Louis Lesser Enterprises, Inc., advances to Barrington Plaza Corp., January 1960 to Apr. 16, 1965-Continued Payments made for furniture leases. To reflect note payments made by Barrington Plaza Corp.. To charge Joe Gallant's salary to Barrington Plaza Corp.--. To reflect payments on notes made by Barrington Plaza Corp. To record boiler insurance-allocated to Barrington Plaza Corp. Rent due Barrington Plaza Corp. from George Goldberg- United California Bank for escrow closing.. Do..... Total. (20,000.00) 57, 294.87 Do. 5050 May 15, 1963 May 10, 1963 Do. Do. Do. June 30, 1963 Do. Do. Do. Mr. ADLERMAN. How much were you allowed on mortgage for that land? Mr. MALAT. The FHA valuation. Mr. ADLERMAN. What did they give you as the fair market value for that? Mr. MALAT. You have the exhibits. Mr. ADLERMAN. I would like to read from the Mr. LESSER. You know, it costs money for interest to carry the land, it costs points to get the land, and so forth. Mr. ADLERMAN. I would like to read from the report of the General Accounting Office which made some research on this. They say that the amount of land valuation that was allowed by FHA over the cost was $555,000. Senator HARRIS. $555,000? Mr. ADLERMAN. Yes. If there was a profit of $555,000 and you had a 35- or 40-percent share of that, it would more than wipe out the $252,000 cash investment, would it not? Mr. MALAT. First of all, the mortgage is only 90 percent of the $12 million valuation. Secondly, that wasn't money that we got. That was a figure that was used in computing the total commitment. Mr. ADLERMAN. You figured it into your costs and everything else. You had to be reimbursed by the mortgage company. Mr. MALAT. Mr. Adlerman, there was earlier testimony here Mr. ADLERMAN. You got a half million dollars more than you paid for that land and you had a quarter of a million dollars or $200,000, at least, available to you out of profits on that land to reimburse you for whatever cash outlay you may have had. Mr. MALAT. Mr. Adlerman, all that did was reduce the amount of investment required. In the aggregate there was still a cash investment required. There was previous testimony here, Mr. Adlerman, by, I believe, the people from the General Accounting Office, that in their computation of actual costs, using our actual land costs, and they had the figure of what it cost us because we made our books and records available to them, they saw our certification of cost done by an independent national firm of public accountants, and attributing all items of actual cost with no allowance for the statutory 10 percent builder's risk and profit, but just actual hard cost, the hard cost, itself, equaled the mortgage, so there was no profit. There was only so many dollars of mortgage money available, and if the hard costs exceeded that amount, then there was no "profit," as you put it. We will put quotes around the profit. Mr. LESSER. When we sold the property we had $1,394,416.67 of our cash money in the deal. Senator HARRIS. That is what we want to know a little bit more about. Mr. ADLERMAN. Unreimbursed? Mr. LESSER. Unreimbursed. For that we got some land. Senator HARRIS. When you sold your interest in this project-I believe you testified, and we have had testimony before-there was a promissory note in the amount of $300,000, is that right? Mr. LESSER. Yes, sir. Senator HARRIS. I believe it was dated, according to our testimony, April 7, 1965. Wasn't there a collateral agreement in connection with that note? Mr. MALAT. There was. Senator HARRIS. What did it provide? Mr. MALAT. It provided that we could designate somebody to take a 25-percent interest in Barrington Plaza if we canceled the note. Senator HARRIS. You would cancel the $300,000 note in return for the right to convey or to designate to be conveyed a 25-percent interest in Barrington Plaza to someone else, is that correct? Mr. MALAT. That is correct. Senator HARRIS. Did you try to sell that 25-percent interest or convey it to Wilshire Barrington, Inc., or to Richard O. Kelly and Rowena O. Kelly or any other individuals or companies? Mr. LESSER. Mr. Kelly had some property in Yuma, Ariz., and we never liked the seven parcels of property that Mr. Gorden got together with his various people. We didn't think we had enough equity for our deal, that we wanted to trade Barrington Plaza for. So we suggested to this fellow Kelly who came to see us, after he had some land in Arizona, 300 or 400 lots in Yuma, Ariz., we suggested to Jack Gorden that he give Kelly a part of the deal and we will cancel the $300,000 note and Kelly will give us these lots. Senator HARRIS. The answer to my question is "Yes"? Mr. LESSER. The deal was never made. Senator HARRIS. Did you attempt to sell 25-percent interest? Senator HARRIS. All right. Just say "yes" and we will get along quicker. Was FHA aware of this attempt to sell the 25-percent interest? Senator HARRIS. Were they aware of the attempt? You can answer "Yes" or "No." Mr. MALAT. Mr. Kelly told us that they were. Kelly told us that his lawyer went into the Phoenix, Ariz., office. We told Kelly that if the deal went, he would have to be a qualified buyer with FHA, along with the Barrington Plaza Enterprises people. He said that he had his lawyer go to the Director of the FHA office in Phoenix. Kelly said, "Don't worry. FHA will accept me." Mr. LESSER. Kelly later told me that he was approved. He told me that the FHA office in Phoenix-he told us that they approved him to come into the deal. Senator HARRIS. Mr. Lesser, you signed an affidavit on May 5, 1965, which has been introduced in evidence. I will ask you to look at what was staff exhibit B-54. It is part of our record. See if that is signature. [The document was handed to the witness.] Senator HARRIS. State whether you did sign that affidavit. Senator HARRIS. That was the affidavit you signed? Mr. LESSER. Yes, I signed it. Senator HARRIS. What was the purpose of that? your Mr. LESSER. I think we got a phone call or something from John Hancock, and they wanted us to tell them that we weren't in the deal, and we weren't at that time. Senator HARRIS. I will summarize that for you while you look at it. Paragraph 1 says you have sold your interests. Paragraph 2 says that neither Lesser Developments Corp. nor its officers nor directors nor stockholders have retained any interest in the Barrington Plaza, nor have any agreements to repurchase any part of the Barrington Plaza. 3. The only relationship of any kind that Lesser Developments Corp. or its officers or its directors or its stockholders have with Barrington Plaza at this time is a $300,000 unsecured promissory note taken back by Lesser Developments Corp. as part of the purchase price from Barrington Plaza Enterprises, an Ohio limited partnership. Is that correct? Mr. LESSER. That is correct. Senator HARRIS. That wasn't true, was it? Mr. LESSER. No; it is true. It was true. Senator HARRIS. What about your collateral agreement that you could designate somebody to receive 25-percent interest in Lesser Developments Corp.? Mr. LESSER. I will explain that to you. In the early part of April, I was working with Kelly constantly to try to have Kelly take 25 percent of the deal and others, Jack Gorden, and he was going to take a fourth, giving me the land in Yuma; he had a ranch he showed me in Oklahoma. He showed a bunch of lots out of Phoenix, Ariz. He had another property in northern Arizona. He was going to take 25 percent of the deal. When we made the agreement to sell the deal, which was back in January, we went ahead also, getting the $300,000 note, and this collateral agreement. But it wasn't signed until FHA-well, until later on, when FHA was going to approve the deal. When FHA approved of the sale of the deal, in the meantime we were negotiating constantly with Kelly. We were negotiating with Kelly. The reason or the purpose of this collateral agreement was to give Kelly the 25-percent interest. When you read it, it says to a designated party. We couldn't get the interest. We couldn't cancel the $300,000. Senator HARRIS. You could designate anybody you pleased under the agreement. Mr. LESSER. No, it had to be a third party. Senator HARRIS. That is what I understand. But you could have designated any third party you wanted to, to receive a 25-percent interest. Mr. LESSER. Not of ourselves, not any officer Senator HARRIS. Just answer the question. You could designate any third person you wanted to, to receive a 25-percent interest in Barrington Plaza under your collateral agreement? Mr. LESSER. Other than the officers, directors, and the partners of our various companies that we are in. Senator HARRIS. But the answer, other than that exception that you are making, is "Yes"? Mr. LESSER. The what? Senator HARRIS. It is "Yes"? Mr. LESSER. Yes. Senator HARRIS. The collateral agreement was entered into the 7th day of April 1965, is that correct? Mr. LESSER. What date? Senator HARRIS. The 7th day of April 1965? Mr. LESSER. Yes. Senator HARRIS. I will hand you a copy if you need it. Mr. LESSER. Yes, that is it. Senator HARRIS. What happened to the collateral agreement? Was it later waived or canceled? Mr. LESSER. Yes. But what happened was, Kelly Senator HARRIS. Just say "yes" or "no." Mr. LESSER. It was canceled. Senator HARRIS. When? Mr. LESSER. It was canceled, I think, about the middle of April, sometime in April, the middle of April. Senator HARRIS. April 1965? Mr. LESSER. Yes. Senator HARRIS. How did that come about? Mr. LESSER. I am trying to tell you. What happened was, Kelly-he had this deal, supposedly, and we checked in, Jack Gorden checked him out and said this man hasn't the property he says he has, and, "We don't want Kelly as a partner. This guy, we don't want any part of him. We don't want him in the deal. As long as Kelly is going to be a partner in this deal, there is no reason for this collateral agreement and we want you to cancel it." He called us at our office sometime in April and Bill and I were on the mike and we agreed to a cancellation and canceled it. Senator HARRIS. After that, you approached some other people, trying to dispose of this 25-percent interest, didn't you? Mr. LESSER. I worked with Jack Gorden for about a year. Senator HARRIS. I mean after the middle of April 1965, you approached other people? Mr. LESSER. I was trying to sell the deal for the Gorden group at that time. I flew to Florida once to try to sell the deal. I talked to people in New York. I took Jack Gorden over to UCLA. This was before we made a deal with Gorden, and then when Gorden got the deal, we tried to get a deal for him, if somebody called us, if he wanted to sell the deal. Senator HARRIS. But you kept on looking for ways to sell a portion? Mr. LESSER. No, we were out of the deal. Senator HARRIS. Why were you looking around? Why were you talking to people about selling? Mr. LESSER. In the deal, if Gorden went ahead and sold the property, he would have to pay us our $300,000 note, and if Gorden sold the deal, we would get $300,000 on a note we considered worth nothing. Senator HARRIS. Isn't the truth of the matter that there was no relinquishment of your right to designate someone to receive a 25-percent interest in Barrington Plaza until December 13, 1965? Mr. LESSER. With Jack Gorden we released Senator HARRIS. Just answer "yes" or "no" and explain. Mr. LESSER. Go ahead and ask the question. Senator HARRIS. I will ask you again. Isn't it the truth, Mr. Lesser, that the right to designate someone to receive 25 percent in Barrington Plaza was not waived or relinquished by you until December 13, 1965? Mr LESSER. That is not right, no. I will explain it. Senator HARRIS. You say it was done orally in the middle of April 1965? |