By Kathy Lee Scott/Garden Grove Journal
The hoped-for lure to bring people to Garden Grove’s Korean Business District along Garden Grove Boulevard has faltered. The two parties funding and building the Garden Grove Galleria have volleyed accusations against each other.
In early 2010, Cathay Bank claimed the Galleria investors defaulted on its $42.5 million loan. In turn, the Galleria party sued the bank for breaching that loan agreement.
“The bank promised us $42.5 million,” said Theodore “Ted” Yoon, president of Theodore Investments Properties, Inc. His company was one of three investing in the project. “It’s not allowed to stop because the property value is less than before,
“We took a risk (on this project) and so did they,” Yoon added.
Two other businesses backed the $50 million, 126,500-square-foot project: architectural firm Archia-Crea Inc. and Sunny Realty LLC of Garden Grove.
They envisioned an eight-story structure comprised of two floors of double-high commercial spaces, three floors of condominiums with one floor dedicated to parking. They leased the land from the Emlen Hoag Foundation that owns the site at 10080 Garden Grove Blvd. According to county assessor data, the taxes are based on $7.9 million of unimproved land.
No representative from Cathay Bank returned calls, and its attorney, Bruce Poltrock, declined comment.
Once the city approved the project in 2005, the Galleria investors secured a construction loan from Cathay. It took until October 2007. “We spent two years getting the final plans approved and qualifying for a loan,” said Yoon.
Before Cathay Bank granted the loan, it appraised the land, which was valued at $84.1 million in April 2007, according to court records.
One stipulation for the loan was the investors had to put up $10.6 million of their own funds, which they did.
Everything went fine for about a year. The steel structure went up and the bank paid $19 million of construction costs. Then the economic recession struck.
In April 2009, the bank asked for a new appraisal, which came back at $33 million, a $51.1 million drop in value.
At a December 2009 meeting, Cathay Bank told the Galleria investors it would not fund any more unless they put another $19 million into the project. And the bank stopped paying all current bills.
“The bank can’t change its mind in the middle of a project,” said Jeffre Lowe, Galleria’s attorney. “I’ll go to my grave believing that.”
Not only did the Galleria people refuse to invest more of their own money, they got sued by the contractor for nonpayment, and the Hoag Foundation has threatened to evict them for not sending in the ground lease.
“It’s a mess,” Yoon said.
According to court records, the bank accused GG Galleria of defaulting on the loan and ground lease. The investors “allowed numerous mechanics’ liens to go unpaid” and failed to complete the project by Dec. 1, 2009, as planned.
The Galleria on Garden Grove Boulevard west of Brookhurst Street remains unfinished, surrounded by wire fencing with no trespassing and warning signs about guard dogs.
Where the situation is now: Cathay Bank wants GG Galleria to pay back the $19 million it paid out, and the Galleria wants the bank to release the remaining loan balance, $23.5 million.
Both parties agreed to put the property into receivership until the dispute is resolved. Both accepted San Diego-based Douglas Wilson Companies as receiver.
“We step into the shoes of the developer,” said Terry Plowden, a Douglas Wilson manager director. “But we won’t complete this construction. It’s too big.”
He said Douglas Wilson will manage the property — maintain security, collect rents, etc. — “until the bank completes foreclosure or fixes the default.”
Cathay Bank funds the receiver’s service, he added.
June 2005 Garden Grove City Council approves the $55-million Garden Grove Galleria project
April 2007 Cathay Bank gets appraisal of property: value = $84.1 million
Oct. 2007 GG Galleria obtains $42.5 million loan from Cathay Bank, due May 2009
GG Galleria puts in $10.625 million of own funds into reserve account at Cathay Bank
April 2009 Parties agree to extend loan deadline to Feb. 2010
Nov. 2009 Galleria invoices Bank for $1.6 million of construction-related bills
Bank refuses to pay invoice
Dec. 2009 Bank and Galleria meet, at which Bank says property now appraised at $33 million (a loss of $51.1 million)
Bank insists Galleria invest $19 million more in project before it releases any more loan funds
Galleria refuses to invest more money until Bank pays current invoices. The unpaid bills lead to construction stopping, contractors suing Galleria for unpaid work and the landowner threatening eviction
Feb. 2010 Galleria sues Cathay Bank for breach of contract
April 2010 Cathay Bank sues Galleria for not paying back the loan on time and not completing the project as planned
May 2010 Court appoints Douglas Wilson Companies as receiver of project