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Sunday, May 28, 2023
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Battle Over Laguna Beach Portfolio Turns Ugly

The future of an Orange County real estate portfolio nearing $500 million in value, with its best-known assets in Laguna Beach, is in a deep state of flux as its investors prepare to head to court.

An ongoing dispute between a company headed by businessman Mo Honarkar—a Laguna Beach resident who’s among the city’s largest commercial real estate owners—and Continuum Analytics—a Newport Beach-based firm that invests in distressed and value-add properties—has impacted the operations of a sprawling portfolio in Laguna Beach and Newport Beach of nearly two dozen properties, including the iconic Hotel Laguna.

The 100-year-old property has become the focal point of the dispute over the past two weeks, with both parties attempting to take control of the asset.

The legal dispute on May 2 descended into a physical altercation, involving private security guards for each side. The melee resulted in an arrest and a week-long closure ordered by city officials.

Videos provided to the Business Journal document additional tense confrontations between representatives of both sides at Hotel Laguna in recent weeks.

Dueling Allegations

During the week-long closure of the hotel, the group led by Continuum Analytics served Honarkar with a temporary restraining order. The organization claimed Honarkar had showed up at Hotel Laguna and changed the office locks.

Honarker, whose real estate firm operates under the Laguna Beach Co. name, disputes those allegations.

Now, Honarkar says he is taking a step back from the portfolio as he awaits for a court case on May 30 that will determine the future of the hotel and other relevant assets, including as a nearby boutique hotel dubbed 14 West, other commercial buildings along South Coast Highway, and a vacant land parcel in Newport Beach envisioned to hold a new apartment building.

“I’m waiting for justice,” Honarkar told the Business Journal.

“We have a business agreement that needs to be enforced, which will allow us to once again take management of these properties and continue to do business,” Michael Kluchin, director of operations at Continuum Analytics, told the Business Journal.

Origin Story

The origin of the legal case dates back to 2021, when Honarkar was facing a deadline for a $195 million loan taken out a few years prior to finance his local portfolio acquisition. The loan had about $140 million remaining on the balance, according to Honarkar.

He sought investment partners to help refinance the loan and found a willing partner in the form of Continuum Analytics and, he said, its frequent financial partner, Irvine-based Nano Banc.

Honarkar said Continuum’s Mahender Makhijani agreed to join him as an investment partner of Hotel Laguna via a $30 million equity infusion, which Honarkar claims he has not yet received.

Additionally, Honarkar took out various loans through Nano Banc and Continuum to help with other financial obligations, both personal and professional.

Continuum, meanwhile, said it provided Honarkar with a loan totaling about $150 million to “bail [Honarkar] out and avoid foreclosure” of the assets, Continuum’s Kluchin said.

As part of that deal, Continuum claims Honarkar contributed all of his assets to Continuum’s group of investors, giving them management oversight of the portfolio.

The following months were filled with financial miscommunications between the investment parties, Honarkar alleges. At the time, he said he became busy with plans to remodel Hotel Laguna, which included the opening of two restaurants in October 2021 and beginning room renovations to bring the hotel back to full service.

Recent Loans?

At the start of 2023, Honarkar claims he became aware of loans taken out by Continuum that he didn’t agree to.

Continuum disputes this claim and alleges Honarkar was in default on his loans with the firm, prompting the company to remove him as administrative manager, effectively “removing him from any direct or indirect involvement” in the properties, Kluchin said.

That move in part led to the two parties disputing control of the assets and resulting in the redlining of Hotel Laguna and 14 West.

“Since his removal as administrative manager, Honarkar has engaged in sabotage of the business operations of the properties and as of May 2, 2023, resorted to rash tactics of using armed guards to attempt to hastily takeover some of the properties that are under the control of his business partners,” a statement from Continuum’s law firm, Cohen Law Group, said.

“[Honarkar] doesn’t like the deal that we made, but nobody forced him to sign those documents,” Kluchin said, referring to the original financing agreement struck in 2021.

Receivership Potential

The court case will determine the next steps for both parties, and how the local assets will be impacted.

“In over 30 years in the business, I have never seen anything like this,” Alan Reay, a local hotel expert and president of Irvine-based Atlas Hospitality Group, told the Business Journal.

“In my experience in other situations where there are partnership disputes, the court will appoint a receiver to manage the operations.”

“I can see this happening in this case,” Reay said, adding he doesn’t expect any potential fallout to negatively impact the Laguna Beach hospitality market.

Honarkar hopes to pay off his loans to Continuum Analytics and regain control of the local assets, while Continuum similarly aims to own and operate the assets.

Hotel Laguna

Honarkar and Continuum agree on one point—both parties wish to resume renovations of Hotel Laguna and open the rooms to the public as soon as possible.

“To finally have this beautiful historical hotel fully back to service will be a point of great personal pride for me,” Honarkar said. Before construction halted as a result of the dispute, Honarkar hoped to wrap upgrades by the end of the year.

“Our No. 1 priority is to get the rooms at Hotel Laguna open, as we believe this hotel is the crown jewel of Laguna Beach,” Kluchin said. “We want to be good business owners in the city of Laguna Beach.”

Continuum Analytics said it counts other properties in Orange County and throughout Southern California, though the company declined to provide specifics on its portfolio.

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