensky’s property is currently 100 percent leased. The La Cruz properties include Mathnasium (in the building now occupied by Seven Arrows), the popular Garden Café and the Pit Stop, which is located behind the building. His real estate on Sunset includes Wells Fargo, Ruby Nails, Philips French Cleaners, Valentina and Club Pilates. The property borders on a L.A. City parking lot.
Hiete, Howells and Patterson noted that there has been no appraisal of the property. “The original asking price was about $25 million yet the ExCom took that number up to $33 million – way overpriced for this property.”
When Zorensky put his property up for sale, CTN contacted Payman Emamian, director of commercial real estate for Compass in Pasadena (and a former business partner with Palisades realtor Anthony Marguleas). He said, “If you take a five percent cap as a reference, then it should trade at about $28 million.” The cap rate is defined as your return on investment if you pay all cash for the property.
CTN shared the figures with another local realtor who did not wish to be named. He wrote in a February 10 email to CTN: “If the math was done correctly, then I would concur that the market value is likely $25-28 million today (but surely not $30 million).”
Heite, Howells and Patterson wrote that the pro-forma financial statements included in Zorensky’s documents indicate that “the properties have operating cash flow of $1,152,189 [annually]. With a purchase price of $33,370,000, that results in a multiple of 29. That is, the price is 29 times operating cash flow. This is an absurdly high multiple and this alone should be enough to reject this proposal.”
They also noted that the pro-forma financial information, which was prepared to support the purchase, “leaves the Post substantially worse off than not approving the purchase.”
The men stated that Post 283 has never finalized a bank loan of more than $28 million and a bank may want to add the Legion’s existing buildings to secure the loan.They concluded, “Apparently the bank does not believe there is enough value in the Sunset properties to loan $28 million.”
The three expressed concerns that Post 283 would risk losing its nonprofit tax status, with a loan and purchase of the Zorensky property, and noted that currently the Post has no debt.
They wrote: “Due to strong oversight and management of the investment portfolio, gains over the last two years have been over 20 percent. While you cannot predict future returns, this transaction requires taking $5 million of a performing liquid asset out of the portfolio and put them into a low performing non-liquid real estate.”
They also warned that Post 283’s generous financial support of local schools and college scholarships (an estimated $100,000 a year), the Fourth of July parade ($40,000 last year) and the West L.A. Veterans Administration, “will have to be dramatically scaled back. That’s more than 10 years of reduced donations spending those Post resources on interest expense.”
CTN asked Post 283 Adjutant Kevin Niles on February 10 that if the purchase of Zorensky’s property went through, would the financing affect the benevolence for which the Legion is admired?
Niles said that “The Legion would still be in a position to support our grants to veterans and to the community (including the Fourth of July parade).”
“Financially we are responsible to our members,” he said.
Former Post 283 Commander Scott Wagenseller wrote in a January 23 email to some members: “When I joined Post 283 in 2002, the Post membership was starting to realize the great legacy that was bestowed to us by our founders in 1928.
“Our financial foundation took 40 years to grow from a quaint Quonset on two landfill lots to two large commercial buildings. After building the post office and CVS buildings, it took another 25 years to realize that both the property and our two buildings would be owned, free and clear. Since the 90s’ our 4 pillars have benefitted to the tune of more than $20 million in donations.
“Now an opportunity is being considered to double our real estate holdings and potentially double our benevolence,” Wagenseller wrote. “Shortly, the Executive Board will call a special meeting to present this opportunity to the membership with all its risks and rewards. After this informative gathering, another meeting will be called to ask for your vote. These two meetings will be announced shortly and will be only days apart.”
He concluded, “The notice for two special meetings will be posted in the next week or two! This is a game changer and you need to be part of history.”
One member who attended the February 6 meeting told CTN that the advocates for purchasing Zorensky’s property argued that it would “raise Post 283’s profile in the community and if all goes well, it will prove to be a terrific investment.”
One resident said, “There is no loss to simply continuing as they have been – with an enormous good provided to the community and elsewhere. Why risk that?”