Two buildings, two bankruptcies.
That's what California investors Michael Kamen and Gerson Fox have left behind Downtown.
In 2008, they arrived with a Rodeo Drive-like flourish, spending $30.6 million in eight months to acquire the Union Trust Building on Grant Street and the James Reed Building on Sixth Avenue.
But there has been no Hollywood ending.
The historic Union Trust Building, built by industrialist Henry Clay Frick, ended up in bankruptcy this month a step ahead of a sheriff sale triggered by a mortgage default totaling $41.1 million, including interest and other costs. Eight months earlier, the James Reed Building followed the same path after the owners failed to sell it.
As it turns out, Pittsburgh isn't the only place Mr. Kamen and Mr. Fox are having trouble. According to one complaint, eight other buildings held by the pair in Los Angeles, Cleveland and other cities are either in bankruptcy, default or receivership.
Mr. Kamen has filed for personal bankruptcy, claiming $10 million to $50 million in liabilities. He was sued last year by Mr. Fox, who accused his longtime business partner and friend and some of his associates of "a long and orchestrated web of lies, theft, fraud, and abuse of a trusting elderly couple," causing him millions of dollars in losses.
The allegations and financial turmoil have shattered the relationship between the two men, one in his 70s and the other in his 80s, said Mr. Kamen's attorney, Richard Lee.
"These are old guys used to being very successful and getting their way. They'll never reconcile. It's kind of a poor way to spend the twilight of our lives. But who am I to tell them what to do?" he said.
In October 2008, the two bought the James Reed Building Downtown under the name 600 William Penn Partners LLC for $6.5 million. The Chapter 11 bankruptcy, filed in California last December, dodged a sheriff sale scheduled after the pair failed to sell the property and couldn't make a balloon payment on a PNC Bank mortgage.
Now it appears that the nine-story Beaux Arts-style building built in 1902 will be auctioned off in U.S. Bankruptcy Court in Los Angeles on Sept. 11 by Howard Ehrenberg, the Chapter 11 trustee appointed to handle the case.
Mr. Ehrenberg has secured an opening -- or "stalking horse" -- bid from PMC Property Group, a Philadelphia developer that has bought several properties in Pittsburgh over the last two years, including the Regional Enterprise Tower across the street from the Reed building.
PMC submitted an offer of $5.5 million, the highest of five bids, for the property, which has been vacant since the Reed Smith law firm moved to Three PNC Plaza in 2009. In the auction, PMC would have the right to bid above its $5.5 million offer. If it doesn't get the property, it would be paid a $165,000 break-up fee.
Mr. Ehrenberg expects the auction to be a success.
He hopes to use the proceeds to pay off creditors, including a negotiated payment of $2.2 million plus interest calculated from July 1 to PNC and claims of $110,066 by Allegheny County and $489,669 by the city and the city school district related to delinquent property taxes.
The fate of the Union Trust Building is still to be decided.
In February 2008, Mr. Kamen and Mr. Fox, doing business as 501 Grant Street Partners LLC, acquired the 11-story Flemish Gothic structure for $24.1 million with the intent of restoring its grandeur by adding upscale retailers and making other improvements.
Most of that hasn't happened. By the time 501 Grant Street moved the building with the stained glass dome into bankruptcy on Aug. 3, most first-floor retail space remained vacant and office levels were almost half empty. The Chapter 11 petition listed liabilities of $10 million to $50 million.
During their tenure, the owners feuded with their main tenant, Siemens Corp., over a bid by the firm to reduce the four floors of space it occupies in the building and lost upscale Larrimor's clothing store to One PNC Plaza.
Mr. Lee, special counsel for Mr. Kamen, predicted the Union Trust Building, like the James Reed Building, would be sold, either as part of the bankruptcy or through a foreclosure.
He blamed the real estate woes, in Pittsburgh and elsewhere, on the recession.
When the economy crashed, many of the properties lost value, he said.
"I lay the blame on the continuing poor economy, tenants who don't pay or tenants who aren't there, and banks that are frankly getting a little stricter about working things out," he said.
Mr. Fox, 85, tells a far different story in an adversary complaint he filed as part of Mr. Kamen's bankruptcy.
He accused Mr. Kamen of using their joint real estate holdings to "systemically steal money" from him or the special purpose companies set up to purchase the properties and to "use it to fund [his] lavish lifestyle." One of the companies that is a plaintiff with Mr. Fox is 501 Grant Street Partners.
He maintained that Mr. Kamen, among other things, used funds intended for the properties to pay personal expenses, including collectible art and cars, and private school tuition and fees for his children.
The scheme, he alleged, began to unravel in 2010, when he learned a number of the companies had defaulted on mortgage loans, property taxes or other obligations even though the properties had a positive cash flow.
He also accused Mr. Kamen and his associates of intentionally devaluing properties by failing to make mortgage and property tax payments so that they could be acquired at a discount by friends and accomplices.
The complaint alleged that at least 14 of the properties Mr. Fox held an interest in produced sufficient income to cover expenses.
Of those, 10 are in various stages of default, receivership or bankruptcy, including the Union Trust and James Reed buildings.
Mr. Lee described the claims as "completely frivolous." Charges that Mr. Kamen stole money are false, he said, adding that audits conducted involving the various entities have placed the amount of money unaccounted for at less than $20,000.
As for claims that Mr. Kamen and his associates devalued properties so they could be acquired at a discount by accomplices, he countered that none of the properties had been sold.
It's not your typical movie ending. Christian Scali, one of Mr. Fox's attorneys, conceded as much, though he argued Mr. Fox had no choice but to take the action he did.
"It's a shame that these people have to spend the years they should be enjoying life fighting over a friendship that's gone bad," he said.homepage - neigh_city
Mark Belko: firstname.lastname@example.org or 412-263-1262. First Published August 17, 2012 4:00 AM