Irvine-based master developer SunCal Cos.’ largest proposed project—a 55,000-acre housing development planned outside Albuquerque, N.M.—has filed for bankruptcy protection to stave off foreclosure.
The project, which operates under the Westland DevCo LP name, filed for Chapter 11 protection earlier this month in bankruptcy court in Delaware.
One of the country’s largest master developers, SunCal runs the project as part of a partnership with financier D.E. Shaw & Co. of New York.
SunCal acquires land, plans housing and stores and then sells off pieces to homebuilders and retail developers.
D.E. Shaw—SunCal’s largest financial backer after the bankruptcy of Lehman Brothers Holdings Inc.—has a 92.5% stake in Westland, with SunCal owning the rest, according to court documents.
The New Mexico bankruptcy is the latest legal issue facing SunCal, which saw many of its high-profile California projects go into bankruptcy and then get tangled up in Lehman’s late 2008 bankruptcy. Those include San Clemente’s Marblehead Coastal development.
According to SunCal, the New Mexico bankruptcy filing was done to head off a foreclosure action recently taken by the project’s main lender, Barclays Capital Real Estate Inc., a unit of Barclays PLC.
SunCal and D.E. Shaw paid about $250 million for the Albuquerque land—which is twice the size of Boston—in late 2006.
Barclays first loaned Westland about $212 million for the project and subsequently reworked the loans in 2007 and 2008 as the housing market turned.
The loan was due in last July, and subsequent talks over further restructuring failed, SunCal and D.E. Shaw said.
At the time of the bankruptcy filing, Barclays was owed about $182 million.
Barclays officials said their loan “was intended as a bridge loan with a short maturity, when the debtor would then refinance the loan in order to continue its development,” according to court filings.
That refinancing never occurred.
The filing was “deemed necessary to preserve the value of its business as a going concern and assets for the benefit of all stakeholders, and to explore all alternatives for restructuring the project’s loan in a challenging real estate market,” SunCal said in a statement last week.
Move Forward?
SunCal still is interested in keeping the project moving along as much as possible.
“We remain committed to the Westland project and the Albuquerque region, and we are working to keep this project moving forward,” SunCal officials said.
Barclays is opposing the bankruptcy filing and prefers to foreclose on the project. In February, it asked a local court to put the project into receivership. The bankruptcy filing should delay that for now.
The massive property, west of Albuquer-que, has been appraised three times since last year. “As is” values for the land likely run from $95 million to about $150 million—well below the $250 million price Westland paid for it in 2006—according to the lender.
Barclays officials said in court filings that the current owners are “damaging the value of the property” and failed to “follow through on its long-standing infrastructure commitments.”
In particular, SunCal failed to obtain state legislative approval for $408 million in infrastructure financing for the project, the lender said.
The bonds would have been backed by future taxes generated within the development, but they drew local controversy. The company was unable to get bills backing the measure passed by New Mexico’s legislature.
Plans
SunCal has proposed building more than 39,000 homes in New Mexico in the next 20 years while using more than 3,000 acres of the land for commercial development.
The project would be “enormous and unprecedented in the area,” according to Westland, creating “essentially, a new town within the city of Albuquerque.”
Westland originally bought 57,000 acres of land but has since sold off about 2,000 acres to other developers.
Of the remaining 55,000 acres, less than 50 acres—totaling about 334 lots—have been developed by the current owners, according to figures from Barclays.
