Categories: Eye on SC
Date: Mar 5, 2008
Title: SunCal Faces Lawsuits for Delays at Marblehead Coastal
Vol. 3, Issue 10, March 6-12, 2008
By Norb Garrett and Jonathan Volzke
San Clemente Times
The development at Marblehead Coastal is on hold as SunCal faces legal and economic challenges
Construction vehicles sit silently as grass sprouts up on the dirt mounds and graded building pads at Marblehead Coastal. A bridge spanning one of the canyons is unfinished, while a fence blocks the project’s Avenida Pico entry. Custom lots with panoramic ocean views are home only to rabbits, feeding a sense of abandonment that shrouds the property. The buzz created by plans for a movie theater, bustling retail center and sports fields have been replaced by the quiet Pacific breeze. It’s been more than a month since work of any kind has taken place on the piece of land that promised so much for future residents—and all of San Clemente.
Even today, the city Web site’s “Latest News” boasts the parks would be done by September 2007, with Avenida Vista Hermosa and the AVH bridge in place by this month. By August 2007, SunCal—the development company that bought the 248-acre property for a reported $197 million—was to have completed work on the roads, street lights, sidewalks and the entire backbone infrastructure for a sprawling 313-home and commercial project, kicking off an expected flurry of activity as prospective home buyers snatched up some of the last ocean-front lots in the state for millions of dollars. The high-end outlet mall—known as Plaza San Clemente—to be developed by veteran outlet mall builder Steve Craig of Craig Realty Group was to be in full development mode with an eye on a winter 2008 opening (legal battles over his sign exception package notwithstanding) with restaurants and a centerpiece movie complex. A 129-room boutique hotel would welcome tourists to the Spanish Village by the Sea. A much-needed soccer complex was expected to open as early as May 2007.
But things have not exactly gone according to plan. These days, it’s lawyers, not construction crews, doing the work on Marblehead.
At first, SunCal blamed the weather as the culprit for the slowdown. Then, reached in mid-January for comment, the weakening economy was given as the excuse. Finally, in early February, SunCal admitted that the economic downturn has forced it to revisit the plan with its lender—Lehman Brothers—and create a new timeline.
On Tuesday, City Attorney Jeffrey Oderman announced the city was filing legal action against SunCal for defaulting on its development obligations to complete subdivision work within a two-year period that started in June 2005 and for not continuously performing work on the property.
“They should get it completed as soon as possible,” City Councilmember Jim Dahl said. “We really need to push them to get these things completed. If they don’t finish that bridge, all the work will go to heck.”
Already, SunCal faces a lawsuit from the contractor who worked on the AVH bridge, contending the developer didn’t pay for all of the work. Craig filed a lawsuit against SunCal, alleging SunCal-Marblehead already faces some $2.4 million in liens. The same story is playing out across California, with SunCal facing at least eight lawsuits related to stalled projects.
Among them:
• Young & Associates of Los Angeles contends SunCal failed to pay $274,943 for storm-drain work at a Santa Clarita development;
• Ventura-based McCoy & Sons says SunCal owes it $941,960 for rough grading the Heartland project in Beaumont;
• D.B. Zwrin Special Opportunities Fund says SunCal defaulted on a $75 million loan when it missed a $446,216 payment in August. That led to the foreclosure of an apartment complex in Santa Ana, with two more complexes, in Tustin, facing foreclosure sale March 6;
• Another lawsuit, filed by a former SunCal partner, alleges SunCal failed to pay $22.6 million in a $49 million court settlement. That lawsuit, filed December 10, contends that SunCal defaulted on a $125 million loan from lender Lehman Ali.
San Juan Capistrano is also threatening legal action against SunCal for unfinished traffic improvements tied to SunCal’s 416-home Pacific Point project just south of Camino las Ramblas and east of the San Diego Freeway. Capistrano officials and SunCal have a tentative meeting set next week to determine if those projects can get back on track without reaching the courtroom.
But SunCal spokesperson Joe Aguirre said Wednesday the company is ready to resume work at Marblehead. Each of the privately owned SunCal projects are set up as separate entities and often are funded by different investment sources. So trouble up north doesn’t necessarily translate to trouble in San Clemente. “Obviously, the home-building industry is in a challenging time, but we will be proceeding with these projects,” Aguirre said. “Our project teams for each of those projects are working on the business plans and schedules.”
As for the liens, Aguirre said many large builders have been working with subcontractors to reduce or restructure their debt. “Some subcontractors are working with us, some have unfortunately chosen to file lawsuits,” he said.
Despite the mounting legal battles, builder Craig contends his 565,000-square-foot commercial and retail project at Marblehead, built under Villa San Clemente LLC, will move forward. His company filed its lawsuit when they became concerned SunCal’s bonds—insurance policies that guarantee the work will be done—won’t be enough to cover the liens and the work that remains to be done.
“From our perspective, all we really want at the end of the day is for SunCal to do what they’re legally obligated to do, which is to complete the bridge, complete the roads and infrastructure, traffic signals and the like which are part of the development,” Craig said. “We paid them an amount of money for the land which incorporated those costs and included them in it; now it’s their obligation to do that. We’re just hopeful that they’ll live up to the terms and conditions of the agreement.”
Attorneys had sought a restraining order to prevent SunCal from draining an escrow account on the project, but the judge denied that request, saying Villa San Clemente LLC had other options. Craig said he’s counting on SunCal making the promises of Marblehead come true. “I think they need to do that for us, they need to do it for the city and they need to do it for their own subcontractors who they have not paid in some cases,” he said. “We’re hopeful they will recognize their obligations and honor those in a timely fashion.”
Craig and city officials know SunCal wants to avoid having its bonds called in to finish the work. Such a move would have potentially ruinous effects on the developer, damaging its bond rating in the future and jeopardizing future development projects.
Despite the economic drag on the housing market, Craig notes that interest in the Marblehead commercial project remains high. He thinks SunCal will ultimately deliver on its promise. “[Considering] the amount of money they’ve put into it…I’m confident that they will recognize this and begin restarting their work and hopefully complete it within the revised time schedules,” said Craig.
Craig notes that “90 percent of the project is committed, not all of it is executed.”
Interest in the property remains strong. “We’ve had a strong showing,” said Craig, whose company developed the outlet malls at Carlsbad, Camarillo and Calabasas. “There’s a lot of interest in this property as you could imagine. It’s a very well-done building in an affluent part of the county, so a lot of companies are very interested in tapping in to that market in a prestigious way.”
Craig estimates he could open for business by the end of 2009—if SunCal begins work soon. “They’re pretty much done…they’re probably at the 95-percent mark,” he said. “They have some extra stockpiles of dirt that they have to move, but all the residential pads are graded. The majority of our site is graded, although there are some areas that need to be graded, but not a lot. The bridge itself is a good example. All the piers are in. The abutments are ready to go. All the forming is done. Now what they need to do is pour the deck. I don’t want to minimize that—it was half a million dollars of concrete to do it, but you need to go ahead and pour it.”
SunCal’s Aguirre said engineers are inspecting the forms now and preparing for a “substantial” concrete pour to finish the bridge.
Asked if there is any chance he would walk away from the project should it stall further, Craig said, “We’re fully committed to the project. We own the land; we’ve got 14 years of time invested in it. We think it’s a great project.”