Rialto Hits Redcar with Chinatown Office Foreclosure Lawsuit

Redcar is in trouble in Chinatown.

Distressed debt player Rialto Capital accused the Jim Jacobsen-led development firm Redcar Properties of defaulting on a loan for creative offices in Chinatown. Now, Rialto wants to foreclose and a receiver to take over.

Miami-based Rialto made the allegation in its capacity as the loan’s special servicer, which acts on behalf of commercial mortgage-backed securities bondholders. It claims Santa Monica-based landlord Redcar owes about $15 million, in a complaint dated mid-June.

The two buildings targeted by Rialto’s foreclosure lawsuit are at 837 North Spring and 1135 Alameda streets and total about 41,000 square feet. The real estate is only 55 percent occupied, according to an offering brochure. It was fully leased until Redcar lost a crucial tenant, Korrus, which had previously occupied around 18,000 square feet before moving to another Redcar-affiliated property in the neighborhood, according to the loan servicer and the company’s website.

Redcar’s second-largest tenant at 837 North Spring, NAC Architecture, pays $3.75 per square foot a month, which comes out to $52,000 a month, or $625,000 a year, the brochure said. (The creative offices are on Spring, and the Alameda property is a retail spot described as a third place of sorts, home to a café-bar). The properties, at their current lease level, bring in about $864,000 in base rent a year, the rent roll in the marketing materials shows.

While creative offices aren’t your typical downtown office towers and generally attract tenants that want and frequently use boutique workspaces, they aren’t immune to distress — and this isn’t a first for Jacobsen’s Redcar. The firm handed back the keys to creative offices in Santa Monica to another lender, Bank OZK, via deed in lieu of foreclosure earlier this year. Redcar owed $50 million before surrendering the property.

Elsewhere in Chinatown, last year, Civicap Partners purchased Redcar’s creative offices and ground-floor retail it developed at 843 North Spring Street for about $36 million, which was less than a Bank OZK loan on the property. That’s the building Korrus moved into; while the size of its lease there isn’t clear, an online listing for the property shows there’s more than 79,000 square feet of available workspace for rent.

New York-based real estate financier Argentic loaned Redcar around $13 million against the 837 Spring and Alameda real estate in 2018. The complaint says Redcar is in default because it has missed debt payments since January and hasn’t shared financial reporting documents.

Jacobsen, who is Redcar’s chairman and CEO and founder of Industry Partners, was the loan guarantor and did not immediately respond to a request for comment. Neither did an attorney for Rialto.

The loan, which matures in 2028, moved to special servicing a year ago. The real estate is on the market for sale and has an about $19 million price tag, but there are no offers, according to the latest loan servicer commentary collated by Morningstar Credit.