The chief financial officer of Donald Sterling's properties said Monday that the billionaire may be forced to sell a large portion of his real estate empire to cover $500 million in loans if he persists in refusing to sell the Los Angeles Clippers for $2 billion.
Darren Schield, who oversees the finances of The Sterling Family Trust, testified Monday that three banks are ready to recall their loans to Sterling because of his decision to dissolve the trust. His move was designed to rescind his signed agreement for the sale of the Clippers, a team he bought for $12 million.
Schield said if Sterling has to dump $500 million worth of apartment buildings he could destabilize the Los Angeles real estate market.
Sterling attorney Maxwell Blecher suggested that Sterling could take the company public in order to raise funds.
But Shelly Sterling's lawyer, Pierce O'Donnell asked if it would be easy to go public "with Donald Sterling's reputation."
Schield responded: "There's huge reputation issues. I don't know if anyone would want to go into partnership with him."
The NBA banned Donald Sterling for life for making racist statements after the release of recorded conversations. Sterling has denied he is a racist from the witness stand.
Schield testified in the probate trial that if Sterling's loans go into default and he needs to refinance, banks would be reluctant to give him that much money at the low rate he has now.
"I know the bank looks at this as a higher credit risk with all this going on," he said. "The rate would go up considerably."
Sterling, the volatile owner of the team, agreed to the sale but then dissolved the family trust in an effort to stop it.
Schield, testifying at the trial that will decide the future of a $2 billion deal to sell the Clippers to former Microsoft CEO Steve Ballmer, said he warned Sterling not to revoke the trust last month.
"I told him a revocation of the trust would be a breach of the loan covenants and would result in defaults," Schield said.
He said he also discussed it with Sterling's lawyer, Bobby Samini.
"I told him this revocation would open up a Pandora's box and trigger defaults," Schield said.
"Does the company have $500 million to pay off the loans?" asked O'Donnell.
"We do not," Schield answered.
Asked what the recourse would be, he said, "We would have to start selling real estate. If we have to sell $500 million in apartment buildings, it would have an impact on the Los Angeles real estate market. "
Donald Sterling's lawyers who had said they planned to call six witnesses Monday produced none of them and court was recessed early.
Shelly Sterling, Donald Sterling's wife who had been listed as a witness, was in court but was not called to the stand. She was scheduled to return Tuesday.
Her lawyers said their witnesses on Tuesday will include Richard Parsons, CEO of the Clippers. Outside court, Ballmer's lawyer, Adam Streisand, said he believes the judge will rule in favor of Shelly Sterling.
"Do I think the trust will be reinstated after that?" he said. "You bet it will."
If the sale doesn't go through by Sept. 15, the NBA can seize the team and sell it at auction, Streisand said.
Donald Sterling has vowed he'll never sell the team. He claims he is the victim of illegally recorded conversations that invaded his privacy.