Six months ago, speculation was rampant that Irvine-based master developer SunCal Cos. could be removed from its most prominent local project,San Clemente’s Marblehead Coastal,by its main financier.
Now SunCal’s financier,bankrupt Lehman Brothers Holdings Inc.,is causing problems for the troubled developer.
SunCal is battling to keep its role as Marblehead’s developer by using the bankruptcy courts to find a new funding source after Lehman Brothers filed for bankruptcy in September.
Last week, SunCal filed involuntary petitions in U.S. Bankruptcy Court in Santa Ana for Marblehead and three other projects it is trying to develop in Los Angeles and Riverside counties.
Lehman had been the sole funding source for the projects, and its bankruptcy made it unable to fulfill its financing obligations, SunCal officials said.
SunCal said it is owed $1.8 million from Lehman for work it has performed at Marblehead, while other petitioners listed in the involuntary filing said they are owed about $780,000.
The three other involuntary petitions filed last week are for Northlake, a 1,500-acre project in planning in Los Angeles’ Santa Clarita Valley where 4,000 homes are planned, and two projects slated for Beaumont in Riverside County.
About $2.7 million is owed to SunCal and other petitioners for those projects.
The bankruptcy action might lead to the development of new sources of funding, officials for SunCal said. Opportunistic investors have been sniffing around Marblehead since early this year, according to the company.
The company also said it has an alternate funding source of up to $75 million to cover “critical expenses” at projects including Marblehead, pending bankruptcy court approval.
The Marblehead news comes less than a week after 14 other bankruptcy petitions were filed by SunCal, including Pacifica San Juan in San Juan Capistrano. Both Lehman and SunCal gave their consent for those filings.
Prior to that, another three Lehman-backed projects led by SunCal had been placed into bankruptcy by creditors.
SunCal now has at least 23 projects in bankruptcy.
There are other projects that Lehman has a stake in that aren’t under any type of bankruptcy protection.
In total, all the bankrupt SunCal-Lehman projects have some $2.5 billion in loans tied to them.
SunCal, which typically funds each of its projects separately, has not filed for bankruptcy itself.
The involuntary petition for Chapter 11 protection for Marblehead could be strategic for SunCal.
Marblehead, which has seen early stage construction stalled for most of the year, isn’t nearly the largest of the SunCal projects that have filed for bankruptcy so far. But it might be the most valuable in terms of land.
The 248-acre site is just west of the San Diego (I-5) Freeway, next to the ocean. The project,which took decades to receive the necessary entitlements,is expected to include more than 300 pricey homes and an outlet center set to be built by Newport Beach-based Craig Realty Group.
It’s also the most prominent Orange County property to file for bankruptcy amid the real estate downturn and credit crunch this year.
Other SunCal properties now in bankruptcy include developments in Modesto, Palmdale and Placer County.
Expect to see more real estate deals land in bankruptcy court, said Craig Barbarosh, managing director for the Costa Mesa office of Pillsbury Winthrop Shaw Pittman LLP.
The challenge for developers like SunCal “is that there’s no credit available,” Barbarosh said.
“Anyone who needs credit is in trouble, and they could be heading into insolvency,” he said.
Finding another investor for Marblehead could prove to be easier than for other properties SunCal is trying to salvage in court.
A number of distressed land buyers had inquired about buying Marblehead earlier this year while SunCal and Lehman renegotiated financing for the high-profile project.
SunCal paid about $200 million for the land in 2005.
In April, SunCal officials told the Business Journal they were reworking or were in talks to restructure financing on nearly 30 projects to cope with falling land values amid the real estate downturn. A majority of those projects were financed by Lehman.
