Bank forecloses on Gulati-owned Traverso's site

Luther Burbank Savings on Friday foreclosed on the longtime home of Traverso's deli, a key downtown parcel where the late real estate investor Raj Gulati had hoped to build a modern high-rise.

The bank repossessed the building, at 500 Third St., when it failed to sell Friday morning during an auction of foreclosure properties on the steps of the Sonoma County Administration Building in Santa Rosa.

Gulati's estate stopped making payments on a $2.1 million loan on the property earlier this year when it couldn't find a buyer for the building, said Anne Dennis, an attorney who represents the estate.

"The market just killed us," Dennis said.

The foreclosure was no surprise to Gulati's family, Dennis said. The bank notified the family in April that it intended to take back the property after the estate stopped payments on the loan.

The estate has been able to sell the majority of the highly leveraged real estate portfolio Gulati had assembled in the years leading up to his death in July 2006.

Most of that property was in downtown Santa Rosa and included some of its most prominent buildings, such as the North Coast Bank building.

But the Traverso's property languished on the market for months, listed at $3.2 million. At one point, San Rafael developer Monahan Pacific had an offer on the property, but that deal was never consummated. Other developers expressed interest as well, but the estate simply couldn't afford to continue making the $7,000 monthly payments waiting for a deal to come through, Dennis said.

Financier Clement Carinalli accepted a $300,000 second deed of trust on the property as part of a $2.1 million settlement of his claims against the estate, Dennis said.

Carinalli had sued the Gulati estate seeking to recover $5.1 million in loans he says he made to Gulati.

Dennis said the Gulati estate was "significantly upside down," owing roughly $20 million on real estate worth about $15 million.

What happens now is anyone's guess. Traverso's, the gourmet retailer that sold the building to Gulati in 2004 and has leased it back since, is leaving at the end of the year to move to a shopping center in Fountaingrove.

"Luther Burbank Savings had to foreclose on the Traverso's property to protect our security interest," said bank president John Biggs.

"This is a very important site from a historical perspective and development potential. We will determine the best course of action based on protecting the bank's investment and contributing to the improvement of downtown Santa Rosa."

You can reach Staff Writer Kevin McCallum at 521-5207 or kevin.mccallum@pressdemocrat.com.