Outlet retail developer Steven Craig is trying to get the ball rolling on one portion of the long-stalled Marblehead Coastal development in San Clemente.
His Newport Beach-based Craig Realty Group recently asked the federal bankruptcy court in Santa Ana for permission to take over early-stage work on its proposed Plaza San Clemente project from SunCal Cos. in Irvine.
Plaza San Clemente would be the only outlet center in Orange County. Plans call for a 600,000-square-foot development with shops, a 14-screen movie theater, restaurants and a hotel on land overlooking the Pacific Ocean just west of the San Diego (5) Freeway.
It would be the first major retail project to break ground in Orange County in several years.
Craig Realty said it could begin construction of the center “in the very near future” and has lined up a $53 million construction contract for the first phase of retail development at the site, according to court documents filed late last month.
But first the developer—which also owns and runs Citadel Outlets in Los Angeles and 10 similar malls—needs court approval to finish up ground work at the site that SunCal has no intention of doing, according to court filings.
59 Acres
Craig Realty paid SunCal $20.5 million in 2006 for the 59-acre Plaza San Clemente site. The land is part of the 248-acre Marblehead project that’s arguably master developer SunCal’s most prominent property in Southern California.
The bulk of the land at Marblehead—one of the largest remaining patches of developable property along OC’s coast—is slated for about 310 high-end homes.
SunCal halted work on the bulk of Marblehead, including Craig Realty’s land, in late 2007. The stoppage came amid the real estate downturn and financial challenges with its longtime financier, New York-based Lehman Brothers Holdings Inc.
Marblehead and nearly 20 other SunCal-backed developments in California filed for bankruptcy in 2008, prior to Lehman’s own collapse and bankruptcy. SunCal itself didn’t file for bankruptcy.
Since then, a majority of those projects have seen little or no work, with much of their activity taking place in Santa Ana and New York bankruptcy courts.
About $9 million of the $20.5 million fee that Craig Realty paid to SunCal was supposed to be used for early-stage development work on the commercial portion of Marblehead, according to court documents.
Craig Realty’s lawyers contend that about 68% of that work is done, and that the remaining early-stage development would cost about $5.5 million, for grading work, installation of utilities and other tasks, according to filings.
The company claims that SunCal has no intention of doing the work itself, regardless of the outcome of the ongoing bankruptcy proceedings.
SunCal “has no beneficial interest in the commercial property, has ceased all development work, has no ability to complete the development work, and based on its recently filed plan of reorganization, has no intention of completing any part” of Marblehead, Craig Realty said in an Aug. 25 court filing.
Under SunCal’s latest plan of reorganization, filed last month, the company proposes auctioning off Marblehead and other properties through a court-overseen sale.
THE NEWS:
Craig Realty seeks court approval to take over early-stage work on its planned Plaza San Clemente outlet retail project
BACKGROUND:
The project is part of the larger Marblehead development currently in bankruptcy under Irvine-based master developer SunCal Cos.
WHAT’S AHEAD:
SunCal has sought permission for a court-overseen sale of Marblehead and other properties; Craig has lined up a deal for construction of Plaza San Clemente and says it could start building “in the very near future”
$84.4M Minimum
The minimum bid for Marblehead would be $84.4 million, according to the developer’s plan. The property was valued at $187.5 million by Lehman in its most recent appraisal of the land.
SunCal thinks the value is closer to $93.8 million.
Lehman loaned SunCal more than $300 million to buy the San Clemente land in 2005.
It’s unknown whether Lehman or the court-appointed trustee for the bankruptcy case would give Craig Realty an approval to proceed on development work at the site; as of last week, no objections to Craig Realty’s proposal had been filed.
There’s been little common ground seen in SunCal and Lehman’s court positions over the nearly three years that Marblehead has been in bankruptcy.
Lehman and Craig Realty also are battling in bankruptcy over a separate claim that the retail developer said it is owed, related to the uncompleted groundwork at the commercial site.
Delays at getting Plaza San Clemente off the ground are hitting Craig Realty’s bottom line, according to court documents.
The developer said it has a $30 million loan tied to Plaza San Clemente. Carrying costs tied to the project, including taxes and interest on the loan, run about $210,000 per month.
The outlet center portion of Craig Realty’s development is ultimately slated to run about 400,000 square feet, according to documents.
The first phase of the project would be about 250,000 square feet. About 60% of that phase is either leased or in lease documentation, the company said.
In April, Craig Realty awarded a $53 million construction contract for the first phase on construction. The construction partner’s name wasn’t disclosed.
Retail Lineup
Retailers expected at the center include Calvin Klein, Kenneth Cole, Vans, Levi’s, Puma and Tommy Hilfiger, according to Craig Realty marketing materials.
A majority of the tenants who have signed leases are now entitled to exercise their cancellation rights due the delay in construction, Craig Realty said in court filings.
A completed and fully leased Plaza San Clemente would be expected to generate annual sales tax revenues of more than $20 million, according to the developer. About $2.3 million of that would go to the city of San Clemente.
