Old Town Galleria, the retail shopping center that has been besieged by financial problems since its opening three years ago, on Monday was sold at foreclosure and bought by San Diego Trust & Savings Bank for $5.4 million.
The bank is owed nearly $6 million in principal and interest for money it loaned to the partnership that built the facility--known then as Old San Diego Square and headed by local developer Ray Jessen.
The partnership will continue to manage the Galleria until the bank can find a buyer, Jessen said. San Diego Trust & Savings sources previously have said that the bank does not want to become the center's operator.
Under terms of a 19-page agreement hammered out between the bank and Jessen last month, Jessen's partnership has been "relieved of all liability to the bank," he said.
There will be no perceptible change in the 47,500-square-foot facility's operations, according to Jessen.
Old Town Galleria has been on the market for $8.3 million, but Jessen has been unable to find a buyer.
Solana Beach-based Templar Investment Group, headed by former San Diego Chargers football player Jim Schmedding, was attempting to purchase the property but his offers were unacceptable to Jessen and San Diego Trust officials.
Jessen on Monday said that the foreclosure was in the "best interests of all involved."
"This is the best method of ensuring the continued success of Old Town Galleria," he said.
He acknowledged, however, that "after seven years of working on the project, I'm disappointed that I'm still not the owner."
Under the agreement, Jessen's partnership retains about $1 million in assets, primarily notes and rents owed by the Galleria's tenants.
Jessen said the project would have been successful "if there had not been partnership (financial) problems, disputes between the parties and internal disputes in our own partnership."
Those internal disagreements included disputes over "how the property should have been promoted, leased and financed," Jessen said.
Jessen's partnership--between the developer and local physician Samuel Markarian--has attempted to reorganize for the past two years under the protection of Chapter 11 of the federal bankruptcy code.
The partnership filed for bankruptcy in early 1983 after the bank threatened to foreclose on the property. Jessen then sued the bank for $30 million in November, 1982, alleging breach of contract and claiming that the bank had tried to take over the project by intentionally causing a default on the property.
The suit later was settled and the bank restructured its loan as part of the bankruptcy reorganization effort.
The Old Town Galleria's bankruptcy does not involve Jessen's real estate development firm. The company is now developing a three-building 100,000-square-foot commercial project in Kearny Mesa and is in a joint venture with Robinhood Homes on a 1,200-unit community in Oceanside.
In addition, the firm has begun construction on a 200,000-square-foot commercial building in Simi Valley, north of Los Angeles.