‘Rescuer’ of Ailing Real Estate Deals Is Fixture in Court

Inside Sherman Mazur’s 17th-floor office in Century City is said to be a framed photograph of a cake. Baked to commemorate one of his real estate deals, the cake is decorated to look like a check payable to one of his companies for what is believed to be $6 million, according to former associates.

To people he’s done business with, Mazur makes earning millions seem like a piece of cake. In the early 1980s, he was selling investors five-barrel-a-day oil wells drilled in southeast Kansas. By 1986, he was being touted in the media as a rising star in American real estate, overseeing from his marble-floor office some $750 million in apartments and offices scooped up from financially sick partnerships that he took over with the understanding that he would try to whip them into shape.

As his real estate business prospered, so too did Mazur. His car collection includes two Rolls-Royces, a Ferrari and a limousine, according to friends and former business associates. He also owns a hillside home in Encino and a seaside home near Laguna Beach, each worth more than $1 million. Still another 8,000-square-foot home is under construction on two acres in Holmby Hills that Westside real estate agents say could be worth as much as $7 million when finished.

But as Mazur achieved financial success, he also made himself a highly controversial figure in the nation’s real estate partnership business. Lawsuits filed by former associates and investors in California and Texas allege that instead of helping troubled real estate partnerships work out their financial problems, Mazur and his American Resource Corp. defrauded them.

Among the allegations made in the lawsuits: That Mazur and companies he controls let partnerships slip into foreclosure by failing to pay lenders, that he took over partnerships by promising stock that was never delivered and that money was “skimmed” from partnerships that were later put into bankruptcy proceedings.

Mazur declined to be interviewed for this story. His lawyer, H. Roy Jeppson, said the fraud allegations made in the lawsuits against Mazur are “without any foundation whatsoever.”

Workout Specialist

Jeppson said Mazur has never skimmed money from partnerships he took over, adding that the wide-ranging allegations made in the lawsuits are “laundry lists” of unsubstantiated accusations that lawyers typically make when they file such suits.

Mazur built his reputation mainly as a so-called workout specialist. That’s someone who steps in to save something such as an apartment or office building from foreclosure when the partners who own it can’t pay off their loans. Typically, the workout specialist trims the property management costs, negotiates breathing room with the lenders and provides needed cash on behalf of the investors.

Partnerships that Mazur took over typically were formed by so-called syndicators who pooled investor money in the early 1980s to buy property. A large number of those properties ran into trouble because of overbuilding and soft economic conditions that increased vacancy, especially in states such as Texas and Colorado that were staggered economically by plunging oil prices.

One point not in contention is that Mazur gets sued often, often by the people he agreed to help. Court records show that since 1982, Mazur and his companies have been named as a defendants in at least 50 lawsuits filed in California and Texas, largely by investors or former business associates who sought his help.

The reason Mazur is sued so much, Jeppson explained, is because he frequently took control of properties already in hopeless financial shape that ultimately could not be saved. Investors hoping the properties could be salvaged often blamed him, Jeppson said.

“In that kind of business, you are unfortunately in a situation where a lot of times it’s a no-win situation,” Jeppson said.

Statements Challenged

In addition to the lawsuits filed against him, Mazur is under investigation by the California Department of Corporations for possible securities law violations.

In court papers filed this month in a related case the state has disclosed one part of its investigation: that Mazur may have used fraudulent financial statements in 1986 to gain control of real estate partnerships. The statements, the department has alleged, may have portrayed his company as financially healthier than it was by failing to disclose the large number of lawsuits filed against Mazur and his companies and the fact that a large number of real estate partnerships he controlled were in bankruptcy proceedings.

Jeppson said the department, which has been investigating Mazur for nearly three years, has yet to charge him with wrongdoing. He added that the financial statements appear to accurately reflect the financial condition of Mazur’s operations when the statements were prepared in 1986.

In addition to the state investigation, Davis H. von Wittenburg, who heads the Justice Department’s Office of the U.S. Trustee in Los Angeles, confirmed that Mazur and his companies are under investigated for possible bankruptcy fraud by his office. He would not elaborate.

State and federal authorities estimated that 180 partnerships Mazur controlled have been put into bankruptcy proceedings. Jeppson said the actual number is less than 180, but he doesn’t know the exact figure. He said partnerships were put into bankruptcy proceedings to protect assets from seizure by creditors.

Never Told Investors

Mazur’s latest venture is different, but, like his attempts to save real estate partnerships, also has him embroiled in controversy. For the past year, he has managed about 580 post office, utility and government buildings owned by investors in tax shelter programs promoted by North Hollywood businessman Gerald L. Schulman.

Schulman, 56, was convicted by a federal judge in Los Angeles last February of 20 counts of felony tax fraud. Prosecutors argued that Schulman had designed partnerships that took interest deductions on phony loans that Schulman arranged. Schulman has not been sentenced, pending a motion by his attorneys to overturn his conviction.

Introduced by their rabbi, Mazur and Schulman struck a deal last year in which Mazur would pay $30 million to take over Schulman’s role as manager of the buildings and also acquire a small interest that Schulman held in trust deeds on the buildings. Schulman never told his investors that Mazur was taking over as manager, Schulman said in a deposition

According to Jeppson, about 10 properties are now in jeopardy of foreclosure because their rent payments are far below the amount of money needed to pay bills and make mortgage payments. The revelation that some properties are in trouble, combined with the allegations made against Mazur in other lawsuits, has increased concern among investors and their lawyers that their properties may be in danger.

“Mazur goes in, takes a couple of rent payments, puts it in his pocket and all of a sudden the property is having trouble meeting its payments. That’s his modus operandi as I understand it,” said Robert G. McCoy, a Chicago attorney representing investors in Schulman properties.

Jeppson denied those allegations and insisted that Mazur is instead helping to salvage Schulman properties that might otherwise have been lost through foreclosure. Jeppson added that Mazur is pumping $1.5 million a month of his own money into the properties to help them meet expenses. Without Mazur’s help, Jeppson said, a large number of properties might be lost.

A native of New York, Mazur, 39, sports boyish good looks and curly brown hair, and he typically dresses in European-style suits.

As his business has grown, so has his social and political profile. He serves on the board of the Joffrey Ballet and is a special financial adviser to Childhelp, a national child abuse prevention organization in Woodland Hills. Campaign finance records show that in 1986 he gave $104,750 to the unsuccessful campaign by former Lt. Gov. Mike Curb, making him one of Curb’s largest contributors.

References to Milken

Mazur is described by those who know him as charming and self-confident. Former business associates say he frequently impressed them by dropping the names of well-known business people he had met, most notably Michael Milken, Drexel Burnham Lambert’s “junk bond” king, and Milken’s brother, Lowell, also a Drexel executive.

“He’d say ‘Mike and I are tight,’ and ‘I can count on Mike,’ ” said Brian Cunningham, a Gilroy, Calif., real estate lawyer over whose partnerships Mazur gained control.

A Drexel spokesman, however, said that while Mazur has met the Milkens “a couple of times over the years” that “it’s not what you’d call a close relationship, business or otherwise.”

Jeppson said Mazur has met the Milken brothers, but said he doesn’t recall him boasting to people about knowing them.

Mazur graduated in 1971 from the New York Institute of Technology with a degree in accounting. In 1979, he earned a degree at night from what was then called the San Fernando Valley College of Law, now part of the University of La Verne system.

In the early 1980s, Mazur formed New Century Energy Corp., an oil and gas venture, and New Century Financial Corp., a real estate venture, two investment programs that resulted in a flurry of lawsuits.

Mazur set up New Century’s offices off Wilshire Boulevard in Beverly Hills. On a wall inside, according to investors, was a map of Kansas with red, blue and yellow pins placed around the small town of Chanute to mark well sites. In his kitchen at home, one investor said, Mazur kept a jar containing what he said was the first oil that New Century found.

One lawsuit filed by a group of investors, which was settled earlier this year for an undisclosed sum, claimed that the New Century companies were “a mere shell and sham without capital, assets, stock or stockholders.” Other investors are still suing over the New Century deal, such as Northridge investor Mark Deutsch and his family, who claim that they’ve lost $1.5 million they invested.

Aided by Consultant Mazur has denied the allegations made by New Century investors.

In early 1986, Mazur formed American Resource Corp. to acquire buildings from ailing general partnerships suffering because of a downturn in the real estate business.

Mazur got his name into real estate circles fast with the help of Stephen E. Roulac, a prominent national real estate consultant and occasional columnist for Forbes magazine. Mazur hired Roulac to write a report on American Resource Corp. that Mazur distributed to potential clients.

Roulac soon became a big Mazur booster, sending out press releases through his San Francisco consulting firm that touted Mazur as a “white knight” for troubled real estate partnerships and regularly meeting with potential Mazur clients. In July, 1986, Roulac was quoted in the Wall Street Journal as predicting that American Resource Corp. would accumulate one of the largest real estate portfolios in the nation inside two years.

Now, Roulac is suing Mazur, claiming he wasn’t paid for consulting work he did. In an interview, Roulac claimed that Mazur owes him more than $500,000 in fees for unpaid consulting work. Jeppson said he is still checking into Roulac’s allegations, but said the amount Roulac claims he is owed is overstated.

Reports Subpoenaed

To help American Resource grow, Mazur applied to First Interstate Bank in Los Angeles for financing. One 1986 memo from then-Senior Vice President Donald D. Snyder to William E. B. Siart, who is president of First Interstate Bank of California, described Mazur as a “kind of a fast talker-fast money type of guy.” It also notes that it was “kind of strange that he has no significant banking relationship.”

An internal bank credit report in 1986 noted, however, that Mazur was financially strong, with a personal net worth of about $6 million. In October, 1986, the bank made a $1.5-million loan to Mazur’s company, the reports show.

A subsequent report in June, 1987, however, showed First Interstate was having problems with American Resource Corp. It cites such problems as an “overall lack of cooperation from borrower” and “failure of our primary source of repayment to materialize leading to a restructure of the debt.” As a result, the loan was “graded substandard,” the report said, meaning that it was classified as a higher-than-normal risk for the bank.

The First Interstate memos and reports on Mazur were subpoenaed in a San Jose lawsuit and were made available to The Times. A First Interstate spokesman, citing company policy that forbids discussing customer accounts, would not comment on the bank’s relationship with Mazur. Jeppson said he is not familiar with Mazur’s banking relationship with First Interstate.

In 1987, Mazur’s relationships with partnerships he acquired also began to sour.

One struggling real estate partnership that had turned to Mazur for help was Taggart Investment Corp., a Dallas-area firm that asked him in 1986 to manage 38 apartment complexes. In April, 1987, Taggart filed a $17-million suit against American Resource Corp., Mazur and three of his executives, accusing them of “skimming” rents for their own purposes and failing to honor loan obligations to two Texas banks.

The lawsuit has since been settled for an undisclosed amount. Mazur denied the allegations.

In another dispute, American Resource Corp. was voted out by investors as general partner of about 30 properties he took over in 1986 from Vesteq Financial Corp. of San Mateo, Calif., which at one time owned more that $400 million in property, mostly apartment buildings in economically depressed states such as Colorado and Texas.

A March 12, 1987, report by a Vesteq investors committee said that the committee was “extremely disappointed” in American Resource Corp. and accused it of “indifference” in running the properties for Vesteq’s 3,000 investors.

The report says American Resource Corp., which received 6% of the monthly rent as a property management fee plus an additional, smaller fee, had refused or neglected to negotiate with one savings and loan in Stockton, which started to foreclose on four of the properties before investors stepped in. Frustrated, the investors turned to a Texas company to replace Mazur.

Jeppson said Mazur is now out of the business of trying to save troubled real estate partnerships and that his primary business is managing the buildings owned by Schulman’s investors. Mazur’s problem, Jeppson said, was that he underestimated the difficulty of bailing out ailing partnerships and the legal headaches it would cause him.

“He’s very good in real estate, but he did not have a magic wand. He tried to bring the properties back in situations where they were in extreme economic distress. The bottom line is that he couldn’t do it,” Jeppson said.

Roulac said Mazur had good ideas about ways to salvage financially troubled partnerships. But, Roulac said, several factors prevented Mazur from carrying them out, including the continuing soft real estate market, the lawsuits he became embroiled in and because Mazur was “less than conscientious” in managing the properties for investors.

“Sherman had the potential to be one of the largest players in the real estate market. That wasn’t realized,” Roulac said.