08:53 PM PST on Friday, February 18, 2011

By TIFFANY RAY
The Press-Enterprise

The San Bernardino Economic Development Agency has bought Carousel Mall for $13.1 million despite efforts by the shopping center’s most recent owner to prevent the sale, but more legal battles remain.

Placo San Bernardino LLC, an affiliate of commercial real estate developer M+D Properties Inc., had owned the central portion of Carousel Mall — two vacant anchor spaces have separate ownership since January 2008. The city’s economic development agency purchased the $16.3 million note on Placo’s portion of the property from Central Bank in April 2010 and launched foreclosure proceedings on the property after Placo failed to make monthly payments on the note, according to Emil Marzullo, the agency’s interim executive director.

Placo filed a lawsuit Feb. 8 against the city, its economic development agency, a title company and a development firm seeking to prevent the agency from foreclosing on or selling the property. The lawsuit also seeks damages for what Placo said was a deliberate attempt by the agency to drive off customers and tenants in order to cause Placo to default on its note and take control of the property. The suit alleges the city failed to live up to its obligations to provide maintenance and other services for the mall, leaving the shopping center with water damage, mold and other problems that have rendered it “ugly and unsafe.”

The lawsuit contends the city plans to work with a developer to create a government center on the mall site.

A U.S. District Court judge rejected Placo’s request to halt the sale, and the economic development agency bought Placo’s portion of the mall at an auction Feb. 14, a move that takes the agency, in effect, from being the shopping center’s mortgage holder to being its landlord.

Marzullo declined to speak directly about the lawsuit but said the city spends as much as $1 million a year in mall upkeep. He said there are no definitive plans for the mall. For now, he said, the agency wants to stabilize the operation. “We’re not in the business of running malls, so we will attempt to find a buyer and a development partner that will bring that mall to a different level,” he said.

The city’s portion of the mall, which has about 492,000 square feet of gross leasable space, is about 33.8 percent occupied, Marzullo said.

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