Mohammad Honarkar’s creditor seeks $195.5-million foreclosure order

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Mohammad Honarkar speaks during a Laguna Beach Business Club meeting at Kitchen in the Canyon in October 2018. Photo by Daniel Langhorne

By Bradley Zint & Daniel Langhorne

A prominent Laguna Beach real estate investor is on the brink of foreclosure on a $195.5-million loan backed by a portfolio of 19 properties, including the Hive complex, Royal Hawaiian restaurant, and Holiday Inn on South Coast Highway.

4G Ventures CEO Mohammad Honarkar was supposed to pay the approximately $133 million remaining on the loan, held by Delaware-based LCC Warehouse, by Dec. 9, but he did not do so, according to a lawsuit filed in Orange County Superior Court against Honarkar’s companies earlier this month. 

The lawsuit, along with a report filed in a separate case by an attorney who acted as a court-appointed receiver in Honarkar’s divorce proceedings, detail an empire of assets that’s mired by debt, lags behind on many months of bills and is close to financial collapse.

“When I took over the Business there was woefully inadequate infrastructure, staff, and systems in place to profitably run all of the various business segments, many of which had already failed by the time I took control,” Beverly Hills-based attorney Blake Alsbrook wrote in the final receiver’s report to the court.

The receiver also argued that Honarkar’s businesses were severely lacking in cash on hand. He wrote in court filings that they were hampered by several lawsuits, a state tax audit and the specter of looming debts, including an estimated $150,000 in back taxes to Laguna Beach.

In another sign of financial distress, Honarkar’s lease for Hotel Laguna, which he acquired in 2018 in the hopes of restoring it to its former grandeur, could face termination following a reported failure to pay its owners $7 million in unpaid rent by Jan. 1, according to court documents.

For decades, Hotel Laguna served as an economic engine for Downtown Laguna businesses, but court records show the current steward’s legal and financial troubles may push the planned restoration and reopening date for years. Honarkar said he wanted to restore the historic landmark to its former grandeur after acquiring a lease for the oceanfront property in December 2018.

Edward Susolik, Honarkar’s attorney in the receivership case, strongly contested the details in Alsbrook’s report. He said Alsbrook’s assertions were “meritless” and lacked sufficient evidence or documentation.

Isaac Zfaty, his counsel in the loan foreclosure matter, downplayed it as a “protective lawsuit” by LCC Warehouse.

“And even though the suit was filed, we do not take it as an act of hostility. LCC is simply seeking to preserve its rights while the parties move toward a resolution,” Zfaty said. “This is a simple breach of contract case, and there are no allegations of fraud or misconduct by anyone. We hope to resolve this matter quickly so Mr. Honarkar can continue to pursue his various projects successfully.”

The receivership proceedings started in July via a court order connected to Honarkar’s divorce proceedings with his now-ex-wife. That month, Orange County Superior Court Judge Lon Hurwitz placed Honarkar’s extensive business interests into a receivership helmed by Alsbrook.

This meant Alsbrook’s team could run Honarkar’s businesses. Under the court order, Honarkar was required to cooperate with the process and open his books to reveal his businesses dealings since Jan. 31, 2020.

Honarkar’s diversified holdings include four hotels, multiple restaurants in California and Arizona, an apartment complex in Redlands and an Italian-made, Pershing 82 luxury yacht named “Mo Town.” A complex network of more than 50 entities controls them.

His Laguna Beach portfolio, in addition to the Hotel Laguna lease, includes the Art-A-Fair building (now called seven7seven); Terra Laguna Beach and [seven-degrees] event venues; several vacation homes; and the 14|West hotel.

Spain-based artist Okuda San Miguel and the makeover he finished in 2018 of Art-A-Fair, one of several Laguna Canyon properties owned by Mo Honarkar. The property’s holding company is facing foreclosure. Photo by Josh Gunter

Poring over those books proved to be a monumental task, particularly amidst Honarkar’s interference that delayed the receivership process, Alsbrook alleged. At one point, he wrote in court records, Honarkar directed his outside IT professional to remotely shut down his company’s cloud network in violation of the court’s orders. In October 2020, Alsbrook also discovered Honarkar secretly transferred $200,000 from 4G Ventures to a personal bank account in his “most brazen act” of interference.

In one of many statements sent to Independent contesting the receiver’s report, Honarkar noted how much of his business has been temporarily shut down due to state and local health orders amid the coronavirus pandemic.

Last year, Honarkar’s businesses failed to pay the $250,000 monthly rent for some time to Hotel Laguna’s owner, Porterville-based E.W. Merritt Farms, according to court documents. However, the Merritts orally agreed to an alternate arrangement: They would take funds out of the lease deposit instead of forcing Honarkar’s entity controlling the property, Hotel Laguna LLC, to make the monthly payments, according to court documents.

By Jan. 1, 2021, however, the deposit would need to be fully replenished and full payments made again — which, by Alsbrook’s accounting, meant Honarkar needed to come up with $7 million to avoid a “serious default” and possible lease termination. Alsbrook reportedly amended the lease to avoid a default or lease termination, according to his report.

Alsbrook’s receivership team also dealt with requests for payment from “a significant number” of vendors who were going unpaid for their jobs on Hotel Laguna, including an artist and a carpenter making custom tables and chairs for the restaurant, according to court records.

Things at Hotel Laguna appeared to be going in a far different direction in the spring.

Honarkar was trying to sell his lease on the historic property and found an interested buyer that included billionaire Ronald Burkle of the Yucaipa Companies, court records show.

Two offers for the hotel’s ground lease, an adjacent single-family home and the Laguna Village Arts & Flowers complex emerged: one for $10 million and another for $15 million. The latter was negotiated with the receivership team’s help and finalized in October.

Both offers ultimately fell through. In November, Burkle and other investors filed a lawsuit over the fallout, alleging that Honarkar failed to disclose how the divorce court placed his assets under receivership.

In a statement to the Independent, Honarkar acknowledged setbacks in his goal to reopen the Hotel Laguna because of the pandemic. However, he called it his No. 1 priority, and one that’s well on its way.

“We are aiming to reopen the ground level of Hotel Laguna and the restaurants as soon as the governor lifts the ban on indoor dining,” he said. “We are excited for the opportunity of inviting the community back into the treasured landmark that is Hotel Laguna.”

Coast Highway traffic rushes past Hotel Laguna. Photo by Allison Jarrell.

Regarding the estimated $150,000 in back taxes to Laguna Beach, Honarkar said those obligations “are being handled, now that I have access back to my accounts. I continue to have a strong relationship with the city and appreciate their cooperation during these last few months.”

“For the past two decades,” he added, “my family and I have invested in Laguna Beach with the single goal of revitalizing and beautifying this special place.”

Susolik said the relationship between the Merritt Farms, the Hotel Laguna owner, and Honarkar is “perfectly fine.”

“The Merritt family and I have a mutually respectful relationship with open lines of communication,” Honarkar added. “We are all eager to see the Hotel Laguna back up and running.”

At a Jan. 20 hearing in Orange County Superior Court, Alsbrook shared a completely different state of affairs.

“The owner of Hotel Laguna says, ‘I’m absolutely evicting Mr. Honarkar,'” Alsbrook said.

A spokesperson for Merritt Farms declined to comment on the Hotel Laguna lease’s status.

Alsbrook declined an interview request because the case is ongoing. In his final receiver’s report, he claims Honarkar’s businesses were in “grave financial danger.” He described the enterprise as having “woefully insufficient” cash on hand to make the payroll, creditor and settlement payments, “let alone the luxury yacht and Lamborghini payments [Honarkar] was making monthly.”

By Alsbrook’s account, the businesses’ setup had poor accounting and tax practices, which he described as being “inadequate,” with corporate formalities “largely ignored” and funds being “transferred between accounts for various entities as necessary to meet immediate needs.” The businesses also faced an ongoing audit from the California Franchise Tax Board that began before the receivership.

“[These] situations are quite routine in the business world and happen randomly to many people,” Honarkar said of the state audit. “My team and I are currently working on this, now that I have gained back full control of my company.”

At the time of his takeover, Alsbrook noted how Honarkar headed a truly family-run operation: Eric Bostwick, Honarkar’s son-in-law, was in charge of leasing; Honarkar’s close friend Danial Niazi acted as the de-facto chief executive; his daughter Hasty lead the Hotel Laguna project; another daughter Nikki operated “an internet business”; and there were other relatives “employed in various and questionable roles throughout the business.”

Even family homes were owned through the business empire.

Susolik, Honarkar’s attorney, contested Alsbrook’s attempts to sell Honarkar’s properties to generate cash for his various debts. The sales never materialized.

“The receiver has been a bull in a china shop, attempting to sell properties and assets at fire sale prices and causing disruption to the business and commercial relationships that Mr. Honarkar had established over many years,” Susolik said. “Moreover, when he was called out to the court regarding his improper conduct and breaches of fiduciary duty, the receiver responded with the baseless allegations found in the final report, attempting to divert attention away from his own violations.”

At the Jan. 20 hearing, Alsbook denied Honarkar’s accusations of wrongdoing during his five-month receivership.

“This case took over my life for a period of time, and I believe I did my best,” he said, later adding, “The court gave me the power to do what I did.”

In his report, Alsbrook opined on the problematic nature of a $195.5-million portfolio loan — which foreshadowed LLC Warehouse’s Jan. 11 suit to secure payment. Honarkar started the loan in 2016 to consolidate two loans financing 13 properties and acquire a new property. He used most of his real estate as security for it, but since April, the real estate was not generating enough income to cover the monthly six-figure premiums, according to court records.

LLC Warehouse is now seeking to foreclose on the collateral property portfolio and appoint a receiver, among other requests.

A hearing in the foreclosure case is scheduled for Feb. 24 in Orange County Superior Court.

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6 COMMENTS

  1. Leave the dude alone, there’s a pandemic affecting all property owners, especially ones that had their businesses shut down due to COVID. Seems like personal shit stemmed from a nasty divorce. Cover some real news, Indy. Or if you are going to dig maybe looks at what’s happening to some other property owners in town instead of constantly picking on one. I’d rather read about Joe Hanuer working behind the scenes with Toni Iseman and the city to take out the Hospital and build homeless and low income housing. Now that’s a real story.

  2. Where’s the quote from the family that owns hotel laguna?

    Honarker says one thing, the receiver says the owner wants him thrown out.

    Where’s the truth from the hotel owner? One phone call, come on man!

    • To answer your question, it’s in the story. “A spokesperson for Merritt Farms declined to comment on the Hotel Laguna lease’s status”

  3. I want to address some of the criticism of the article;

    Rhett Charles on FB –

    1) “With so many bigger news stories out there, why the need to constantly pry into the personal life of one individual?

    – Its true there are way bigger news stories than this. But this is a local newspaper reporting on a local story which is 100% fair game, and EXACTLY what they should be doing. His personal life unfortunately is affecting the lives of everyone in Laguna, so we have a right to know what is going on.

    2) All owners of hospitality businesses are suffering, it seems the Indy only wants to focus on one. Way to kick a guy when he’s down. A nasty divorce and a global pandemic that shuts downs the economy, all in one year, will hurt just about any business owner.

    – True, no doubt about Covid causing the hospitalality industry to suffer. A lot his Laguna assets were not even opened pre-Covid so its not like Covid brought on these financial woes for Mo. They definitely hurt him, but he got himself into this mess well before Covid. The divorce is simply bringing to light his financial issues which affects Laguna (i.e. property value)

    3) Moe’s success means good things for Laguna, we should be thankful he’s trying to help his hometown instead of some mega corporation that doesn’t care one bit about us.

    – Mo’s ‘success’ clearly was not a good thing for Laguna. He overextended himself with buying up properties (from loans) and the debts caught up with him. If he didnt have so much ‘success’ buying Laguna assets with other peoples money, then perhaps other developers would have been more serious about working with our building requirements better. Or worse? Who knows, but for sure he set back any sort of development for maybe 10 years because of his shortsighted greed. Also, just because you are a resident of a town does not make it your “hometown”. He and his daughters did not grow up in Laguna, or attended / graduated from ANY Laguna schools. They are transplants who see good financial opportunities in Laguna

    On a personal note, I’m sure hes a nice guy and his daughter is cute. They did have been doing a kill them with kindness campaign since they have been trying to influence Laguna and our residents to side with them on their expansion. Thats ok, but please stop saying this is their hometown or they grew up here. None of that is true, they are carpet baggers

  4. Kudos to Zint and Langhorne for the detailed, investigative reporting. When so many city papers read like promos for local businesses and investors, it’s a treat to read one that goes deep into local issues a la the San Jose Mercury. Good digging and writing. Thanks for the hard work and bringing us the local news.

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