RESIDENTIAL
The bulk of Irvine-based SunCal Cos.’ financially troubled California developments financed by Lehman Brothers Holdings Inc. remains in legal limbo, thanks to intersecting bankruptcy cases taking place on opposite coasts.
A bankruptcy court hearing in Santa Ana in early November is set to discuss the merits of the master developer’s plan to get a number of its Southern California projects up and running again.
Based on how things have gone so far, no one’s expecting a quick resolution to the long-running drama.
In late 2008, SunCal filed for bankruptcy protection for several projects. The company itself didn’t file for bankruptcy.
The first plan of reorganization for the projects was filed in early 2009. It initially called for New York-based financier D.E. Shaw & Co. to buy 12 of the developments—including San Clemente’s stalled Marblehead Coastal project—with an initial bid of $200 million.
The plan has been revised several times since then. It now contains a bid by D.E. Shaw to pay $150 million for most of the developments, minus a big project in Santa Monica that was sold off awhile ago to Denmark’s Danske Bank AS.
Even with the changes, there’s been little progress in getting the reorganization plan confirmed by the bankruptcy court here. That’s largely due to Lehman’s own massive bankruptcy case, which is taking place in New York.
SunCal officials assert in court filings that Lehman, which went bankrupt in 2008, effectively has gamed the system in a court sympathetic to the fallen Wall Street investment bank. Lehman has used a court-ordered automatic stay in New York to give its lawyers the upper hand in all dealings in Santa Ana, SunCal’s lawyers contend.
Lehman also is arguing in New York that SunCal Chief Executive Bruce Elieff is personally responsible for as much as $230 million in bond obligations tied to the stalled developments.
The New York court largely has prevented any serious movement in the local case, including getting temporary financing, SunCal’s lawyers charge. SunCal is trying to get the local court to help end Lehman’s stalling, they say.
The local cases have been a “tactical minefield, for approximately two years” that SunCal’s had to “tiptoe through,” the developer’s lawyers said.
The “stasis could exist for months if not years” unless actions are taken to even the playing field, SunCal’s lawyers argued in September court filings.
“Every effort to obtain relief has drawn the same behind-the-scenes threat—‘We’ll get you in New York,’” the filing said.
While SunCal developments that still are under the cloud of Lehman’s bankruptcy remain stalled, some of its other financially distressed holdings are seeing sales.
The Wall Street Journal reported late last month that Irvine’s Standard Pacific Corp. and Lennar Corp. of Miami paid $67.5 million to buy a 1,600-lot project in Chino that SunCal previously owned.
SunCal and Lehman bought the land in 2005, with Lehman putting in $120 million at the time, according to reports. Lehman later sold its stake in the project, called College Park, which originally called for 2,200 homes on 470 acres.
Standard Pacific Chief Executive Ken Campbell told the Wall Street Journal that the homebuilder plans single-family homes priced as high as $550,000. The project could take five or six years, he said.
Buying Close to Home
Irvine’s Western National Group, one of the largest Orange County-based owners of apartments, has bought a 403-unit complex in its hometown.
The company recently closed on the acquisition of the Charter Apartments, a 22-year-old complex just off Jamboree Road, a few blocks east of the San Diego (I-405) Freeway.
The three-story complex, at 2750 Kelvin Ave. and near a handful of recently built apartments, previously was owned by the State Teachers Retirement System of Ohio. The pension fund put in nearly $7 million worth of upgrades to the property, according to Western National.
Terms of the sale weren’t disclosed. Sources familiar with the deal put the sale at about $50 million, or roughly $125,000 per apartment. The building was acquired through a private equity fund, the Western National Realty Fund II LP.
The apartments are 96% full. Monthly rents run from about $1,200 for studios to $1,800 for two-bedroom apartments. It’s the only complex in Irvine that Western National owns, according to the company’s website. It owns several dozen projects elsewhere in the county.
The company is on the lookout for other deals, officials said.
