Oct. 17 (Bloomberg) -- Commonfund, the money manager for endowments and foundations, was ordered by a Los Angeles jury to pay $50.3 million to its partner in four developments, including renovation of the Hollywood Palladium.
Commonfund’s real estate investment unit was in a joint venture with Newport Capital Advisors, a closely held developer in Newport Beach, California, to build and redevelop office, hotel and residential space with a projected construction budget of $1 billion, including the Palladium, a Sunset Boulevard venue for concerts, awards shows and television production for more than 70 years.
The state court jury awarded $16.4 million in compensatory damages on Oct. 13 and $34 million in punitive damages the following day for breach of fiduciary duty, according to a copy of the jury verdict form provided by lawyers for Newport Capital. The verdict couldn’t be independently confirmed with the court.
Commonfund is considering an appeal, said Keith Luke, the company’s managing director.
“We assert that there is no basis for either the verdict or the magnitude of the judgment,” Luke said today in an e-mail.
Commonfund, which managed $26.4 billion as of June 30 for nonprofit groups, stopped direct real estate investments last year as it sought to restructure a $1 billion fund that lost most of its value as capital markets tumbled after the 2008 bankruptcy of Lehman Brothers Holdings Inc., according to a letter obtained by Bloomberg News.
“We have worked tirelessly to protect the interests of all of our investors since the real estate market crashed in 2008,” Luke said in today’s e-mail. “Unlike many other firms, who have chosen to write off their investments, we have followed a careful process to maximize the value available for return to investors. We will continue to aggressively defend investor interests.”
The Palladium, which is owned by Wilton, Connecticut-based Commonfund, was ordered into receivership in August, according to court documents. It opened in 1940 with a concert by the Tommy Dorsey Orchestra and Frank Sinatra, became a television studio in 1961 and was home to such shows as the Emmy Awards and the Grammy Awards. After it was converted back to a concert venue, the Palladium hosted shows by rock groups including the Rolling Stones, Led Zeppelin, the Who, the Police and the Red Hot Chili Peppers.
Other Hollywood properties in the partnership are Highland Center, site of a proposed a 24-story hotel and a 16-story office building; Cherokee Las Palmas, site of a planned luxury hotel and residential tower; and Argyle Property, across the street from the Capitol Records building, according to court documents.
The case is Newport Capital Advisors LLC v. Commonfund Realty Inc., BC 412918, California Superior Court (Los Angeles).
--With assistance from Gillian Wee in New York and Edvard Pettersson in Los Angeles. Editors: Michael Hytha, Daniel Taub
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