The developer of Lavender Court, Carpinteria’s largest mixed-use project in years, has filed two Chapter 11 bankruptcies, leaving behind bank debts and contractors wondering how they will get paid for their work.

Nick Narang was the force behind Lavender Court, a project with 40 condominium units and a 5,000-square-foot retail space on Carpinteria Avenue. Two of his companies – Narang Holdings Group and Narang Acquisition Group – have filed for protection from creditors, listing among their debts the $24 million financing used to build Lavender Court.

Chapter 11 bankruptcy protects Narang’s companies from debt repayments and litigation while they reorganize their finances. Narang did not return phone calls from the Business Times requesting comment.

However, William Winfield, an Oxnard attorney who is representing Narang’s companies, said the bankruptcy court has given Narang permission through June to use rent money collected from Lavender Court to make interest payments to the lender for the project, Torrance-based First Regional Bank.

Winfield said Narang needs time to ride out the housing crisis. “It’s our intention to put together a reorganization plan to repay the bank by selling the units individually as condominiums,” Winfield said.

When Narang Holdings Group filed for Chapter 11 bankruptcy in early 2009, the company listed more than two dozen tenants leasing in Lavender Court. Unless a buyer steps up immediately, Winfield said, the tenants likely will be able to stay through the end of their leases.

The terms of Narang’s construction loan dictated that he was supposed to sell the units, according a lawsuit First Regional Bank filed in Santa Barbara County Superior Court. Construction started in 2006, but after the units were finished, Narang couldn’t sell the units and broke his agreement by renting them out instead, the lawsuit alleges.

“The building was built, but instead of selling the units [Narang] elected to rent the units due to declining real estate values,” First Regional Bank wrote in the lawsuit, which was put on hold by the Narang companies’ bankruptcy filings.
With the real estate market still down, it’s unclear how much the sale of the units would bring in to repay the bank.

Winfield, the attorney representing Narang, couldn’t say how much the properties might fetch, but they originally were listed for between $625,000 and $695,000.

“We’re still working on those projections, and we’ll be filing a disclosure statement shortly,” Winfield said.

The Narang companies’ bankruptcy filings put on hold a tangle of lawsuits. Some contractors sued Narang’s companies for unpaid work, while Narang countered with a suit against some of the contractors for construction defects.

Some of the smaller contractors who worked on Lavender Court have unsecured claims – that is, they are owed money, but the debt is not backed up by collateral. Winfield said that those companies probably don’t stand to be repaid unless they opt to go into mediation with a bonding insurance company on the construction defect lawsuits.

“We’re seeking to get a global mediation and get money from the boding company to repay them,” Winfield said. “If those creditors want to get repaid from the [the sale of the] property, it’s not likely they’ll be repaid anything. But if those creditors agree to the mediation, we’re hopeful they’ll be repaid. That litigation is stayed by the bankruptcy, but we’re offering to give all the parties relief of the stay to go forward with it as long as they all agree to the mediation.”

One of the contractors suing Narang’s companies is Santa Barbara-based JEM Services, which says in bankruptcy court documents it is owed $1.4 million. Company Vice President Richard Spann said he’d been instructed not to discuss the lawsuits or bankruptcy proceedings.

“We have a fairly good group of attorneys working for us,” Spann said. “We’re pushing them as hard as we can to resolve the issue, and we’ll continue to do so until this is resolved.”

Narang has other problems in Carpinteria as well. The developer owns three properties on Cramer Circle on which he built second dwelling units.

But the properties violated a city zoning code because the property owners didn’t live there. The city is taking enforcement action and fines are stacking up, according to Carpinteria City Attorney Peter Brown.

Carpinteria city officials say they are keeping a close eye on Narang’s legal proceedings.

Community Development Director Jackie Campbell  said she’s “working to protect five affordable housing units” at Lavender Court that Narang had offered to victims of the Tea Fire rent free.

“We’re hoping that once the bankruptcy and the construction defect lawsuits are resolved that we’ll still be able to sell those affordable housing units to above-moderate-income purchasers,” Campbell added.

Narang is not the only South Coast developer to have trouble selling a mixed-use condo project. The Santa Barbara Independent reported in March that Chapala One, a $40 million condo and commercial project in downtown Santa Barbara, went into default.

Chapala One owner Don Hughes declined to confirm those details, telling the Business Times via e-mail only that “Chapala One has been removed from the market until further notice.”

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