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LOS ANGELES BUSINESS JOURNALVolume 37, Number 14 April 6 - 12, 2015 • $5.00

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T H E C O M M U N I T Y O F B U S I N E S S TM

How Sarah Boydmakes fashioncomfy.PPAAGGEE 4411

By CAROL LAWRENCE Staff Reporter

Downtown L.A.’s American Apparel Inc. hasnever been a prompt bill payer to its fabric suppli-ers, but those firms long overlooked the bad habit,knowing at least partial payment was just a phonecall away.

But now, as checks from the clothing manufac-turer arrive haphazardly in small amounts or not atall, and phone calls and emails go unanswered,some suppliers are losing their patience.

Since a new chief executive and new depart-ment heads have been installed at AmericanApparel, suppliers say the company has been laterthan ever, taking up to five months to pay off large

By CALE OTTENS Staff Reporter

Dick Fuld wants a mulligan.Once dubbed the “Gorilla of Wall Street,” Fuld,

the former chief executive of Lehman Brothers, is apartner in the Malibu Golf Club, the star-crossedcourse nestled among lush pine trees in the canyonsof the Santa Monica Mountains.

He and his partners in Malibu Associates boughtthe roughly 650-acre property in 2006 for $32.8 mil-lion and took out millions more in loans to help withtheir grand plans to restore the course and add resort-style amenities. Yet while the course itself has per-formed well, the partnership has suffered under the

weight of the debt it took on tofinance the purchase and its pur-suit of entitlements.

Last month it filed for Chapter11 bankruptcy, the second time ithas sought court protection.

The move came after MalibuAssociates sought to delay foreclo-sure proceedings brought by its

lender, U.S. Bank, which moved to seize the propertyafter the partnership defaulted on its $46.7 million debt,which includes accumulated interest and penalties.

Kathleen O’Prey Truman, a partner at down-town L.A.’s Truman & Elliott representing MalibuAssociates in the development and entitlementprocesses, said the bank’s action caught her off guard.

Golf Course Owners Still in HoleREAL ESTATE: Ex-Lehman execamong partners back in Chapter 11.

Clothing FirmStretches CreditFASHION: Suppliers in fits asAmerican Apparel strays on pay.

Please see FASHION page 40

By MARNI USHEROFF Staff Reporter

Imagine being totally blindand then activating a devicethat restores your sight, at leastin a limited way.

Online videos show exactlythat happening. Awed patientslaugh and cry seeing theirspouses waving, blowing kisses

or simply walking by them. One man and his wifeshake with laughter that dissolves into a cryingbear hug.

“It’s crude, but it’s significant,” he said, holding

Is Bionic VisionWorth a Look?BIOTECH: Second Sight eyessmall market for pricey prosthetic.

Please see BIOTECH page 38

Please see REAL ESTATE page 39

Up Front

ExecStyle

Why the Floridagovernor may notpoach many L.A.port companies. PPAAGGEE 4422

Kartik Mandavilleuses tech to findworkersfor…tech.PPaaggee 1100

A doctor whomakes housecalls for $99?There’s an appfor that.PPAAGGEE 33

News &Analysis

SEEDINGTHEFUTURE:L.A. has 10times moreinvestors forearly stagecompaniesthan it usedto have.That’s good

for tech startups craving seed money, but it’scausing a slowdown for some of L.A.’s techaccelerators.

BEGINNING ON PAGE 15

SPECIAL REPORTTECH FINANCE

By SANDRO MONETTI Staff Reporter

DIRECTV is taking on the boxing establish-ment, launching a fight series the ElSegundo satellite provider hopes will rev-

olutionize the sport by drawing a much largeraudience and greater pay-per-view profits.

In addition to doing away with ropes and set-ting the match in a smaller space, DirecTV willemploy new in-glove technology that will allowviewers to see how fast blows come and how

hard they land.Chris Long, DirecTV’s senior vice president

of entertainment, said he came up with the con-cept for the Big Knockout Boxing series from, ofall things, watching a Jean-Claude Van Dammemovie on TV at home.

“I saw this film ‘Bloodsport’ and that was theimpetus for BKB,” he said. “I was fascinated thatthere were no ropes and fighters couldn’t run

DirecTV boxing dons high-tech gloves, ditches ring

Crunching Numbers: BKB fights will show data from in-glove sensors.

Punched Up

Please see SPORTS page 37

Fuld

Mech

Comment

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38 LOS ANGELES BUSINESS JOURNAL APRIL 6, 2015

back tears. “You know? It’ll work.”The visual prosthetic is made by Sylmar’s

Second Sight Medical Products Inc., whichrecently sold stock in an initial public offering.Some patients describe their new functionalsight as looking like pulsing or flashing lightsthat illuminate contours. Now they can reachout for a salt shaker, tell where the sidewalkmeets the grass or see other diners surroundingthem at a restaurant.

While even this rudimentary vision mightseem like magic, it comes with a very realprice tag: $144,000.

It also comes with very real limitations. Theimplantable prosthetic system, the Argus II, isonly approved in the United States for peoplewho lost their eyesight because of retinitis pig-mentosa, a hereditary eye disease that affectsabout 100,000 stateside. In addition, the devicecan only treat about a quarter of those patients.The system is approved for broader use inEurope and has closer to 1 million potentialtakers there.

What’s more, getting Medicare and privateinsurers to cover the cost can be a slowprocess, as with many new medical devices.

Vision questOutwardly, the Argus II looks like a pair of

sporty shades with a tiny video cameraembedded in the bridge. The camera sendsfootage to a Walkman-size wearable comput-er. The data is processed, sent through a cableback to the glasses and transmitted wirelesslyto an antenna on a tiny prosthetic implanted inand around the eye. Electrodes in the implantemit small pulses of electricity that bypass theeye’s damaged cells and stimulate the good

ones, sending the visual information along theoptic nerve to the brain. The process createsthe perception of light patterns that patientslearn to interpret.

The Argus II, the second iteration of thebionic eye, started clinical trials in 2006, eightyears after the company was co-founded byprolific biotech entrepreneur Alfred E. Mann.It received marketing approval in Europe in2011 and the blessing of the Food and DrugAdministration two years later. The processwas expedited because the device treats what’sconsidered an orphan or rare disease.

“They try to make it easier on the regulato-ry side,” said Brian Mech, Second Sight’svice president of business development.“Unfortunately what they don’t do is make itany easier on the reimbursement side. Youneed both, especially when it’s expensive likethis. You need the regulators like the FDA to

say it’s OK and then you need payers … to saythat they’ll pay for it.”

Medicare is a big target because the majori-ty of blind patients are eligible for the coverageregardless of their age due to their disability.

Further complicating matters, Medicareprocesses claims through about eightregional administrators, each of whomdecides what to cover in the absence ofnationwide guidelines.

The Argus II has already won coverage byone Medicare region, the mid-Atlantic, whichis very promising, according to Ron Podraza,chief executive of Reimbursement PrinciplesInc., a firm near Denver that helps medicaldevice makers bring products to market.

“For Medicare purposes, they want to knowwhat it does compared to the alternatives, andthat’s different from the FDA standard, andhistorically that’s been a challenge for compa-

nies,” Podraza explained. “In the case of thiscompany, it sounds very positive to me thatthey have coverage from one of the (regions).”

Some private insurers, including HealthNet Inc., Independence Blue Cross andAmeriHealth, also cover the Argus II as a mat-ter of policy or on a case-by-case basis. It’s alsobeen covered in some foreign countries as well.

Clinical trials aside, the Argus II has beenimplanted in more than 70 patients where athird-party payer has ponied up for theimplant.

Mech explained that Second Sight arrivedat its $144,000 price tag based on the cost ofbuilding the device, adding a sufficient mar-gin to run the rest of the business while beingable to earn a profit at some point in thefuture.

Second Sight saw a net loss of $13.6 mil-lion in the quarter ended Dec. 31, 127 percentwider from the same period the previous year.It had revenue of $1.5 million, up 170 percentfrom the same period the previous year.

Second Sight has also had to focus onimproving yields from its manufacturingprocess, where a defective piece coming offthe assembly line can be costly.

“It’s margin pricing,” Mech said. “It’s

Biotech: Maker of Vision Device Sees Risk, RewardSecond Sight MedicalProducts Inc.SylmarCEO: Dr. Robert GreenbergEmployees: 121Market Cap: $429 millionP/E: N/AEPS*: -$1.41

*Twelve months trailing. Source: Yahoo Finance

(Nasdaq: EYES)

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administering the trust so it’s hard to findthem. It’s a big job to track them down.”

Indeed, the Business Journal made severalattempts to contact property owners but most didnot respond to calls and emails for comment.

Rawson said the BID is making everyattempt to reach owners by doing everythingfrom sending out mailers to knocking on doors.

If Lincoln joins the BID, the area wouldget additional marketing programs andmaintenance teams to sweep, spot cleansidewalks and remove graffiti. The areawould also get BID “ambassadors” – a crossbetween tour guides and security guards –who provide an extra level of security andhelp direct visitors.

Rawson said businesses on Lincoln wouldalso get to take advantage of the BID’s lobby-ing clout at City Hall.

“The organization has been able to advo-cate on behalf of the business community inCity Hall with a different and slightly moreinfluential voice,” she said.

Yet these services will come at a cost toproperty owners. Owners of commercialproperties and lots would pay 36 cents asquare foot, residential property ownerswould pay 31 cents, and government and non-profit property owners would pay 16 cents.

Those assessment rates are much cheaperthan what property owners in the heart ofdowntown Santa Monica pay. Along ThirdStreet, commercial property owners pay 80cents a square foot.

But just because it’s cheaper doesn’tmake it cheap, said carwash owner Jivani.He said even the 36-cents-a-square-footassessment his carwash would pay is a bigdeterrent to joining the BID. That’s espe-

cially the case, he noted, because he doesn’tbelieve the BID’s proposed benefits are real-istic for the businesses on Lincoln.

It’s a car-heavy corridor where spendytourists aren’t likely to come, even if the side-walks were cleaner, he said.

“The city should be providing the cleaningservices,” he said. “And Lincoln is your mainfreeway access. I don’t see any benefits onLincoln. Tourists are on Third Street. Whatare they going to do here?”

Sketchy foundationDespite the skepticism, Rawson sees

potential for Lincoln, just as she did for therest of the downtown area, which was once asketchy neighborhood with vacant shops anddirty streets. It’s now home to some of L.A.’spriciest retail properties.

“The downtown area in 1986 was horri-ble,” she said. “People always say SantaMonica is so successful and so great becauselook at where it’s located. Well, we used tostink. It was very low-grade retail or vacant.”

She said that she believes Lincoln can alsochange – maybe not as drastically, but enoughfor it to fit in with the rest of the BID’s terri-tory. If Lincoln joins, the district would like toinstall landscaping and benches to make thestreet more appealing to pedestrians and topossibly erect a welcome sign on Lincoln toindicate to visitors that the boulevard marksthe entrance to downtown Santa Monica.

As for the shops, the BID can’t dictatewhom property owners can lease to, but it cansuggest tenants that would be a good fit,Rawson said.

Duckworth of Westchester saidDowntown Santa Monica is considered to beone of the most successful BIDs in the nationand that Rawson’s group has made a big dif-ference downtown.

“I remember the Promenade before it wasanything like it is today,” he said. “They havepulled themselves up by the bootstraps and it’sthe rage now. Everyone wants to be there.”

That’s why some Lincoln property ownersare pushing to have their area annexed intothe BID’s territory.

Linwood Ventures, a Santa Monica land-lord that owns mixed-use properties alongLincoln, supports expanding the BID, saidPrincipal Scott Schonfeld.

He said Rawson’s group would ensure

cleaner sidewalks around Linwood’s proper-ties, and make residents and visitors feelsafer. New developments are already chang-ing Lincoln for the better, but he believes thearea doesn’t feel as clean and safe as the restof the downtown.

Schonfeld said Linwood also has proper-ties in Downtown Santa Monica proper andsees the BID assessment as money well spent.

“No one wants their tax bill to go up,” hesaid. “But I believe the cost is minimal relative tothe rents and property values on the street today.”

Development: Boulevard May Turn to Mall BID

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= Proposed addition to Business Improvement District

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Continued from page 5

Expanding BID

Please see HEALTH CARE Page 39

Looking to Future: Brian Mech with Argus II at Second Sight in Sylmar.RINGO H.W. CHIULABJ

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“This not a typical bankruptcy,” she said.“They were forced to file.”

The bank had set an October deadline forthe partnership to gain the necessary entitle-ments, and when the deadline passed it movedto seize the property. Final approvals wereissued last month, Truman said, too late toforestall the foreclosure proceedings. The clubwas closed after the foreclosure commenced.

Through the process, the investors had beennegotiating with potential new partners butwere unable to close on a deal until the projectsecured all the necessary governmentapprovals, Truman said. The goal was tosecure another partner or buyer to pay off thedebt and fund construction.

At one point, court records show, MalibuAssociates had a deal pending with a potentialbuyer contingent on securing the final entitle-ments. Nonetheless, the foreclosure proceed-ings went forward and that deal fell through.

Fit to a teeAt $100 a round, Malibu Golf Club was

among local golfers’ favorite places to tee off,at least until it closed in November. It did notrequire a membership to play, and as one of thefew courses on the Westside, it wasn’t uncom-mon to spot a celebrity or local athlete on thegreens of the 18-hole, par 72 course, saidKevin Heaney, executive director of theSouthern California Golf Association.

“It’s always been a fairly sought-after golfcourse,” he said. “It’s (mostly used by) the peo-ple who live out that way who want to play golfbut may not necessarily belong to a private club.”

As an enterprise, the club’s businessappeared to be strong relative to the rest of theindustry. Court records show MalibuAssociates’ gross income topped $2.7 millionin 2013, the last full year it was open, at thehigh end of the average American course.

Still, the golf industry has struggled toshake off the effects of the recession.

Some people place much of the blame forthat recession on Fuld, who has joked in thepast he’s “the most hated man in America”because of his role in the collapse of LehmanBrothers, which was liquidated after it filed forbankruptcy in 2008 with $619 billion in debt –the largest bankruptcy filing in U.S. history.

Fuld holds an 8 percent stake in MalibuAssociates. His partners include Bay Areadeveloper Tom Hix; Mark Kvamme, a ven-ture capitalist in Columbus, Ohio; andNewport Beach developer Jeffrey Klein.(Klein told the Business Journal in Decemberhe was talking to two National FootballLeague teams interested in moving to Carson;the Oakland Raiders and San Diego Chargerslater announced their intention to do so.)

Diverse as the investor group is, they shareda vision of restoring the golf course, built in1976. The course has a standard clubhouse witha restaurant, but the investors envisioned creat-ing a retreat suitable for corporate conclaves. Itwould have 40 bungalows, meeting facilities

and a new clubhouse complete with a fitnesscenter and restaurant. The buildings wouldmeet high environmental standards and thegrounds would be restored by replacing inva-sive species with native plants. The habitatwould be made wildlife friendly; the develop-ers even hired Lee Kats, a biologist and profes-sor at nearby Pepperdine University, to assist.

Those changes required approvals from theCalifornia Coastal Commission. (The course,despite its name, is not in Malibu but in unin-corporated Los Angeles County.)

Through their attorney, the partnersdeclined to talk about the project.

Though a call to Kvamme was not returned,his wife, Megan Kvamme, spoke brieflyabout the project. A former investment bankerin Ohio, she recently took over the project’saccounting and said she remained hopeful thecourse will reopen one day.

“No matter who you talk with – real estateexperts, financiers or visitors to the property,what stands out is what a gem of an asset thisproperty is for the community and region,” shesaid. “There’s simply nothing else like it.”

Though she would not comment on thedetails of the dispute with the bank, she didconfirm that Malibu Associates retained brokerColliers International last week to market theproperty in hopes of securing either a partner orbuyer to pay off the current debt.

Keith Cubba, Colliers’ national director ofgolf course brokerage, said his firm would startmarketing the property to potential investorsApril 7. He wouldn’t disclose the asking price.

Truman, the group’s land-use lawyer, wasalso optimistic.

“It’s a shame that we’re in this situationright now,” she said, “but, in the end, I trulybelieve the project is going to be built.”

Problems ariseThe plans have been brewing for a decade.Malibu Associates was formed in 2005.

The partners put up several million dollars and

got a pair of loans from California NationalBank. The first, for $28.5 million, helpedfinance the purchase of the land; the second,for $11.5 million, was intended to fund theentitlement process, court records show.

But the fallout from Lehman’s collapsesoon carried over to the Malibu project.

CalNational contacted the investors in2009, asking for Fuld to submit updated per-sonal financial statements, according to docu-ments filed by Malibu Associates’ counsel thatyear in bankruptcy court. Fuld, who joinedLehman Brothers in 1969, became chief exec-utive in 1993 and served in that role until thecompany declared bankruptcy after becomingheavily involved in subprime mortgage lend-ing. Court records show he still lives in NewYork; his financials were not made public.

“Although these statements showed adecline in his net worth, they demonstratedthat his net worth and liquidity still vastlyexceeded the total amount of the indebted-ness,” the partnership’s filing said.

But a day after Fuld submitted his state-ments, CalNational froze the company’s creditline “due to Mr. Fuld’s impaired financial sta-tus.” The bank also doubled the interest rate onthe debt.

CalNational then attempted to foreclose onthe property, forcing Malibu Associates into itsfirst bankruptcy in 2009.

But even as it was putting the squeeze onFuld and his partners, CalNational faced its ownfinancial troubles. Regulators closed the bank,which had lost $1 billion in the market collapse,and transferred its assets to U.S. Bank.

The partnership came to an agreement withU.S. Bank in 2011 that called for the twoCalNational loans to be consolidated and thematurity date pushed back – on the conditionthat the developers complete the entitlementprocess by October 2014.

But those entitlements came five monthstoo late, and the bank moved to foreclose.Malibu Associates now claims the bank set it

up to fail by implementing unrealistic require-ments, according to a March 27 court filing. Ithas countered the banks claims, saying thelender owes it at least $30 million, plus interestand attorneys’ fees, for its alleged bad-faithdealings.

“By the time of the settlement negotia-tions, Malibu (Associates) had alreadyinvested well over $15 million into theproject, and with the foreclosure litigationstill pending it could not feasibly start overwith another lender,” the partnership’s doc-ument said.

A U.S. Bank spokesman and a lawyerrepresenting the bank declined to talk aboutthe case.

Bankruptcy lawyer Jennifer Nassiri, part-ner in the Century City office of Venable whorepresents debtors and creditors, is notinvolved in this matter but reviewed parts ofthe case for the Business Journal.

In general, she said this dispute mirrorsmost single-asset bankruptcy cases. She pointedout that, at the end of the day, lenders are enti-tled to be repaid for loans granted and can usu-ally foreclose on assets in the event of a default.

“The lender has discretion to determinewhether to accommodate a borrower’srequest,” Nassiri said. “There is no obligationon the part of a lender to agree to any of thedebtors’ requests, including a request to extenda maturity date, depending on the facts and cir-cumstances of the particular case.”

The bankruptcy filing holds off creditors, atleast for a time. The owners, by shoppingaround the property now that they have entitle-ments, hope to bring in new partners with freshmoney to pay off the existing debt and helpbankroll construction.

“We are excited to begin an aggressive andstrategic marketing campaign with ColliersInternational and their partners this week,”Megan Kvamme said. “Through this, I amconfident that a joint venture partner or pur-chaser will emerge in no time.”

Real Estate: Club Owners Double Bogey on DebtAPRIL 6, 2015 LOS ANGELES BUSINESS JOURNAL 39

Continued from page 1

‘Gem of an Asset’: Malibu Golf Club, which has been closed since November, is in unincorporated Los Angeles County.RINGO H.W. CHIU/LABJ

Health Care: Investor Likes Outlook for Bionic Eye

what would people be willing to pay. What’sthe price elasticity of demand look like. Butall of that is really sort of a guess.”

Big pictureTo investor Chris Marlett, it’s a no-brainer. “They’re really at the beginning of what

appears to be a technology that could be appli-cable to all blindness,” said Marlett, chiefexecutive of Santa Monica-based MDB

Capital Group, which underwrote SecondSight’s $36.3 million November public offer-ing and holds 805,000 warrants issued by thecompany. Second Sight has about 35 millionshares outstanding.

Marlett’s firm made its investment basedon a five- to 10-year horizon and the notionthat the Argus II is just the first step. SecondSight has said that it intends to use a portion ofits IPO proceeds to fund research and develop-ment of the Orion I, a prosthesis that couldaddress a subset of other types of blindnessaffecting about 5.8 million people worldwide.

The fact that Argus II allows patients togain only limited sight might seem a bit disap-pointing, but it still represents an advance.

“If you’re absolutely blind, you’re totallylimited,” said Dr. Melissa Chun, director ofthe Vision Rehabilitation Center at UCLA’sJules Stein Eye Institute. “But if you havesome sort of form vision and can learn to useand interpret that, then you have a little bitmore independence.”

It’s hard to put a dollar value on that. Forlegally blind USC student and entrepreneurConstantine Greanias, it would mean fewer

bloody shins, being able to cross most streets,and avoid bicyclists and unaware Tesla drivers.

“To my family, potentially, it’s worth mylife,” Greanias said, who walks with a canethat doesn’t always catch things. “It’s notmuch of a question.”

But if the cost puts someone into insur-mountable debt, Greanias thinks the implantmight not be worth it.

“It increases quality of life, but I don’tthink it increases their salary or ability to dowork,” he explained. “It’s to the point whereyou can be safer and live longer.”

Continued from page 38

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