California real estate empire faces fire sale risk in court fight
By Steven Church, Bloomberg
A portfolio of valuable California properties, including a hotel in the exclusive enclave of Laguna Beach, may be forced into liquidation at fire-sale prices because of a bitter court fight between the owners.
Some of the properties were once valued at a collective $360 million and sales of these assets should cover debt put on them over the years, according to court filings. But a court-supervised sale process has fallen apart because of a fight for control of the company that manages the real estate.
RELATED: China-based real estate empire crumbles in region as choice San Jose site faces foreclosure
“Each is holding a gun to their own head and saying, ‘Do this, or I’ll shoot’,” US Bankruptcy Court Judge Brendan Shannon said during a court hearing Monday in Wilmington, Delaware. “I am aware of the potential for value loss or destruction.”
The dispute shows the limits of using a Chapter 11 bankruptcy case to restructure hundreds of millions of dollars in debt when key participants are locked in a contentious battle. Because of the standoff, Shannon said he is likely to dismiss the case, which would set off a series of chaotic court battles that could drag down the value of the properties.
On one side of the fight is entrepreneur Mohammad Honarkar, who put together the portfolio. On the other is a group of investors led by businessman Mahender Makhijani, which bailed out the real estate empire.
Lenders argue they are caught in the middle, “held hostage for four months by the warring parties,” the Banc of California said in court papers. The bank asked the judge to delay any decision on dismissing the bankruptcy. Shannon agreed and set a hearing for June 8 on the issue.
After selling a successful mobile phone business to Verizon, Honarkar pivoted to real estate, buying properties located from Los Angeles’ Koreatown to an apartment complex worth $65 million in the upscale, Inland Empire town of Redlands.
But his most valuable assets included the Hotel Laguna, valued at $82.5 million, and several vacation rentals in Laguna Beach, according to a court filing.
After going through a bitter divorce during the pandemic, Honarkar defaulted on a $195 million loan tied to the properties, filings show.
He agreed to form a joint venture in 2021 with Makhijani and others, who helped refinance the debt and create a new company, MOM CA Investco, court documents show. The partnership quickly soured with Honarkar accusing his partners, who controlled the company, of fraud.
Portfolio Damage
At one point during the dispute, Makhijani used armed guards to take over the Hotel Laguna and the vacation rentals, according to filings. During a confrontation at the hotel between Honarkar and Makhijani in May 2023, one of Makhijani’s allies was arrested and charged with assault.
Makhijani’s side then hired mobile billboards to drive around the crowded resort town displaying pictures of Honarkar and accusing him and two city employees of corruption, court filings said.
The two sides eventually arrived at a private arbitration dispute over the validity of the original partnership. Honarkar won a key ruling in February giving him the right to rip up the original deal, which would put him back in control. But the ruling requires Honarkar to wait until a detailed accounting report is finished, a process that could take until December, according to court documents.
Days after Honarkar won the ruling in February, however, Makhijani’s side put most of the enterprise into bankruptcy with plans to sell the assets. The case has stalled since then, with Honarkar fighting every restructuring move, including an effort to borrow enough money to pay for the bankruptcy case.
A lawyer for Makhijani did not return a request for comment, while a lawyer for Honarkar declined to comment.
Shannon refused to accept a loan proposal tied to Makhijani and his allies, saying he did not want to put control of the bankruptcy case in their hands, in part, because they lost the arbitration dispute.
But after Honarkar failed to come up with any money to keep the reorganization case going, Shannon said he concluded that he must either dismiss the Chapter 11 entirely, or turn the case over to a bankruptcy trustee to liquidate the assets. Both options are likely to damage the portfolio, Shannon said.
“I don’t need to be reminded about the potential consequences,” he said.
Bankruptcy trustees typical prioritize quick sales over a longer marketing process that would get the most money possible. And if the case is entirely dismissed from court protection, a series of value-draining court fights over the properties could begin. Litigation related to the company has been on hold during the Chapter 11.
The case is MOM CA Investco LLC, 25-10321, US Bankruptcy Court, District of Delaware (Wilmington)
More stories like this are available on bloomberg.com
©2025 Bloomberg L.P.